Carbon Emission Trading in Russia: A Path from an Experiment to a Sustainable Development Strategy

6 September 2022

Carbon Emission Trading in Russia: A Path from an Experiment to a Sustainable Development Strategy

Key conclusions

The climate agenda remains important in today’s world

“Climate issues haven’t gone anywhere. What’s more, it’s clear that with the situation we have today, with hydrocarbon prices in the world... we will see the further development of alternative energy, and wind, and solar, and all other areas, including energy conservation. There will be a lot of major shifts. And the climate agenda will be, shall we say, at the forefront of all these shifts. That is the first point. The second point is that... the normalization of the agenda and the normalization of relations – which will happen sooner or later – will also in all likelihood begin with climate-related issues. Therefore, we must be ready in this regard. We must not fall behind,” Maxim Reshetnikov, Minister of Economic Development of the Russian Federation.

“We should not be building enterprises which belong to a previous era. We need to build enterprises of the future, characterized by high efficiency, new energy, and no pollution. <...> We understand how the global economic model will develop over the coming decades. And we understand that we are already in the midst of what is being called an industrial revolution. <...> And this climate‑related issue is in fact less to do with the climate as it is with restructuring the world, the economic model, and the socio-political model,” Valery Limarenko, Governor of Sakhalin Region.

Quota-based and voluntary carbon emission markets are set to experience explosive growth

“The volume of carbon units issued in the world is growing at an incredibly rapid rate. Over the past 15 years it has grown 350 times over, and will continue to grow at a high rate in the future. And without a doubt, it will be measured in billions, tens of billions, and hundreds of billions of units. <...> And without a doubt, Russian businesses need to participate,” Alexander Shokhin, President, Russian Union of Industrialists and Entrepreneurs.

“The voluntary market is younger, and is indeed a long way behind the quota‑based carbon market in terms of volumes. But what is crucial is that this market is growing at a fairly rapid rate. Experts predict that it will increase more than 20-fold over the next 8–10 years. According to some forecasts, this market will be worth an equivalent of more than USD 50 billion by 2030. Currently, the figures are much more modest – USD 2 billion,” Natalya Tretyak, First Vice President, Gazprombank.

PROBLEMS

The need for carbon units has reduced given declining exports to the West

“The main driver... of [carbon – ed.] units – including under quotas – was exporters who had to have low-carbon products in order for them to operate in certain markets which wanted to limit it. Let’s calculate total changes in terms of sales to Europe, which is the market leader when it comes to this ‘enclosure’ of carbon units. Let’s look at how sales by Russian companies to the European market are moving. Then we’ll know whether there are still numerous exporters left for whom carbon units are important in order to sell their products. I suspect that there are very few left. It’s happening in the East, I agree, but at a much slower rate – certainly not as intensively,” Dmitry Konov, Member of the Council, Russian Chemists Union.

“The most difficult question is what are we ultimately doing all this for. After all, it’s no secret that such a big effort has been made – including by us – to develop [the carbon unit market – ed.] due to the potential introduction of the European Carbon Border Adjustment Mechanism. I don’t believe that all this to do with exporting carbon units – or more correctly, employing carbon units when exporting – has become completely irrelevant. After all, the East remains. But in any case, we are facing a great deal of uncertainty. And when there is a lot of uncertainty, it’s better to have plans in place for all outcomes,” Maxim Reshetnikov, Minister of Economic Development of the Russian Federation.

The green agenda is being rejected as a result of the current global situation

“The situation is indeed such that there are also political implications. And this is affecting a great many things. It’s a factor behind the green agenda being rejected. We are seeing how Europe is going back to coal. But for us it’s the other way round. It’s the opportune moment, for example, for our municipalities to switch to gas-based heating, etc. while there continues to be a demand for coal exports,” Alexander Shokhin, President, Russian Union of Industrialists and Entrepreneurs.

“There is a big difference between developed and developing countries. To put it simply, the discussion goes something like this: ‘Look, developed countries, you have been emitting carbon dioxide for 150 years over the course of the industrial revolution and economic development. You have attained a certain quality life, and can afford plenty of extravagances... Yet you’re stopping us – developing countries – from attaining a decent quality of life. You forbid us from constructing energy-intensive production facilities, because they’re harmful to the environment, but you are the ones to have amassed all those CO2molecules which were swanning around for decades or even several hundreds of years’. <...> Partly as a result, the speed or depth at which certain regulation is applied will be different,” Dmitry Konov, Member of the Council, Russian Chemists Union.

SOLUTIONS

Applying energy-efficiency regulation across various areas

“We are experimenting with tough regulation based on Sakhalin Region. Sakhalin came up with the idea, designed the model, so to say, took on the risks, dealt with the private sector, and took on the risks of enacting a structural transformation. And put bluntly, it took on most of the cuts. <...> However, at the same time this gives us the opportunity to show some kind of demand for carbon units, and to carefully try to make regulation tougher. <...> Of course, we want to assure businesses right now that we will be very careful in our approach to extending this experiment,” Maxim Reshetnikov, Minister of Economic Development of the Russian Federation.

“In order to reduce our carbon footprint, we simply need to half energy waste. You know, we should keep doors to buildings closed, change windows to ones which don’t let the wind through, and so on. Roofs need to be insulated. <...> This is just about efficiency. That’s the first thing. In order to significantly reduce our carbon footprint, we need to put things in order in terms of housing and utilities. We just need to create a sense of cosiness and comfort for people,” Valery Limarenko, Governor of Sakhalin Region.

Reducing costs and increasing profits through implementing climate projects

“Climate projects facilitate the re-equipping of production facilities, and bring with it higher revenues and more sustainable businesses... And of course, that kind of thing is of interest to everyone,” Natalya Tretyak, First Vice President, Gazprombank.

“Together, we are putting things in order in the country. We are doing this because as soon as you start to factor this in, you immediately become richer. Even if the initial feeling is that something is not going right... Essentially, we are taking the whole story into account, which is what allows us to dot all the ‘i’s,” Valery Limarenko, Governor of Sakhalin Region.

For more information, visit the Roscongress Foundation’s Information and Analytical System at roscongress.org/en

Carbon Emission Trading in Russia: A Path from an Experiment to a Sustainable Development Strategy

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