On 23 September 2019, Russia signed the Paris climate agreement, making an important commitment — on an equal footing with other countries — to combat the greenhouse gas emissions that accelerate global warming. Carbon dioxide (CO2) was recognised as the main driver of the environmental crisis and the carbon unit market as one of the effective tools to reduce it. We tell you what carbon credits are and how they can increase revenues for Russian companies.
CO2 regulation as a tool to combat global warming
Carbon regulation is a legal system that controls greenhouse gas pollution. It makes emissions payable by imposing a tax on the ecological footprint left by exporting companies, or quotas — a limit on the amount of carbon dioxide released into the atmosphere by an entity. European Union countries have opted for the first option, prompting negative reactions from China and other states whose economies could suffer because of the extra fees. Russia has taken the second path by creating a national carbon regulation system. It will allow our country to achieve one of the main green goals — to reduce CO2 emissions to 70–75% of 1990 levels by 2030.
In the first phase, the carbon regulation will apply to businesses that produce more than 150,000 tonnes of CO2 annually. In the second stage, this criterion will be reduced to 50 thousand tonnes. Other companies will be able to submit carbon reporting on their own initiative. Enterprises subject to the CO2 regulation system will receive carbon credits. They are entitled to a certain amount of emissions, and those who exceed them face fines. Excess carbon credits will be sold on carbon markets, or carbon trading platforms. Their buyers will be organizations that cannot reduce emissions right now, but want to avoid fines and preserve their reputation among customers and investors.
Emissions trading system
Carbon markets are operating successfully in many countries around the world, including the US, Kazakhstan, Britain and the European Union. Now a similar platform has appeared in Russia. Natalya Tretiak, First Vice President of Gazprombank, notes that between 2019 and 2022, domestic companies received about 700,000 carbon units, and in the future the number could reach 10 million. Each of them was issued for preventing or offsetting greenhouse gas emissions.
On 1 September, a register where organisations can transact in carbon units became operational in Russia. In the same month, auctions were held for the first time, confirming the system’s functionality. Kontur, a leading developer of online services for entrepreneurs and accountants, was appointed operator of the register. The organisation operates jointly with Gazprombank and the Moscow Exchange, Russia’s largest stock exchange holding company.
Photo by: Berkut_34 / iStock
Ways of generating carbon units
Experts from the Higher School of Economics (HSE) have predicted that Russia’s annual income from the sale of carbon units on the world market could reach $50 billion. But to do so, all available ways to reduce emissions and carbon dioxide absorption by the natural environment will have to be employed. The most popular among companies are forest climate projects (preventing tree felling, reforestation). Renewable energy comes in second place.
According to experts from the National Research University Higher School of Economics, regenerative farming is also a promising method of carbon sequestration. It not only increases CO2 uptake by plants, but also prevents the process of soil erosion (loss of fertile layer) accompanied by carbon release. Agriculture currently accounts for 30% of greenhouse gas emissions. To change the situation, it is necessary to adopt regenerative practices — abandon ploughing, observe crop rotation, replace chemical fertilisers with compost from organic waste, avoid pesticides — garlic, green pepper and other natural pest repellents can be used instead.
A project in the above categories is only considered climatic if it contributes to absorbing more carbon dioxide than it would without it and prevents CO2 from returning to the atmosphere. For example, simply planting trees is not enough; they must be cared for and protected against fires. It is also forbidden to make a region carbon-neutral by moving factories out of the region.
Sakhalin environmental experiment
Sakhalin has become a pilot region for testing a climate regulation system. The aim of the experiment, which will be conducted on its territory until 31 December 2028, is for the island to achieve carbon neutrality no later than 2025. It is not the total absence of greenhouse gas emissions, but the balance between carbon dioxide emission and absorption.
Sakhalin Environment and Sustainable Development Minister Milena Milich said that 50 companies in the region will take part in the climate experiment. Starting from 2024, they will receive emission quotas. The amount of greenhouse gases exceeding the limit can be offset by carbon-negative projects, such as forestry projects. Over the next five years, the area of the region’s forests is planned to increase by 18,100 hectares.
And Sakhalin will also host Russia’s largest carbon capture and storage technology (CCS) site, where experiments related to calculating the carbon sequestration capacity of the natural environment will be carried out. It covers not only land, but also the marine ecosystem of Aniva Bay. The next step is the development of green transport and hydrogen energy. By 2025, at least a thousand charging stations will be installed on Sakhalin, which will be able to service up to 10,000 electric cars.
In addition, half of the vehicles on the island (about 100,000 cars) will be switched to gas, and a network of charging stations will be set up to refuel them. It will not be necessary to get rid of old vehicles in order to run on gas. According to the Sakhalin Energy Ministry, the cost of modernization of a car is approximately 90–110 thousand rubles, that of a light truck is approximately 150 thousand rubles and that of an SUV is 170–180 thousand rubles. At the same time, for owners of vehicles, retrofitting will be almost free — the region will reimburse up to 150 thousand rubles of the retrofit cost.
Photo: Maxim Stulov / Vedomosti / TASS
Regional emissions quotas
From 1 January 2020, an experiment on carbon dioxide and other pollutant emissions quotas is being conducted in 12 Russian cities with a severe environmental situation (Krasnoyarsk, Lipetsk, Magnitogorsk, Novokuznetsk, Norilsk, Omsk, Chelyabinsk, Cherepovets, Mednogorsk, Nizhny Tagil, Bratsk and Chita).
Rosprirodnadzor examines emission reports from enterprises and utilities and then analyses the associated risks to human health and environmental well-being. The agency then works with the regional authorities to approve the lists of sites subject to quotas, determines the amount of quotas and draws up a list of recommended emission reduction measures. Thanks to these measures, air pollution levels in the cities participating in the experiment should drop by 20% by 31 December 2024. This will allow more than 6.4 million people to breathe more freely.
In the future, the experiment could cover the whole territory of the country. On 7 July 2022, Russian Prime Minister Mikhail Mishustin signed an order according to which 29 more cities will join the experiment from 1 September 2023, including Irkutsk, Kemerovo, Rostov-on-Don, Komsomolsk-on-Amur and Barnaul.
Carbon quota — extra charge or benefit?
The tax to be introduced by the EU in 2023 is not a “trade war factor”, but an additional motivation to achieve carbon neutrality as soon as possible, Economic Development Minister Maxim Reshetnikov explained. Enterprises whose emissions are offset do not pay a carbon tax, and this gives them an advantage over states that demonstrate indifference to the green agenda.
Anatoly Chubais, Special Representative of the President of the Russian Federation, points out that the introduction of a fee on greenhouse gas emissions is the only way to maintain economic stability in the new reality. Chubais estimates that if the carbon tax were $10 per tonne, Russia would have to pay 1.5 trillion rubles for its current emissions. “What we don’t pay into our budget, we will pay into the EU budget,” he warned.
Natalia Tretiak explained that countries in Asia and Latin America are also tightening requirements to reduce the carbon footprint of products. This means that changing export flows will not affect the importance of reducing carbon emissions for the economy.
Author: Vera Zhikhareva
Cover photo: agnormark / iStock
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