The Russian Federation’s carbon emissions are significantly lower than the limit placed on the country under the Kyoto Protocol, leaving Russia with the opportunity to sell a portion of its emissions quota. Under current prices, the total potential value of Russian carbon credits is estimated at around US$40 - US$60 billion. Given these facts, one would expect quite a bit of activity on the part of officials and companies to unlock this potential value - especially since the level of actual carbon credit trading in Russia has been quite low.

The Government of the Russian Federation issued Decree #322 on May 28, 2007, putatively to boost trading by prescribing contracts that would permit the exchanging of credits for money under Russian law (prior to Decree #322 it was unclear whether such transactions were permitted under Russian law). However, Decree #322 required two Ministries of the Russian Federation (those for (1) Economic Development and Trade and (2) International Affairs) to coordinate on the issuance of a pro forma contract and regulations governing such transactions with a deadline of September 1, 2007. The deadline passed without the pro forma contract or regulations, or even any news about their status. In the meantime, the Russian press has been devoid of any mention of advancing the framework for assisting carbon credit trading.

In our view, this is another case of no news being news. During the week of the Bali Summit, the Russian press has been silent regarding the goings on at the climate change meetings as well as carbon emission credit trading. This should be especially surprising in light of the value residing in the Russian Federation that can be unlocked through facilitating carbon emission credit trading. The logical question is why would such a readily accessible source of value be such a low priority for the government. There is no easy answer to this, and it is something that reasonable minds can differ on.

One guess is that the Russian government prefers to not commit one way or the other because it wants to preserve itself flexibility in the future once it has a better sense of the direction of Russian industry. For example, if the government fears that the Russian Federation may ultimately need to be a net importer of carbon emission credits, it may not want to set a precedent that can be used against it in the future. It is especially easy for the government to take such a position given the current high price of oil and the consequent overstuffing of the government coffers with revenues which alleviate the pressure on the government to seek new sources of revenue.

One possible take away on this is that if the credits are not going to leave Russia, then maybe the emissions need to come into Russia. However, that may be easier said than done. Nevertheless, it is likely that a factory built in Russia will face less carbon emission restrictions than would apply in other countries that could host the same type of factory.

For further information about this topic, please contact Akin Gump.