Make the most of it

Russian carbon: Industrial decline hasn’t been all bad for Russia. Thanks to the 1997 Kyoto Protocol, the fall in production has given the country a vast and potentially valuable supply of tradable carbon offsets. If Russia plays its cards right at the Copenhagen climate change conference, it can use this asset to gain both cash and kudos.

The credits have been rewarded for reducing carbon output compared to 1990. Russia has done so largely fortuitously, thanks to the huge decline in Soviet heavy industry during the 1990s.

By 2012, Russia will have accumulated offsets theoretically worth tens of billions of dollars. In practice, though, the carbon market is far too shallow to swallow many of them. The mere possibility of sale creates a huge overhang — an uncertainty that has helped hobble the development of the market.

Russia’s Kyoto surplus is also a major stumbling block to reaching an agreement in Copenhagen on a new treaty. Environmentalists and the European Union wish to limit Russia’s opportunities to “export pollution” by selling off the rights to emit carbon.

Russia could make the world happy by giving up some of its post-Soviet credits or offering to put the proceeds from the sale of credits into specific projects that would reduce carbon emissions. Such moves would give substance to President Dmitry Medvedev’s recent green rhetoric, as well as his stated wish to improve relations with the EU.  

Russia could also profit from such generosity. Some of the theoretical asset value of its current stock of offsets could be realised if a new treaty created a stronger market for international carbon trading. Also, Russian companies are still huge carbon emitters. Cuts in emissions could potentially generate billions of dollars in credits under a new treaty. The investments would also make Russia’s dirty and energy-guzzling factories more internationally competitive —and free up more energy for export. A Russian compromise over the Kyoto-surplus credits would be good for the world, and good for the nation.