Russia plans to start trading Kyoto quotas in 2008

By Gleb Bryanski

MOSCOW (Reuters) - Russia plans to start trading its greenhouse emission quotas in 2008 once it has met all eligibility requirements needed to implement the Kyoto mechanisms, a senior Russian official said on Friday.

The point of the new Kyoto Protocol mechanism, termed Joint Implementation, is to allow industrialized countries to buy rights to emit greenhouse gases and use them to help stay within their Kyoto emissions caps by 2012.

It works by allowing countries busting their caps, like Japan, Spain and Italy, to fund projects which cut emissions in countries well within their limits, like most former communist states, and count the cuts as their own.

"I believe we can obtain a status of a country complying with Kyoto protocol requirements in early 2008," Deputy Economy Minister Andrei Sharonov told foreign investors and bankers, adding a Kyoto monitoring mission would visit Russia in July.

Sharonov said Russia aimed to sell quotas for 300 million metric tons of CO2 equivalent to European Union countries. He said 29 projects had been submitted for review to the Kyoto Protocol secretariat already.

Sharonov estimated the European Union's demand at 250-350 million metric tons of CO2 equivalent in 2008-2012 while Russia is likely to have spare quotas for 3 billion metric tons despite strong economic growth.

Projects in Russia which could prove lucrative for investors include burning methane, a potent greenhouse gas, or plugging leaky gas pipelines, also cutting methane emissions.

Russia could make billions of dollars from the Kyoto pact, which aims to stabilize emissions of greenhouse gases worldwide. Sharonov estimated the cost of reducing emissions in Russia at $5-$15 per metric ton compared with $50-$100 in the European Union.

"Our equipment is really old and it does not cost that much to make the first improvement, for example, to plug a hole in a pipe," said Sharonov

"Foreign firms can come here, increase energy efficiency, save the quotas and sell them in the costly Western market. This is sheer arbitrage," he said, suggesting the government should make sure investors spread evenly among sectors.

However, Russia has been criticized for doing little to create infrastructure and the legal framework for the implementation of Kyoto mechanisms and investors have so far been skeptical.

Sharonov said Russia had already created a nationwide system to count greenhouse emissions as well as a registry, and was therefore on track to meet Kyoto requirements.

Russia's emissions of greenhouse gases plunged in the 1990s along with the collapse of Soviet-era smokestack industries but have risen as the economy is booming for the eighth straight year. Current emission levels are still far below 1990 levels.