Russia: climate policy formation and implementation during the 1990s

Russian climate policy initially developed slowly, mostly in response to the emerging international regime in the early 1990s. Developments accelerated by the end of the decade, under the influence of the UNFCCC, and especially, its Kyoto Protocol. Developments included creation of institutional framework for domestic implementation of its reporting and other UNFCCC commitments, formulation of mitigation and adaptation strategies and measures, GHG inventory compilation and reporting, crystallizing its major national positions towards international mechanisms, initiation of vertical subsidiarity of government authority in climate policy implementation, and channeling interactions between the government and business community. The Kyoto Protocol and its international mechanisms (particularly IET and JI), mark a turning point, with opportunities for Russia to benefit if the Kyoto Protocol enters into force; the apparent US withdrawal from Kyoto puts Russia in a central position. Besides external influences, national climate policy has been strongly influenced by the domestic reforms towards market economy and democracy: combining new opportunities with constraints characteristic of the transition period. The gap between climate policy goals and putting them in practice has been considerable, but is narrowing.     

Forging alliance with Russia: the example of a Green Investment Scheme

Russian Kyoto related interests are economic and after the US withdrawal the mission of Russian actors has been to find new demand for Russian credits and allowances. Kyoto related benefits to Russia will be significantly smaller than earlier expected, however, the revenues are now more likely to be focused on climate change mitigation purposes. Competition in the Kyoto market has established buyers’ market and Russia has to accommodate the interests of investors in order to gain benefits. The Russian initiative ‘Green Investment Scheme’ to recycle revenues from International Emissions Trading (IET) to further environmental activities would convene demand for Russian AAUs but experience the same problems than the previous initiatives: inadequate institutional arrangement, unclear division of responsibilities between domestic actors, prolonged ratification process and lack of eligibility strategy. These problems have prevented implementation of GIS so far. Therefore, these problems have to be addressed by high-level Russian policy-makers if serious benefits from Kyoto are sought. Actors building alliances with Russia should focus on assisting with solving these problems.     

Forging alliance with Russia: the example of a Green Investment Scheme

Abstract

Russian Kyoto related interests are economic and after the US withdrawal the mission of Russian actors has been to find new demand for Russian credits and allowances. Kyoto related benefits to Russia will be significantly smaller than earlier expected, however, the revenues are now more likely to be focused on climate change mitigation purposes. Competition in the Kyoto market has established buyers’ market and Russia has to accommodate the interests of investors in order to gain benefits. The Russian initiative ‘Green Investment Scheme’ to recycle revenues from International Emissions Trading (IET) to further environmental activities would convene demand for Russian AAUs but experience the same problems than the previous initiatives: inadequate institutional arrangement, unclear division of responsibilities between domestic actors, prolonged ratification process and lack of eligibility strategy. These problems have prevented implementation of GIS so far. Therefore, these problems have to be addressed by high-level Russian policy-makers if serious benefits from Kyoto are sought. Actors building alliances with Russia should focus on assisting with solving these problems.     

Catching air? Climate change policy in Russia, Ukraine and Kazakhstan

Russia, Ukraine and Kazakhstan have each participated actively in the UN Framework Convention on Climate Change (UNFCCC) Conferences of the Parties, and each is developing domestic rules and institutions to address UN obligations under the treaties. Russia and Ukraine are each Annex I/Annex B countries. Kazakhstan will become Annex I upon ratification of the Kyoto Protocol, but has not yet established itself as Annex B. Each state has evolved a distinct set of policies and priorities in the domestic and the international arena. Drawing largely on interviews in each country, this article presents brief histories of the evolution of climate policy, focusing on each state’s behavior in the international arena, the sources of domestic policy leadership, and the forces that led to change in each national approach. Current policies and practices are evaluated with an eye towards learning from the successes and failures in each state.     

Catching air? Climate change policy in Russia,Ukraine and Kazakhstan

Abstract

Russia, Ukraine and Kazakhstan have each participated actively in the UN Framework Convention on Climate Change (UNFCCC) Conferences of the Parties, and each is developing domestic rules and institutions to address UN obligations under the treaties. Russia and Ukraine are each Annex I/Annex B countries. Kazakhstan will become Annex I upon ratification of the Kyoto Protocol, but has not yet established itself as Annex B. Each state has evolved a distinct set of policies and priorities in the domestic and the international arena. Drawing largely on interviews in each country, this article presents brief histories of the evolution of climate policy, focusing on each state's behavior in the international arena, the sources of domestic policy leadership, and the forces that led to change in each national approach. Current policies and practices are evaluated with an eye towards learning from the successes and failures in each state.     

Joint implementation and EU accession countries

The EU accession countries have a high potential for low cost greenhouse gas emission reduction. As they cannot join the “bubble” agreement for the first commitment period of the Kyoto Protocol, project-based Joint Implementation (JI) could be a powerful strategy to integrate them into the EU climate policy strategy. An important question is whether the acquis communautaire will be used to define the baseline for the calculation of emission reductions from JI projects. A problem is that the grace periods for several environmental sectors differ considerably among countries. The EU should help accession countries to establish a predictable legal framework for JI preventing in this way the current legal uncertainty regarding JI procedures.     

Implementing the Kyoto Protocol without Russia

Abstract

This paper examines implementation of the Kyoto Protocol without Russia. It concludes that implementation without Russia is possible, although it requires political will on the part of the countries that wish to proceed with the Protocol. It would lead to higher compliance costs for Annex B buyer regions, but other regions, except Russia, would benefit financially. Russia would forego revenue of at least $20 billion for the first commitment period. Implementation without Russia could improve the environmental performance of the Protocol. It would reduce reliance on Annex B sinks, use of surplus assigned amount units (AAUs) for compliance, and the quantity of Kyoto units banked for subsequent commitment periods. Actual emissions by Kyoto Protocol Parties would fall, but the reduction may be offset by leakage to the US and Russia.     

Transaction costs of the Kyoto Mechanisms

Transaction costs will reduce the attractiveness of the Kyoto Mechanisms compared to domestic abatement options. Especially the project-based mechanisms Clean Development Mechanism (CDM) and Joint Implementation (JI) are likely to entail considerable costs of baseline development, verification and certification. The Activities Implemented Jointly (AIJ) pilot phase and the Prototype Carbon Fund (PCF) programme give indications about the level of these costs. Under current estimates of world market prices for greenhouse gas emission permits, projects with annual emission reductions of less than 50,000 t CO₂ equivalent are unlikely to be viable; for micro projects transaction costs can reach several hundred € per t CO₂ equivalent. Thus, the Marrakech Accord rule to have special rules for small scale CDM projects makes sense, even if the thresholds chosen advantage certain project types; projects below 1000 t CO₂ equivalent per year should get further exemptions. An alternative solution with no risk for the environmental credibility of the projects would be to subsidise baseline setting and charge lower, subsidised fees for small projects for the different steps of the CDM/second track JI project cycle.     

Tropical Deforestation and the Kyoto Protocol

The current annual rates of tropical deforestation from Brazil and Indonesia alone would equal four-fifths of the emissions reductions gained by implementing the Kyoto Protocol in its first commitment period, jeopardizing the goal of Protocol to avoid “dangerous anthropogenic interference” with the climate system. We propose the novel concept of “compensated reduction”, whereby countries that elect to reduce national level deforestation to below a previously determined historical level would receive post facto compensation, and commit to stabilize or further reduce deforestation in the future. Such a program could create large-scale incentives to reduce tropical deforestation, as well as for broader developing country participation in the Kyoto Protocol, and leverage support for the continuity of the Protocol beyond the 2008–2012 first commitment period.     

The investment climate for climate investment: Joint Implementation in transition countries

Transition countries are expected to become important players in the emerging market for greenhouse gas emission reductions, as they can cut emissions at a relatively low cost. However, the attractiveness of the region as a supplier of emission reductions will not only depend on its cost advantage. It will also depend on the business climate offered to carbon investors—factors like a well-functioning legal and regulatory system, economic and political stability and the capacity to process emission reduction projects efficiently. This paper looks at the carbon investment climate in the transition countries eligible for Joint Implementation (JI)—Russia, Ukraine, Croatia and the EU accession countries. It concludes that JI investors will face a clear trade-off between the scope for cheap JI on the one hand, and the quality of the business environment and JI institutions on the other. The countries with the highest potential for cheap emission reductions also tend to be the countries with the most difficult business climate and the least institutional capacity for JI. The most attractive JI locations may be median countries with a reasonable JI potential and an acceptable business climate, such as Bulgaria, Romania and the Slovak Republic.     

Impact of the Doha outcome on surplus emission allowances and their effect on developed country emissions

The outcome from the December 2012 climate negotiations in Doha has clarified the rules regarding surplus units for the Kyoto Protocol. We summarize these new rules and estimate the resulting effective emissions during the second commitment period using our unit trade model. Other options to deal with surplus emission allowances are employed as benchmarks to assess the Doha outcome. The effective emissions for developed countries as a group under the Doha outcome could be 10–11 % below 1990 levels or 4–5 % points below business-as-usual levels for the second commitment period if we assume that non-Kyoto Protocol countries domestically achieve their targets. However, if mechanisms exist where non-Kyoto Protocol countries can trade units, their emissions could increase and effective emissions for developed countries could be 7–8 % below 1990 levels. In this low-ambition situation we find the main impact of the Doha surplus rules to be the introduction of the historical cap on emissions allowances. Without the effect of the cap, the Doha outcome allows the Parties to the second commitment period to emit at business-as-usual levels until 2020, while still leaving surplus units at the end of the second commitment period.     

The investment climate for climate investment: Joint Implementation in transition countries

Transition countries are expected to become important players in the emerging market for greenhouse gas emission reductions, as they can cut emissions at a relatively low cost. However, the attractiveness of the region as a supplier of emission reductions will not only depend on its cost advantage. It will also depend on the business climate offered to carbon investors—factors like a well-functioning legal and regulatory system, economic and political stability and the capacity to process emission reduction projects efficiently. This paper looks at the carbon investment climate in the transition countries eligible for Joint Implementation (JI)—Russia, Ukraine, Croatia and the EU accession countries. It concludes that JI investors will face a clear trade-off between the scope for cheap JI on the one hand, and the quality of the business environment and JI institutions on the other. The countries with the highest potential for cheap emission reductions also tend to be the countries with the most difficult business climate and the least institutional capacity for JI. The most attractive JI locations may be median countries with a reasonable JI potential and an acceptable business climate, such as Bulgaria, Romania and the Slovak Republic.     

Post-2012 CDM multi-criteria analysis of industries in six Asian countries: Iranian case study

The prospects of the Clean Development Mechanism (CDM) and for carbon income, up to and beyond 2012, in the industrial sectors of Iran and five other Asian countries are investigated. The attractiveness and suitability of each host country, the status of their industrial sectors (based on four post-2012 scenarios), and the post-2012 potential of the CDM (or similar carbon projects) in these sectors are all examined. A multi-criteria analysis of Iran, Saudi Arabia, the UAE, Qatar, China, and India, based on seven sets of criteria (institutional, regulatory, economic, political, social, CDM experience, and energy production/consumption), is conducted, and the post-2012 potential carbon incomes of each country – based on CO₂e emissions of industrial processes – are calculated. Finally, the Iranian industrial sector and the impact of deregulation of energy prices are examined. The post-2012 potential savings in the Iranian industrial sector are calculated based on energy savings, carbon income, and environmental savings. The results indicate that there is strong demand for investment and new technology in this sector to combat several-fold energy price increases. Moreover, high-priced carbon credits could play a meaningful role in post-2012 energy policies in this sector.

Policy relevance

This research is the first study to quantify the carbon market potentials in the industrial sectors of the selected Organization of the Petroleum Exporting Countries (OPEC) members. The Kyoto Protocol is considered by most OPEC countries to be a mixed bag of threats and opportunities and they have shown ambivalence towards it, mainly due to the threat a reduction of fossil fuel consumption poses to their economies. On the other hand, energy efficiency is a desirable goal for their industrial sectors. Iran, as an OPEC member country with vast energy resources, has mostly ignored the CDM during the first commitment period of the Kyoto Protocol and has performed poorly on CDM implementation. However, the current deregulation of energy prices in Iran, with profound cuts in energy subsidies, would definitely alter the perspective of its industrial decision makers on the post-2012 carbon potentials.     

Spain: words that succeed and climate policies that fail

Abstract

The two project-based Kyoto mechanisms, joint implementation (JI) and the clean development mechanism (CDM), require a determination of the “baseline”, the development of greenhouse gas (GHG) emissions in the absence of the project. This paper examines, whether absolute (given in tCO₂ equivalent) or relative baselines (“benchmarks”, given, e.g. in tCO₂ equivalent/MWh) should be applied for JI/CDM projects in the energy sector. Accuracy of the GHG emission reduction and manageability of GHG emission balances are used as evaluation criteria. The results show that relative baselines are a more accurate instrument for the estimation of emission reductions in JI/CDM projects in the energy sector without posing significant additional risks to the management of GHG emission balances for large entities. In comparison to absolute baselines, relative baselines indicate in a more realistic and conservative manner the amount of emission reductions obtained in the energy system and give more appropriate incentives to project sponsors. The additional risks of relative baselines are likely to be small compared to the normal deviation of the domestic/internal GHG emissions. The findings are in line with the Marrakesh Accords, which set restrictions to application of absolute baselines.     

Estimating the CDM market under the Marrakech Accords

Abstract

The agreement on implementation of the Kyoto Protocol achieved at COP7 in Marrakech has important implications for investment in greenhouse gas emission reduction projects in developing countries through the Clean Development Mechanism (CDM). The required actual emission reductions for participating Annex B countries overall will be relatively small, as the United States do not intend to ratify the protocol and significant amounts of carbon sequestered in domestic sinks can be credited. In addition, the potential supply of surplus emission permits (hot air) from Russia and other economies in transition may be as high as total demand in the first commitment period. Thus, even under restraint of hot air sellers, CDM demand will be limited, and a low demand, low price carbon market scenario appears likely.

The magnitude of the CDM will be influenced by a host of factors both on the demand and the supply-side. We analyse these using a quantitative model of the global carbon market, based on marginal abatement cost curves. Implementation and transaction costs, as well as baseline and additionality rules affect the CDM's share in the carbon market. Demand for the CDM is sensitive to changes in business-as-usual emissions growth in participating Annex B countries, and also to crediting for additional sinks. Permit supply from Russia and other economies in transition is possibly the most crucial factor in the carbon market.     

Estimating the CDM market under the Marrakech Accords

The agreement on implementation of the Kyoto Protocol achieved at COP7 in Marrakech has important implications for investment in greenhouse gas emission reduction projects in developing countries through the Clean Development Mechanism (CDM). The required actual emission reductions for participating Annex B countries overall will be relatively small, as the United States do not intend to ratify the protocol and significant amounts of carbon sequestered in domestic sinks can be credited. In addition, the potential supply of surplus emission permits (hot air) from Russia and other economies in transition may be as high as total demand in the first commitment period. Thus, even under restraint of hot air sellers, CDM demand will be limited, and a low demand, low price carbon market scenario appears likely.The magnitude of the CDM will be influenced by a host of factors both on the demand and the supply-side. We analyse these using a quantitative model of the global carbon market, based on marginal abatement cost curves. Implementation and transaction costs, as well as baseline and additionality rules affect the CDM’s share in the carbon market. Demand for the CDM is sensitive to changes in business-as-usual emissions growth in participating Annex B countries, and also to crediting for additional sinks. Permit supply from Russia and other economies in transition is possibly the most crucial factor in the carbon market.     

Compliance of the Parties to the Kyoto Protocol in the first commitment period

This article provides an ex post analysis of the compliance of the Parties to the Kyoto Protocol during the first commitment period (2008–2012) based on the final data for national GHG emissions and exchanges in carbon units that became available at the end of 2015. On the domestic level, among the 36 countries that fully participated in the Kyoto Protocol, only nine countries emitted higher levels of GHGs than committed and therefore had to resort to flexibility mechanisms. On the international level – i.e. after the use of flexibility mechanisms – all Annex B Parties are in compliance. Countries implemented different compliance strategies: purchasing carbon units abroad, stimulating the domestic use of carbon credits by the private sector and incentivizing domestic emission reductions through climate policies.

Overall, the countries party to the Protocol surpassed their aggregate commitment by an average 2.4 GtCO₂e yr^–1. Of the possible explanations for this overachievement, ‘hot-air’ was estimated at 2.2 GtCO₂e yr^–1, while accounting rules for land use, land-use change and forestry (LULUCF) further removed 0.4 GtCO₂e yr^–1 from the net result excluding LULUCF. The hypothetical participation of the US and Canada would have reduced this overachievement by a net 1 GtCO₂e yr^–1. None of these factors – some of which may be deemed illegitimate – would therefore on its own have led to global non-compliance, even without use of the 0.3 GtCO₂e of annual emissions reductions generated by the Clean Development Mechanism. The impact of domestic policies and ‘carbon leakage’ – neither of which is quantitatively assessed here – should not be neglected either.

Policy relevance

Given the ongoing evolution of the international climate regime and the adoption of the Paris Agreement in December 2015, we believe that there is a need to evaluate the results of the first commitment period of the Kyoto Protocol. To our knowledge there has been no overarching quantitative ex post assessment of the Kyoto Protocol based on the final emissions data for 2008–2012, which became available in late 2015. This article attempts to fill this gap, focusing on the domestic and international compliance of the Parties to the Kyoto Protocol in the first commitment period.     

Implications of early action for JI baselines

This article discusses possible implications of early Joint Implementation (JI) action. Some projects which would otherwise be non-additional during the first commitment period, can become additional by implementing them before 2008 through early JI. For example, several environmental investments that will be mandatory under the European Union (EU) Acquis Communautaire as of, e.g. 2008 or 2010 could be carried out earlier than that with early JI action. As such, candidate countries could partly finance the accession process through JI credits and their environmental standards would earlier be in line with the Acquis. The theoretical risk that projects would have to follow a slow track if JI parties are not eligible for the fast track is not large for JI hosts that are candidate for EU membership.     

The impact of the unilateral EU commitment on the stability of international climate agreements

The negotiation strategy of the European Union was analysed with respect to the formation of an international climate agreement for the post-2012 era. Game theory was employed to explore the incentives for key players in the climate policy arena to join future climate agreements. A ?20% unilateral commitment strategy by the EU was compared with a multilateral ?30% emission reduction strategy for all Annex-B countries. Using a numerical integrated assessment climate—economy simulation model, we found that leakage, in the sense of strategic policy reactions on emissions, was negligible. The EU strategy to reduce emissions by 30% (compared with 1990 levels) by 2020, if other Annex-B countries follow suit, does not induce the participation of the USA with a comparable reduction commitment. However, we argue that the original EU proposal can be reshaped so as to stabilize a larger and more ambitious climate coalition than the Kyoto Protocol in its first commitment period.     

Implications of early action for JI baselines

Abstract

This article discusses possible implications of early Joint Implementation (JI) action. Some projects which would otherwise be non-additional during the first commitment period, can become additional by implementing them before 2008 through early JI. For example, several environmental investments that will be mandatory under the European Union (EU) Acquis Communautaire as of, e.g. 2008 or 2010 could be carried out earlier than that with early JI action. As such, candidate countries could partly finance the accession process through JI credits and their environmental standards would earlier be in line with the Acquis. The theoretical risk that projects would have to follow a slow track if JI parties are not eligible for the fast track is not large for JI hosts that are candidate for EU membership.