As a practitioner, I have already commented on the current situation of the carbon market in Russia as part of a roundtable discussion organised by the Moscow Exchange, and I want to reiterate my thoughts on the article published on the Climate Platform.
Everyone talks about the potential demand for Russian carbon units and that it will be a driver for the development of the Russian carbon market and cause a boom in climate projects in Russia. But this demand is not possible without certain domestic GHG emission reduction commitments imposed on Russian emitting companies, which can only provide a real incentive for projects and the purchase of carbon units within the national market. The regulated market is so far only nominally planned as part of the Sakhalin experiment, and there is no talk yet of extending it to other Russian regions. But the Sakhalin market is very small and the emission quota mechanism being implemented there is not very strict.
For example, the mechanism does not require emitting companies to compensate the following year for exceeding their quotas, as is the case in all existing emissions quota systems around the world, from Europe to China. In California and Quebec, emitting companies that exceed their quotas are not only obliged to compensate in the next period for the exceedance on a tonne per tonne basis, but are also required to reduce their emissions by an additional 3 tonnes for each tonne exceeded as a penalty.
Alas, nothing similar is required of Russian issuing companies. All they have to do is pay 1,000 roubles for each tonne in excess of the quota and this frees them from further obligations to comply with the established quota. It is not the place to discuss whether such an approach is in principle consistent with the notion of quota. One thing is clear: there is no incentive to purchase carbon credits to offset emissions. Accordingly, there is no incentive to register projects in the national carbon registry and sell carbon credits domestically. The existing demand, which is constantly talked about, is almost exclusively an image story, which can not become a driver for the formation of liquidity and the development of a full-fledged carbon market.
There is also much talk about the prospects of developing a voluntary (unregulated) carbon market in Russia. But it is not possible without the mutual recognition of verifiers and carbon units, which in the current situation is hardly possible. Therefore, if a company decides to make a climate project in Russia, and sell its result in the form of carbon units abroad, it will initially do it for a particular buyer and a particular carbon market, focusing on the standards of this market and attracting an internationally accredited verifier. And if a company needs to reduce the carbon intensity of its products or fully offset the carbon footprint of its products to sell to other countries where there are appropriate requirements, it will seek and buy such carbon units, which are recognized in that market, and will not buy for that Russian carbon units that are not listed in this market.
In order to refocus this market on ourselves, we need to fundamentally revise our approach to the formation of the carbon market, to make it open, transparent and compatible in its basic approaches and criteria with the global carbon markets. Otherwise we risk to remain a carbon province on the periphery of global trends and we do not get those benefits and advantages which we are entitled to expect.
Cover photo: Moritz Kindler / Unsplash
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