Russia plays for time over carbon credits

By BRIAN FALLOW economics editor

Energy Minister Pete Hodgson remains confident that Russia will ratify the Kyoto treaty to combat global warming, although he does not expect a decision for several months.

He said he was not among those who had expected Russia to use an international climate change conference in Moscow to announce it was ratifying the Kyoto Protocol.

As it turned out President Vladimir Putin said that Russia was still carefully examining and studying the issue and would make a decision when that work was finished.

He also observed that it was often said, either in jest or seriously, that for Russia to be 2C or 3C warmer would be a good thing - an increased grain harvest and less money spent on fur coats.

Some environmentalists have taken Putin's "not yet" to mean "nyet" - a rejection by a country which is one of the largest producers and exporters of oil and gas of Kyoto's multilateral approach to curbing greenhouse gas emissions and mitigating climate change.

But others believe Russia just wants to see the colour of Europe's money before committing itself.

Following the withdrawal of the United States and Australia, Kyoto will come into force if, but only if, Russia ratifies it.

It has a large incentive to do so. Since 1990, Kyoto's baseline year, the collapse of the Soviet Union has seen many of Russia's smokestacks go cold, leaving it with a large pile of carbon credits - rights to emit greenhouse gases - which it could sell to countries expecting to exceed their Kyoto emission targets, in effect the Europeans and Japan.

Reports citing a Kremlin official or a source close to the President have said Russia was looking for guarantees over the value of those credits and/or joint investment projects in its energy sector.

Hodgson said he found those reports plausible, although he was not party to those negotiations.

"It is more likely the Russians will ratify than not.

"They would be net sellers [into the international carbon market]. And the Europeans want them in - a lot," he said.

"The main issue for Russia is how to maintain a good enough price for all the carbon credits it has got."

Uncertainty about whether the Kyoto Protocol will come into force at all, and if so what the international price of carbon credits will be, is creating uncertainty for New Zealand firms looking at investment in electricity generation, or large emitters planning to negotiate greenhouse agreements that would exempt them from the carbon tax, or firms thinking of bidding for the subsidies (paid in carbon credits) for climate friendly projects.

Hodgson sympathises. "But we just have to wait too."