Lessons from JI and GIS for post-2012 carbon finance mechanisms in Russia and Ukraine

Abstract

The main incentives for Russia's and Ukraine's participation in the first commitment period of the Kyoto Protocol were its mechanisms. The opportunities that the anticipated post-2012 mechanisms will offer Russia and Ukraine are explored in light of the lessons from Joint Implementation (JI) and the Green Investment Scheme (GIS) during this first period. Four key factors that explain the success of these mechanisms are identified: the design of the mechanisms, the role of the private sector in their implementation, the coordination required, and the political will gained. Even though a weak rule of law, problems with policy implementation, and the ambiguous role of private-sector actors are not ‘make or break’ issues, they are likely to defer future mechanisms. Success and failure will, rather, hinge on the priority these factors are accorded by the top leadership. It is likely that simple mechanisms that only involve a few actors will be less complicated to set up and run than, for instance, emissions trading schemes (which require domestic burden sharing). Project-based options in which domestic actors have gained experience may be better suited. However, any lessons prior to the new mechanisms taking a clearer shape must be considered as preliminary.

Policy relevance

The Kyoto Protocol mechanisms, despite their problems, provided Russia and Ukraine with their main incentives for participation in the Protocol's first commitment period. As the chances that these countries will participate in the second commitment period seem slim, the opportunities that the anticipated post-2012 mechanisms will offer Russia and Ukraine are explored in light of the lessons from JI and GIS. The key factors that have determined the success and failure of these mechanisms are likely to be of relevance to future mechanisms. It is argued that – of the post-2012 options available – simple mechanisms with few actors involved should be chosen. Project-based options rather than emissions trading schemes may be more likely to succeed due to experience gained by domestic actors.

Keywords:

• carbon markets
• Green Investment Scheme
• Joint Implementation
• market mechanisms
• Russia
• Ukraine

Funding

This work was funded by the post-doctoral research project 252853 of the Academy of Finland and the NORKLIMA project 207810 of the Norwegian Research Council.

Notes

1. For a fuller account see EBRD/Grantham (2011).

2. ‘$05p’ refers to US dollars at constant exchange rate, price and purchasing power parities of 2005.

3. Medvedev originally branded international climate policy as ‘some kind of tricky campaign made up by some commercial structures to promote their business projects’. See Shuster (2010) and Korsunskaya (2010).

4. In order to address the concern that Parties could ‘oversell’ units, and subsequently be unable to meet their own emissions targets, each Party is required to hold a minimum level of ERUs, AAUs, Certified Emission Reduction units from the CDM, and Removal Units from forestry activities in its national registry. This is known as the ‘commitment period reserve’.

5. As of early August 2013. Data from Carbon Project Manager database of Point Carbon. Not publicly available.

6. Most famously Denmark, which officially announced its withdrawal from the Russian market.

7. See, for instance, the national statements of Ukraine in COP 14 in Poznan (Minister of Environmental Protection Heorhiy Filipchuk) and COP 15 in Copenhagen (Vice Prime Minister Hryhoriy Nemyrya); available at http://unfccc.int/press/multimedia/webcasts/items/5857.php.

8. Data from Carbon Project Manager database of Thomson Reuters Point Carbon. Not publicly available.

9. In other words, state-level mitigation action, which may generate tradable carbon credits.

10. Ongoing research by one of the authors suggests that Russian oil companies are able to slow down the implementation of the limits to flaring of associated gas from oil production, which entered into force in January 2012.