How EU can give Russia a nudge on Kyoto

By Christian Egenhofer

Date: 16/10/03

IN 1997, when countries were negotiating the Kyoto Protocol to reduce global emissions of greenhouse gases such as CO2, negotiators believed that they had taken every safeguard to bring the treaty into force.

Legally, the protocol must be ratified by at least 55 countries, accounting for at least 55% of 1990 greenhouse gas emission levels in industrialized countries. The first condition has long been met. The second threshold was designed to avoid giving de facto veto power to the US. With the US having defected, however, it is now Russia that holds the deciding vote on whether the protocol will ever come into force.

While the EU, Japan and Canada were always expected to ratify and have done so, the belief was that Russia would come around, given the potential billions of euro it stood to gain from trade in the carbon markets.

After President Vladimir Putin's recent speech at the World Climate Change Conference in Moscow, however, the big question is: will Russia sink the protocol instead?

Although Putin and others have declared repeatedly that Russia will ratify the protocol, they have carefully avoided giving a firm date. His remarks at last month's conference fell into that pattern.

Does he want to signal to the EU that he is raising the price for ratification? Is he playing off the EU against the US? Or does he need to accommodate domestic pressure groups?

Let us look at the facts. It is now clearly up to Putin to launch the ratification process: both EU and Russian companies see it as one of the tools to bring more investment to Russia. Regional governments in Russia see the protocol in a similar way.

And, without ratification, Russia will never see the potential economic benefits from emissions trading or any of the other "flexible mechanisms".

Nevertheless, one cannot but have some sympathy with the Russian Federation's deliberate approach to the question of ratification. Immediately after the protocol was agreed, Russia looked like the big winner. It had negotiated a target based on 1990 figures while its actual emissions were around 30% lower and were expected to remain that way (thereby creating a healthy surplus of so-called "hot air"). Russia expected to carve out a major share of the l20-billion annual global carbon market.

However, with the withdrawal of the US from the scheme, the major buyer disappeared. The EU, Japan and Canada quickly declared that, for environmental or other reasons, they were not interested in buying up Russian hot air. Thus, in the short term, selling its excess carbon rights will most likely not have any major value.

Moreover, the European Commission did not foresee accepting "credits" from projects outside of the EU before 2008.

No wonder Russia might find it comfortable to sit on the fence and wait: once it ratifies, Russia loses its leverage. And it does exercise significant leverage at the moment. For example, Putin recently received a visit from former US president George Bush senior and ex-secretary of state Henry Kissinger to speak about the treaty. And from the EU, a European Parliament delegation met their counterparts from the Duma. There have been innumerable other such visits from EU member states and the Commission as well.

As the World Climate Change Conference showed, the debate about the protocol remains controversial in Russia. Why, therefore, should Putin or the Duma push through ratification before Russia's parliamentary elections this year and the presidential election next March? It would make sense if Putin had agreed with Bush and Kissinger to leave the protocol pending until after the US presidential elections in November 2004, especially if the US undertook to continue to refrain from commenting on Chechnya.

In that way, Putin would neither insult his EU nor his US friends and could still do what he thinks is right, namely ratify and support multilateral frameworks.

This might well be the correct interpretation of Putin's statement that "the government is closely studying and examining" the right moment for ratification.

In the meantime, however, there are things the EU can do - and should be doing - to encourage Russia.

First, pointing to its "moral obligation" seems to be a less-promising strategy than acknowledging the positive role that Russia can play in bringing the protocol into force and strengthening the role of multilateral frameworks. Within the EU we should also stop speaking about the "billions of euro" that emissions trading represents. It is hard to see how this market will work for Russia's benefit and gives out the wrong message that the protocol is about transfers and not about the environment and multilateralism.

Second, the EU's message needs to be better communicated. It should come from the heads of EU governments, possibly in the form of a communiqué from the European Council.

Third, the EU needs to develop a long-term strategy as, ultimately, Russian ratification will not be enough. To maintain Russian support beyond 2012, when the next set of objectives come into force, there is a need to engage Russia beyond the question of ratification. The context of climate change is a major opportunity to reaffirm the EU's commitment to assist Russia to bring about economic, social and environmental reform. There are key synergies between EU interests in energy security and greenhouse gas reductions and Russia's interests in energy exports, investment, climate related projects and energy efficiency.

A first demonstration of an adapted EU strategy could be to allow credits from joint implementation projects carried out in Russia - provided of course that they are environmentally sound - to enter into the EU emissions trading scheme as of 2005, rather than excluding Russia until 2008. It may be worth the risk to try the carrot first.

• Christian Egenhofer is a senior fellow at the Centre for European Policy Studies (www.ceps.be) and at the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee, Scotland.

The author is a Senior Fellow at the Centre for European Policy Studies and at the Centre for Energy, Petroleum and Mineral Law and Policy at the University of Dundee, Scotland.