No. 1, 2004
Prof. Alexander Solovyanov, Dr. Sc., JSC Gazprom
"GREENHOUSE" ALTRUISM
The statement by Russia' President Vladimir Putin at a meeting of the heads of a number of leading European Union companies in late 2003 concerning Russia's special position in relation to the terms offered to it for the ratification of the Kyoto Protocol gave rise to lively comments in the international media. What was behind the change in Russia's position with respect to this document.
Money from the air?
Kyoto Protocol is an international agreement within the UN Framework Convention on Climate Change, adopted in 1992. It is assigned to limit the emission of greenhouse gases and provides the use of market mechanisms in order to compensate the countries the costs of reducing air pollution. The Kyoto Protocol was signed in 1997 by 159 states in Kyoto, Japan. The Protocol obliges its members to reduce the level of emissions into the atmosphere that cause the greenhouse effect, on average, at 5.2 % of the 1990 level. This task is set for the period of 2008 – 2012. The Protocol is the first step to prevent the global climate change and also creates favorable conditions for the world to handle this problem. The Kyoto Protocol was ratified by 117 countries, including all EU members, Japan, Canada and China. But for the Protocol to become an international law it should be ratified by 55 % of the countries, responsible for the same 55 % of the world greenhouse gas emissions. After the United States left the treaty, only Russia can provide for the necessary limit of gas emissions.
The Kyoto Protocol is an international agreement, intended to limit the emission of greenhouse gases and envisaging the use of market mechanisms to compensate countries for the costs involved in reducing pollution. The Protocol (Agreement) is the first step towards preventing global changes in the climate and create the conditions for developing an effective, worldwide system for resolving this problem. The Kyoto Protocol has now been ratified by 117 countries, including all the European Union member-states, Japan, Canada and China. For the Protocol to become part of international law, however, it must be ratified by the more than 55% of the countries responsible for the same 55% of the greenhouse gases emitted. When the United States deserted the negotiating table, it became up to Russia to ensure the attainment of the necessary pollution limit. According to experts from the European Parliament, the Kyoto process may bring Russia real investment to the amount of over $20 billion.
The Kyoto Protocol to the United Nations Framework Convention on Climate Change (UN FCCC) was adopted for signing at the end of 1997, at the Third Conference of the parties to the Convention. The Agreement establishes the quantitative obligations of the developed countries and countries with transitional economies (including Russia) with respect to the emission of greenhouse gases into the atmosphere. This triggered the broad process of using market mechanisms for resolving one of the global environmental problems. In this case, it is a matter of the mechanism for the trade in quotas for greenhouse gas emissions or their transfer to investors financing projects designed to reduce greenhouse gas emissions in countries with transitional economies – the mechanism for joint implementation (MJI) or, in the developing countries, the mechanism for clean development (MCD). The former sets in motion exchange operations with quotas, while the latter two create opportunities for investors from developed states to acquire these quotas at relatively beneficial prices. This fact is of considerable significance for investors, since the cost of cutting the emission of just one ton of greenhouse gases in the U.S. and Canada reaches $150, in Japan $300, and in the EU $200, while the figure in Russia, for example, is only $1.
The U.S. refusal to join the Kyoto Protocol in the near future and the indeterminate position of the Russian Federation concerning the time schedule for ratifying it are, however, currently preventing this international agreement from coming into force. The fact that the Kyoto Agreement has already been ratified by 117 countries, including all the European Union member-states, Japan, Canada, India, China and Brazil, in no way changes the situation. While the U.S. position is quite understandable – the outlays on fulfilling its national obligations would be too great, some explanation is required for Russia's lack of a lucid government policy on this problem.
The emission of greenhouse gases in Russia is, at the moment, almost 25% less than in the base year of 1990 (about 1,900 million tons of CO2 equivalent), although it has started
rising somewhat since 2000, owing to the economic growth.
According to estimates made by the RF Ministry of Economic Development and Trade, with a rise in the gross domestic product (GDP) of about 5% per annum, which roughly corresponds to the dynamics of the last three years, the level of greenhouse gas emissions in the first period when obligations would come into force (2008-2012) will be about 20% lower than in 1990. The forecast for the volume of greenhouse gas emissions included in the Resolution No. 1234-r of the RF Government of August 28, 2003, "The Energy Strategy of Russia for the Period until 2020," also corresponds to these estimates. Even if Russia were to double its GDP over the next decade, which is the target set for the RF Government by President Vladimir Putin, the country's chief economic department considers that the total greenhouse gas emissions in Russia will "with a high degree of probability not exceed the 1990 level, owing to the implementation of measures to raise the economy's energy efficiency and the introduction of energy-saving technologies." Moreover, this also applies to the second period of obligations (2013-2017). Russia should not, therefore, encounter any major problems in fulfilling the obligations under the Kyoto Protocol, if it comes into force.
During just the first period alone, Russia would be able to offer the EU states, Canada, Japan and other countries quotas to the amount of 3 billion tons of CO2 equivalent. Since various estimates put the annual amounts by which the emissions of greenhouse gases will exceed the quotas (the demand for quotas) from 2008 to 2012 at about 150 million tons of CO2 equivalent for the EU states and 200-400 million tons of CO2 equivalent for Japan, Canada, New Zealand, and Norway, from 2008 onwards Russia would virtually be able fully to satisfy the entire global demand for quotas, which would mean revenues of 2-3 billion dollars (or euros) for the country, even at a price of 5 dollars (or euros) per ton of CO2 equivalent. It is important that the holders of these quotas and, of course, the revenues, can at the moment only be the state and it is not clear whether it would share them and, if so, to what extent with individual enterprises or regions.
The situation is not, however, as favourable as it might seem and big revenues cannot, in fact, be counted on, although the developed countries are demonstrating their readiness to take advantage of the Russian quotas under one scheme or another. The reason is quite simple, actually: the states ratifying the Kyoto Protocol not only want to limit the emission of greenhouse gases into the atmosphere, but also, and primarily, to find additional levers and incentives for further increasing the energy efficiency of their own economies, for introducing new energy-saving technologies, and exporting them to the developing countries and transitional economies. Thus, companies (or countries) are forced into a situation where they must either take additional measures to raise the energy efficiency of production units, or pay highly for not fulfilling their obligations. This approach to meeting the commitments under the Kyoto Protocol is, for example, the basis of the EU Directives, on which the national legislation of the European states is built up.
The system formed within the EU and geared to encourage energy effective measures naturally includes a number of elements that exclude such a primitive means of fulfilling obligations as direct acquisition of very cheap, maybe Russian, greenhouse gas emission quotas. It is assumed that what is to be allowed on to the EU market will not be just greenhouse gas emission quotas, but the amounts of these emissions, reduced as a result of the implementation of the MJI and MCD projects. Such principles are also incorporated in the national trading systems of Japan and Canada.
It is expected that up to 25% (this is probably the maximum) of all the EU obligations to cut emissions will be achieved through the implementation of MJI and MCD projects. During the 5 years of the initial period of obligations, this will amount to about 400 million tons of CO2 equivalent. It is unlikely, however, that the prices of "foreign goods" will be comparable with those for the quotas of the EU member-states. They will most likely be significantly lower – from 5 to 10 dollars (euros) per ton of CO2 equivalent, though, even in this case, the cost of "purchases" on the EU market may reach 2.4 billion dollars (euros). These are the funds that companies intending to implement MJI projects have to compete for. They will be competing with companies from other transitional economies (particularly in the Commonwealth of Independent States (CIS)) and developing countries having MCD projects. The developing countries predominate, by the way, among those that have ratified the Kyoto Protocol.
What is on the credit side?
Probably the best-known Russian MJI project, which is not just being implemented, but is actually nearing completion, is the JSC Gazprom and Ruhrgaz AG joint project on the Volgotransgaz Ltd. pipelines, stretching about 11.5 thousand km.
The aim of the project is to ensure economies of fuel gas (and reduction in CO2 emissions) through the introduction of a SIMONE computer complex, capable of modeling and optimizing gas transportation in real time. The Ministry for the Environment, Nature Protection and Reactor Safety of the Federal Republic of Germany and the Federal Service of Russia for Hydrometeorology and Environmental Monitoring consider the SIMONE computer complex to be one of the most promising projects for cutting greenhouse gas emissions. The UN Secretariat for world climate issues has included it on the list of the most significant projects under the Joint Implementation programme.
As a result of the introduction of the SIMONE computer complex, it is expected to reduce the expenditure of fuel gas by 90 million m3 or 3% of annual consumption, and that of electricity by 575 million KwH or 5% of annual consumption. The total cut in the volume of hydrocarbon dioxide emissions will be about 450 thousand tons.
Subsequently, the SIMONE will be introduced at another five JSC Gazprom gas transportation companies: Surgut-gazprom, Lentransgaz, Mostransgaz, Permtransgaz and Severgazprom.
One more MJI in JSC Gazprom, geared to cutting methane losses, is in the preparatory stages. This is a joint project with a consortium of Japanese corporations (Sumitomo, Nippon Steel and others), envisaging the technical retooling of a sector of the Permtransgaz major pipelines, including replacement of the pipes, compressors equipment and creation of additional looping. Implementation of this project will make it possible to cut losses of natural gas on the reconstructed sector to 120 million m3 a year, the expenditure of fuel gas by 78 million m3 and thus greenhouse gas emissions by 1 million tons of CO2 equivalent.
In both cases, implementation of MJI projects in JSC Gazprom is connected with the use (actually, import) of effective foreign technologies and equipment. The implementation of other MJI projects on the territory of Russia will most likely be also based on the introduction of such technologies.
In conclusion, it may be stressed that the Kyoto Protocol has, of course, many shortcomings, but it is the only international answer proposed so far to the problem of global warming and it does at least offer a certain acceptable framework for collective international action.
