COMMENT: Less red tape could push more of Russia’s struggling joint implementation projects toward much-awaited take-off

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Joint implementation (JI) projects, defined in Article 6 of the Kyoto Protocol, provide for a mechanism that allows developed industrial nations and countries with transition economies that have committed to specific emission reduction targets under the protocol — such as Russia, for instance — to carry out joint implementation of investment projects envisioning the reduction of anthropogenic emissions and/or increasing the level of absorption of greenhouse gases.

On the eve of the new year 2011, Russia’s national state-owned bank Sberbank and the Ministry of Economic Development summed up the results of the second JI project tender, for which altogether 58 project applications had been filed, to a total greenhouse gas emission reduction potential of 75.6 million tonnes in CO2 equivalent (or EUR 800 million). However, as follows from the Economic Development Ministry’s Decree No. 709 of December 30, 2010, only eighteen of those were approved, which, combined, would result in the removal of just 28.7 million tonnes greenhouse gases in CO2 equivalent, attracting no more than EUR 300 million of new investments into the Russian economy.

The efficiency rate of the selection process thus reaches less than 50 percent. The major problem is that after the second tender, Sberbank — which is the tender’s main financial operator — pulled the plug altogether on accepting new project applications for consideration. The procedures governing the admission and processing of new applications have been under review for six months now, with screening criteria, too, undergoing revision.

Meanwhile, there is hardly anything so sophisticated about the JI mechanism itself to warrant such excessive red tape. All the state entitles an investor to as part of a JI initiative is the right to have the results of the project registered in emission reduction units — each equalling one tonne of CO2 equivalent reduced — and the right to sell the pollution credits for profit on the carbon market. The investor company implements the project on its own and only receives the resulting credits in its disposal after a certified auditor attests to and duly documents the emission reduction achieved by the project.

There isn’t, therefore — nor can there really be — any risk, either anticipated or imagined, that the state or the public might have to bear any losses as a result of such activity. The advantages, on the other hand, are clear.

Reductions in greenhouse gas emissions are known to be an efficient instrument of mitigating the harmful effects of climate change — and that, in and of itself, is good. Besides, emission reduction projects facilitate such measures as decreasing the rate of consumption of fossil fuels, harnessing renewable energy sources for electricity and heat, energy saving and energy efficiency, introduction of innovative technologies, and utilisation of associated petroleum gas, coal mine methane, effluent combustible gases, and waste generated during production and consumption of various goods.

And these are exactly the measures that have been promoted by President Dmitry Medvedev and the Russian Government and determined in all government documents to be the chief strategic priorities for the development of the Russian economy in the near future. Consequently, this is exactly the goal towards which the JI project selection and approval procedure must be strongly oriented. To achieve that, it would suffice if the process amounted to nothing else but having a supervisory body with a relevant mandate verify that the applicants observe simple and self-evident requirements when filing their project descriptions for consideration.

Firstly, the applicant must be an investor aiming to carry out a project leading to a reduction in greenhouse gas emissions. Furthermore, the investor must be an entity with a sufficient “strength margin” to be able to fulfil the investment plan in its entirety and then operate the site to which the funding has been pledged throughout the duration of the established crediting period. The investor must also strictly observe the requirements of the Russian legislation where it pertains to investment activities, including obtaining, where necessary, relevant permits, environmental impact assessment reports, and other documents.

Secondly, the application must meet all the requirements of the Kyoto Protocol. According to provisions, the applicant’s compliance with the Kyoto requirements is verified in an independent project assessment procedure by authorised expert organisations that have the necessary qualifications and are accredited with the relevant entity of the Kyoto Protocol — the Joint Implementation Supervisory Committee.

The process of filing applications for future JI initiatives and having them considered by the Russian authorities should, too, be duly organised in conformity with these requirements. The application form should be a standardised questionnaire listing all the requirements set to the applicant organisation and its project. The entity authorised to select the winning projects will examine the application within thirty days and make a decision approving the envisioned activity if the project and its initiator satisfy all the requirements.

A similar procedure should be organised for filing and having applications granted for the emission reduction credits that the applicant is due upon completing a project. This, likewise, should not be hard to do. The applicant organisation presents to the authorised entity a report on its activity, filled out to an established standard and detailing the reduction in emissions achieved during the crediting period, complete with the certification by the independent expert organisation that testifies to the veracity of the information contained in the report, as well as all the necessary accompanying documents. If the emission reduction has indeed been achieved as documented, and all the requirements fulfilled by the investor, then the authorised authority must make its decision within no more than thirty days, granting the emission reduction credits for issue into circulation and crediting them to the applicant’s account. Otherwise, the authorised entity, acting within the same timeframe, informs the investor organisation that its application for emission reduction units has been denied, citing its reasons for the denial to issue the credits, or makes the decision to annul the earlier approval of the project.

It is very important that all reasons serving as possible grounds for the authorised entity’s decision with respect to turning down a project or rejecting an application for granting emission reduction units and annulling a previous project approval be discussed and stipulated in advance, with the applicant retaining the right and opportunity to dispute such decisions in court.

It is also important for the applicant to maintain an account opened in the organisation’s name in the carbon register and be able to have complete discretion to manage the emission reduction units in its disposal, acting in accordance with its interests, preferences, and the current situation on the carbon market.

Russia can already offer many of the conditions described above, but a lot of what is needed is still lacking — for instance, the opportunity for an investor to file a project application for consideration at any time during the year, the opportunity to challenge the denial of claim for emission reduction units in court, or the opportunity to open an account in the carbon register and sell the emission credits on the market.

Then again, there are some things that shouldn’t be: There is, for instance, the competitive selection of projects and the extremely arcane procedure governing the issue of emission reduction units, involving the participation of Sberbank of Russia, the Ministry of Economic Development, the Ministry of Natural Resources, and the organisation administering the carbon register, among other entities.

As of today, Sberbank has only held two tenders for the selection of emission reduction projects, resulting in the approval of a total of 32 projects estimated at 58.5 million tonnes of CO2 equivalent, or EUR 600 million, combined. These were selected out of as many as 73 project applications filed by Russian companies, to a total of 105.8 million tonnes of CO2 equivalent, or over EUR 1.1 billion, as shown below in the table.

Industry branches and project types

Project applications filed

Projects approved

Success factor

Number of projects

Carbon potential, in tonnes of CO2 equivalent

Number of projects

Carbon potential, in tonnes of CO2 equivalent

Oil production and refining

14

19,709,806

9

17,134,659

86.36%

Production and consumption of energy

48

58,972,518

18

30,539,966

51.79%

Including:

 

 

 

Enhancing the efficiency of using natural gas in energy production

11

12,890,548

2

2,126,549

16.50%

Conversion to gas fuel

4

1,753,943

2

1,063,144

60.61%

Hydroenergy

2

4,669,909

2

4,669,909

100.00%

Energy conservation in the industry and the housing and public utility complex

20

32,239,557

7

19,871,021

61.64%

Use of renewable energy sources and biofuels in the industry and the housing and public utility complex

11

7,418,561

5

2,809,343

37.87%

Other projects

11

27,103,067

5

10,847,273

40.02%

Including:

 

 

 

Industrial greenhouse gas emissions

6

18,337,744

3

8,788,405

47.93%

Utilisation of coal mine methane

1

1,100,000

1

1,100,000

100.00%

Utilisation of landfill gas

4

7,665,323

1

958,868

12.51%

TOTAL

73

105,785,391

32

58,528,898

55.33%

The following are among the joint implementation projects approved and currently planned for implementation in Russia’s Northwest:

• Conversion from coal to wood waste for energy supply in the town of Onega, Arkhangelsk Region. Project applicant: Onega-Energiya; volume of envisioned greenhouse gas emission reduction in 2008 to 2012: 788,054 tonnes of CO2 equivalent.

• Utilisation of wood waste to provide heating to the village of Severoonezhsk, Arkhangelsk Region. Project applicant: Teploinvest; volume of envisioned greenhouse gas emission reduction in 2008 to 2012: 130,277 tonnes of CO2 equivalent.

• Utilisation of biomass at Segezha Pulp and Paper Mill, Karelia. Project applicant: Investlesprom; volume of envisioned greenhouse gas emission reduction in 2008 to 2012: 284,370 tonnes of CO2 equivalent.

• Utilisation of bark and wood waste for energy production at Sawmill 25, Arkhangelsk Region. Project applicant: Sawmill 25; volume of envisioned greenhouse gas emission reduction in 2008 to 2012: 215,362 tonnes of CO2 equivalent.

The above comment was contributed to Bellona Web by Mikhail Yulkin, general director of Climate Change Global Services (CCGS), a joint Dutch and Russian venture working to provide services and solutions aimed to combat climate change.

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