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The carbon trading market in Russia used to be rigidly controlled by the state and held little appeal for foreign investors. Now it shows signs of growth in austere times
When Kevin James of Climate Change Capital moved to Moscow in 2005, he hoped his company would be in the vanguard of a movement to make money out of cleaning up the country’s Soviet-era factories. Instead, the company pulled out of Russia after just four years, frustrated by infighting among government ministries over whether the country should sell carbon credits in return for reducing emissions.
“We tried to pull off three or four environmentally friendly projects in Russia, but there was a policy morass at a national level which held us up,” Mr James claims.
However, it appears he may have simply been too early, with the country’s carbon trading market now finally starting to move. This year, Russia gave the green light to 15 projects aimed at cutting emissions in sectors ranging from paper factories to chemicals to power generation. The 30 million tons of carbon credits these projects should tot up could raise up to $300m on the open market. A second group of projects awaits government approval.
Russia’s ratification of the Kyoto Protocol in 2004 committed it to a UN programme to reduce global emissions of greenhouse gases. Carbon credits are aimed at encouraging countries to implement the targets by putting a monetary value on those emissions. At the same time, the programme gives developed countries the opportunity to invest in reducing emissions in developing countries as a cheaper alternative to fulfilling Kyoto targets.
Thanks largely to the collapse of the Soviet Union and much of its heavy industry, Russia’s emissions remain at 1990 levels. Many officials have come to believe that these carbon credits should be reserved to allow future economic growth, rather than sold to investors in return for emissions cuts.
However, this view was most prevalent ahead of the 2008 crisis; officials struggled to see the value in raising money through emissions cuts when the country was awash with cash, suggests Mr James. But now money is tighter.
Bankers say the first tender to identify the 15 pioneers earlier this year was a test run: if it goes well, more projects will follow. But the original hopes of international investors that Russia could issue 300 million tons of carbon credits and generate a market worth as much as $3bn have faded, as the future of carbon trading beyond 2012 is uncertain.
“Kyoto ends in 2012, so there’s limited time for additional projects, but there is still the chance to use the revenue they can raise for key priority areas in Russia,” said one banker in the sector, who asked not to be identified. “The advantage of the carbon market is that it would provide additional financing for energy efficiency.”
Sceptre Group Limited is a specialist investment firm focused in low carbon financial investments such as sustainable biofuel plantations, agricultural farmland and green technologies. For more information on Biofuel Investments, please visit Sceptre Group’s website at www.sceptreinternational.com.