From Green to Gray: Russia's Carbon Trading Program in Times of War

Russia's First Internationally Recognized Emission Reduction Project takes Flight

In a move to improve the quality and competitiveness of Russian exporters, Gazprombank, the third-largest bank in Russia, partnered with the Yu. A. Israel Institute of Global Climate and Ecology (IGCE) to develop new methodologies for generating carbon credits from various projects.

Amidst the ongoing conflict and political tension, Russia has managed to achieve a remarkable feat with its first internationally recognized climate reduction project, demonstrating the irony of a country making strides in environmentalism while simultaneously engaging in a large-scale military conflict.

SIBUR, Russia’s largest petrochemical facility at ZapSibNeftekhim, is the subject of the project which has been certified by Europe's leading validation and verification body, Verico SCE. The project is focused on recycling the by-products of the facility for heat and power generation as well as feeding feedstock residues that cannot be brought back into the core production cycle. This effort will significantly reduce greenhouse gas emissions, and has earned SIBUR, Certified Emission Reductions (CERs) totaling approximately 3 million tones a year.

“Decarbonization is a priority area of SIBUR’s Sustainable
Development Strategy, which sets out the Company’s targets to reduce
GHG emissions and achieve carbon neutrality of at least one of our facilities
by 2025.”

-Mikhail Karisalov, Chairman of the Management Board and CEO of
SIBUR

Why now?

The Russian move to establish a carbon credit methodology and establish climate reduction projects can be attributed to growing international policies regulating greenhouse gas emissions. One carbon-focused policy is The European Union's recent decision to impose import quotas on synthetic rubber and carbon black from Russia until June 2024. In addition to the quotas, the European Commission has established a monitoring mechanism to track the monthly inflow of synthetic rubber from Russia. This move comes as the EU seeks to limit imports from Russia in various industries, including those that highly contribute to carbon emissions. The restrictions on synthetic rubber, carbon black, bitumen, and related materials from Russia account for almost €1.3 billion worth of imports to the EU, making it a significant economic incentive for Russia to incorporate carbon accounting methods. As Russia seeks to maintain its trade relationship with the EU, it will likely prioritize adopting these methods to ensure it can continue to export its products to the EU market.

Without these carbon credit methodologies, the country is vulnerable to future carbon tariffs imposed by its export partners. Another EU policy influencing Russia could be The Carbon Border Adjustment Mechanism (CBAM) taking force. Under this new policy, all exporters of carbon-intensive commodities with high risk of carbon leakage will be required to report their emissions and surrender their corresponding CBAM certificates. The policy includes exporters of cement, iron, steel, aluminum, fertilizers, electricity, and hydrogen. When it goes into affect in October, the move could cost Russia over 8 billion euros each year. As a result, Russia is motivated to establish a system for generating and selling carbon credits that can be used to offset its carbon emissions. By doing so, it can mitigate the risk of carbon tariffs and maintain its competitiveness in the global market.

Russia's recent focus on developing its carbon credit methodology can be viewed with some skepticism, especially given the ongoing conflict with Ukraine, which is known to generate significant emissions.

While the lack of carbon tax or emissions trading regulations in Russia certainly make it vulnerable to future carbon tariffs from export partners like the EU, it's unclear whether the country's push for carbon credit generation is solely motivated by economic factors. Some may argue that the move could also be a strategic attempt to improve the country's global image and mitigate the negative environmental impact of the ongoing conflict. Nevertheless, it's important to note that developing a system for generating and selling carbon credits could help Russia offset its carbon emissions and maintain its competitiveness in the global market. Whether this move is purely economically motivated or has a broader strategic agenda remains to be seen.

Emissions and War:

Despite the common perception between war and greenhouse gas emissions, a recent Climate Focus report found that the actual emissions from bombs, shells, and fuel used for tanks and planes represent less than 10% of the overall emissions associated with war. Untamed fires and methane leakage from gas pipelines are currently the largest sources of emissions, but as the situation in Ukraine unfolds, repairing civilian infrastructure and housing is predicted to become the largest source of carbon emissions. However, by using low or negative carbon construction technologies, Ukraine has the potential to not only reduce emissions but also emerge as a leader in energy efficiency in Europe.

Russia’s Emission Contributions

Source: CarbonBrief

Russia's contribution to the global greenhouse gas emissions is a significant concern for climate change efforts. The country is currently the fourth largest greenhouse gas emitter in the world, behind China, the US, and India. Russia is also one of the world's largest carbon emitters in history, ranking third after the US and China. The country's industrialization during the Soviet era and subsequent economic growth have heavily relied on the extraction and use of fossil fuels. As a result, Russia's carbon footprint has remained high, with emissions from the energy sector accounting for a significant share of the country's greenhouse gas emissions.

Russia's development of its first emission reduction project and establishment of carbon accounting measures is an encouraging step towards reducing its greenhouse gas emissions. However, given Russia's size and the complex economic and political realities it faces, it will take time to achieve its emissions reduction goals. The fact that Russia has taken concrete steps to address its carbon footprint is a positive sign that the country is heading in the right direction, at least on this front. As the global community continues to face the challenges of climate change, it is essential for countries to work together to address this pressing issue.