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Environment

Russia takes "rejection" stance on Kyoto projects

MOSCOW (Reuters) - Foreign firms seeking to make money in Russia under the Kyoto Protocol will not have an easy time getting approval from the Russian state, the official in charge of Kyoto implementation in Russia said on Thursday.

“The most correct approach is forbidding everything, but allowing certain things to go forward. The worst approach is to approve everything, but say certain things are forbidden,” said Deputy Economy Minister Vsevolod Gavrilov.

“We are working according to a principle of rejection.”

Market participants were dismayed at the remarks. They said Russia’s approach to Kyoto implementation was self-defeating and would make many turn their backs on the Russian market.

Gavrilov was speaking at the first official news conference after Russia in January opened the door for clean energy projects under the Kyoto Protocol to go forward.

The protocol is an international agreement to fight global warming that obliges many developed nations to reduce the emission of greenhouse gases in 2008-2012 by 5 percent compared to 1990 levels.

Under the protocol’s joint implementation (JI) mechanism, rich countries can invest in emissions-cutting projects in developing nations and count the cuts as their own.

‘NO FREEBIES’

Gavrilov said there were now 60 such projects under development in Russia, funded by tens of millions of dollars from foreign investors who have waited nearly two years for the green light from the state.

None of the projects, however, have yet applied for approval. When they do, Gavrilov said the investors would need to prove they are not just out for easy profit.

“Unfortunately not all the investors are taking this opportunity the right way, seeing it as a way to get a freebie without doing any work,” he said. “We want to avoid these speculative projects.”

A key advantage of Kyoto is that it profitable for businessmen to clean up the environment, said Nikolay Mishustin of 3C Group, a German carbon market investor.

“The whole Kyoto protocol idea is to give financial incentive,” he said.

Even with the restrictions Gavrilov expects JI projects to achieve cuts of 100-500 million tonnes of carbon dioxide by 2012, equaling 100-500 million emissions reduction units, known as ERUs, the units that are sold on the global carbon market.

Out of some 15 independent firms that verify these units in Russia, five have been accredited by Gavrilov’s ministry.

“The low rate of accreditation is easily explained ... When these organizations set up an office in Moscow and fill it with adequate experts, they will get accredited too,” he said.

Forcing the verifiers to have a local office will allow the ministry “to fulfill our regulatory role,” Gavrilov said.

SLAMMING THE DOOR

The unpredictability of state influence has made it unlikely that either the environment or foreign investors will have much to gain from Kyoto in Russia, market participants said.

“The risk is that they can give approval and then they can take away. This is all at the whim of the government,” said Nicholas Sakharov, associate director of Tricorona, a Swedish investor in Kyoto instruments.

“From the point of view of a buyer, as a whole, this approach means we will not be interested in working in Russia.”

But Gavrilov was not concerned with producing more emissions reductions, or with selling the resulting units to Europe.

“This is absolutely not our goal. We have no interest in creating the largest carbon emissions market. Our goal is to promote norms of ecological responsibility,” he said.

One of the finest examples of this kind of responsibility, and the only one Gavrilov would name, was Surgutneftegaz, an oil major run by Kremlin-friendly billionaire Vladimir Bogdanov.

The fact that the company sells associated gas, a by-product of oil production, instead of emitting it into the atmosphere, made it a Kyoto success story in Russia, Gavrilov said.

Market players, however, countered that Surgut was doing this years before the protocol existed.

“I can only hope that this is not the influence of lobbyists seeking to push some projects forward while slamming the door in the face of others,” said another carbon market investor, asking not be named for fear of state reprisals against his firm.

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