Environment & Energy Report

Russia Considers Cap-and-Trade Greenhouse Gas Law

Jan. 24, 2019, 3:39 PM

Russia is considering a legal framework that would introduce a national cap-and-trade system for regulating the heat-trapping gases causing climate change.

The proposed greenhouse gas regulations come as part of the obligations that Russia assumed in April 2016 under the Paris climate agreement. Many of the nation’s industries oppose the proposal as too costly.

The bill would set limits for greenhouse gas emissions according to industrial sectors—most not kicking in for six years—and establish a market-based approach that would allow companies to create, transfer, and acquire emissions allowances.

The bill has been through a public comment period and is now awaiting revision before being submitted to the State Duma. The Parliament could consider the bill before April, Minister for Natural Resources Dmitry Kobylkin said.

The draft bill says its benefits would include making Russian companies more competitive on emissions reductions and inspiring innovation in low-carbon industries.

Large Sources of Carbon Dioxide

The measure mainly targets large emitters like power plants, metal producers, wood processors, agricultural enterprises, and industries that have their own boiler rooms or use fuel-burning appliances, Yulia Yurchenko, an associate at the Pepeliaev Group law firm in Moscow, told Bloomberg Environment by phone Jan. 23.

According to a report accompanying the bill, the measures would affect “the largest industrial and energy companies with a direct volume of greenhouse gas emissions of more than 150,000 tons of CO2-equivalent per year.”

Companies would have to obtain permits for a particular volume of emissions and pay a fee in cases where emissions exceeded limits. Emission standards or particular sums of fees aren’t specified in the bill.

The draft law provides incentives such as tax benefits and accelerated capital allowances for carbon capture and storage. It also creates a legal basis for the government to require companies to report on their emissions and verify the reports.

If adopted, the law would come into force on the day of its publication, but the bulk of it wouldn’t take effect until 2025. The first years would be spent measuring greenhouse gases.

Industry Pushback

Lawmakers failed to consider that “industrial enterprises may be obliged to pay twice for methane emissions,” the Russian Chamber of Commerce and Industry said, claiming the law would impose excessive new requirements on companies.

Companies in Russia are already paying a fee for negative environmental impact. The new measure would introduce fees for a larger number of polluting gases without abolishing the current requirements, Igor Korotetskiy, a partner at consultancy KPMG and head of its operational risk and sustainability group in Moscow, said in a Jan. 23 email.

In addition, “there is also a risk that companies will have to duplicate reporting given that in some cases national reporting on greenhouse gases may differ from international standards,” he said.

What’s Next

The bill has been discussed by the government for a long time, and there is a high probability it will be adopted, Korotetskiy said.

If adopted, regulations for implementing it also would have to be specified. There have been cases in Russian environmental legislation where measures remained on paper only and didn’t go into effect, Yurchenko said.

The next step could be scoring by the government for costs and benefits.

The Ministry for Economic Development, which developed the draft law, didn’t respond to Bloomberg Environment request for comment.

To contact the reporter on this story: Natalia Suvorova in Moscow at correspondents@bloomberglaw.com
To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergenvironment.com; Jean Fogarty at jfogarty@bloombergenvironment.com; Renee Schoof at rschoof@bloombergenvironment.com

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