VZCZCXRO0487
RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHMO #0767/01 0801447
ZNR UUUUU ZZH
R 201447Z MAR 08
FM AMEMBASSY MOSCOW
TO RUEHC/SECSTATE WASHDC 7224
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHKO/AMEMBASSY TOKYO 4174
RUEHOT/AMEMBASSY OTTAWA 2089
RUEHNE/AMEMBASSY NEW DELHI 1148
RUEHBR/AMEMBASSY BRASILIA 0319
RUEHUL/AMEMBASSY SEOUL 2730
RUEHJA/AMEMBASSY JAKARTA 0182
RUEHSA/AMEMBASSY PRETORIA 0292
RUEHBR/AMEMBASSY BRASILIA 0320
RUEHBY/AMEMBASSY CANBERRA 0699
RUCNDT/USMISSION USUN NEW YORK 0402
RUEAEPA/HQ EPA WASHDC
RHMFIUU/DEPT OF ENERGY WASHINGTON DC

UNCLAS SECTION 01 OF 03 MOSCOW 000767 
 
SIPDIS 
 
STATE FOR OES/EGC, EUR/RUS 
CEQ FOR CONNAUGHTON 
 
Sensitive, SIPDIS 
 
E.O. 12958:  N/A 
TAGS: SENV ENRG KGHG RS
SUBJECT: RUSSIA LAUNCHES KYOTO PROTOCOL JOINT IMPLEMENTATION PROGRAM 
 
Sensitive but unclassified, not for internet distribution. 
 
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Summary 
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1.(SBU)  On March 10, Russia's Ministry of Economic Development and 
Trade (MEDT) began accepting approval applications from companies 
wishing to undertake joint implementation (JI) projects under the 
Kyoto Protocol.  The move was the result of several years of work by 
MEDT to put the required legal and administrative framework into 
place. European companies in need of Russia's excess carbon credits 
have been eagerly awaiting this step, which came eighteen months 
later than originally planned.  There are already 60 projects under 
development, most in the energy sector.  Since it ratified the Kyoto 
Protocol in 2004, Russia's cash windfall from rising oil prices has 
reduced its interest in pursuing revenue through Kyoto's flexibility 
mechanisms.  It has maintained an interest in JI, however, due to 
its potential for technology transfer in the areas of energy 
efficiency and cleaner production. 
End Summary. 
 
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Background 
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2.(U) Russia is currently the world's third largest emitter of 
greenhouse gases (GHGs) after the U.S. and China.  It ratified the 
Kyoto Protocol on November 4, 2004, and has been assigned an annual 
cap on GHG emissions for 2008 - 2012 of 16.1 billion tons of CO2 
equivalent.  Despite Russia's booming economy and reliance on 
extractive industries, the near-collapse of its economy in the 1990s 
has left it with lower emissions today than the 1990 Kyoto baseline. 
 According to its Fourth National Report to the United Nations 
Framework Convention on Climate Change (UNFCCC), Russia is currently 
emitting about two-thirds of its 1990 levels.  Russia joined Kyoto 
as a "country in transition" under Annex I, allowing it to serve as 
a "host" of Joint implementation (JI) projects.  Kyoto countries 
that expect to exceed their GHG caps can earn extra emission credits 
through projects that reduce emissions in Russia. 
 
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GOR PREFERS JI 
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¶3. (SBU) Russia has chosen to focus on JI over the other two Kyoto 
flexibility mechanisms - Clean Development Mechanism (CDM) and 
International Emissions Trading (IET).  Russia is considered the 
Annex I country with the largest potential for JI projects, and has 
often publicly cited JI as one of the benefits of joining Kyoto. 
Russia sees JI as an opportunity for technology transfer in the 
areas of energy efficiency and cleaner production.  The GOR has long 
acknowledged that its energy sector, still heavily reliant on 
Soviet-era infrastructure, is outdated and hugely inefficient.  The 
GOR has been less enthusiastic about IET, which it sees primarily as 
a cash transfer.  Flush with oil and gas profits, the GOR prefers to 
preserve most of its carbon credits for later bargaining or use. 
The Ministry of Economic Development and Trade (MEDT) told us that 
although they would like to develop a CDM, it is more complicated 
legally, and would require significant amendment of current Russian 
law. 
 
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System in Place 
--------------- 
 
¶4. (SBU) The GOR, with MEDT in the lead, has been working the past 
several years to put the necessary legal and administrative elements 
for the JI program into place.  Key steps have included 
establishment of an interagency commission charged with overseeing 
JI implementation, creation of a National Registry of Carbon Units, 
elaboration of a National GHG Inventory System, adopting a national 
procedure for the approval of JI projects, and passage on May 28, 
2007, of Government Decree 322. 
 
¶5. (SBU) Government Decree 322 was the key piece of legislation 
 
MOSCOW 00000767  002 OF 003 
 
 
needed to establish Russia's JI program.  It officially named MEDT 
the "national focal point" responsible for JI investment projects. 
As such, the Ministry was given authority to receive JI proposals, 
post them on a web-site for public comment, include them in a 
national registry system, clear them through other relevant GOR 
Ministries and Agencies, submit monitoring and implementation 
reports for GOR approval and organize and chair the Interagency 
Commission. 
 
¶6. (SBU) MEDT completed the final legal hurdles to implement 
Russia's JI program in late January, 2008, and began accepting JI 
applications on March 10.  The date was nearly eighteen months later 
than originally envisioned.  However, World Wildlife Federation 
(WWF) Russia's climate expert, Aleksey Kokorin, told us that the 
delays were "not a failure, but a result of good, strict provisions 
being put into place."  WWF is supportive of the GOR's JI program, 
and played an advisory role in its development. 
 
¶7. (SBU) According to MEDT's Oleg Pluzhnikov, the GOR has made 300 
million tons of GHG equivalent available for JI projects through 
2012, which represents about ten percent of Russia's total 
anticipated excess of three billion tons.  MEDT has indicated that 
this level could increase if demand warrants.  The price per ton is 
expected to be six to eight euros (significantly below prices in the 
EU).  Pluzhnikov predicted that proposals, once submitted to MEDT, 
will take 10 - 12 weeks to process.  Sixty projects are already 
under development, and those are expected to make up most of the 
first group of applications. 
 
¶8. (SBU) The GOR has allotted two-thirds of the JI quota to the 
energy sector.  The remaining 100 tons are allocated to the 
agriculture, manufacturing, forestry, waste disposal/ processing and 
chemicals industries.  Unified Energy Systems, which owns 93% of 
Russia's electricity grid, is expected to be the largest Russian 
partner for JI projects.  It is reported to already have 40 projects 
under development, delivering 35 million tons of emissions 
reductions, mostly through switching away from the use of coal. 
Industry giants Gazprom, Severstal (steel) and RUSAL (aluminum) have 
also announced plans to participate. 
 
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Some Investors Wary 
------------------- 
 
¶9. (SBU) In a March 13 press conference to announce MEDT's 
acceptance of JI proposals, MEDT's Vsevolod Gavrilov warned that 
MEDT would be very strict in its review of projects. 
"Unfortunately, not all investors are taking this opportunity the 
right way, seeing it as a way to get a freebie without doing any 
work.  We want to avoid these speculative projects."  Off-putting 
statements such as this, combined with uncertainties in 
interpretation of the new regulations, have dampened enthusiasm for 
JI projects among some potential investors. 
 
¶10. (SBU) As an example, British Petroleum's (BP's) chief 
environment lawyer in Moscow explained that BP has not seriously 
considered JI projects for two reasons.  First, MEDT has not 
clarified how it would credit projects that reduce gas flaring, a 
significant contributor to Russia's emissions.  Second, the 
construction of facilities to capture and transport flared gas is 
slow and expensive.  Because only reductions achieved through 2012 
can be counted, and a post-2012 regime has not been agreed, at this 
point there would be insufficient time to achieve enough reductions 
to justify the cost. 
 
¶11. (SBU) Given concerns about the timeframe and treatment of 
large-scale projects, observers predict that most JI proposals will 
be smaller-scale, focused on replacing inefficient power generators 
and staunching energy loss in the transmission of communal heat and 
electricity. 
 
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Comment 
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¶12. (SBU) The GOR's ambivalent approach to JI reflects its attitude 
to Kyoto membership overall.  The GOR's Kyoto policy is not driven 
 
MOSCOW 00000767  003 OF 003 
 
 
by concern about global warming.  Russia joined Kyoto to close its 
bilateral WTO deal with the EU and for the revenue potential of its 
excess GHG quotas.  Russia's oil and gas windfall has significantly 
diminished its interest in the relatively small sums to be gained 
through flexibility mechanisms.  Meanwhile, some Kyoto members are 
relying on Russia's credits to meet their own targets.  Germany, 
Denmark, Belgium, Sweden and Japan are all looking to earn credits 
from Russia, and have been actively pushing the GOR to get the 
mechanisms up and running.  Despite EU and member state pressure on 
the GOR to follow Europe's lead on climate policy, Russia is likely 
to continue to make decisions based primarily on its economic 
interests. 
 
BURNS