Russia's Path to Kyoto


By John Carey The Russian government has taken a historic step in the fight against global climate change. On Sept. 30, it announced that it will ratify the 1997 Kyoto Protocol, sending the accord to the Duma for final approval.

The protocol, which calls for cuts in the emissions of gases that cause global warming, was designed to go into effect when at least 55 countries, representing 55% of the world's emissions of greenhouse gases, ratified it. So far, 124 countries have signed on, but they were responsible for only 44% of worldwide emissions.

So the addition of Russia -- with its 17.4% share -- finally puts the agreement in force. Starting next year, Europe, Japan, Russia, and scores of other countries will have to start meeting Kyoto's emissions targets, which call for cuts of at least 5% compared to 1990 levels.

"U.S. LIMITS INEVITABLE." Russian President Vladimir Putin's move makes the U.S. the odd man out. The Bush Administration had been pressuring Russia not to ratify. As a result, "this is a major defeat for President Bush," says Philip E. Clapp, president of the National Environmental Trust.

Many companies have recognized that the world would eventually impose curbs on carbon dioxide and other greenhouse gases and have been preparing for a new carbon-constrained world (see BW, 8/16/04, "Global Warming"). "Companies doing business in Europe and Japan have to confront CO2 limits," explains Clapp. "They know this is the coming world -- and that it makes U.S. limits inevitable."

While expected, Russia's decision wasn't always a sure thing. Putin's own top economic adviser, Andrei Illarionov, has been a fierce opponent, arguing that Kyoto would kill off the world economy "like an international Auschwitz." And a vocal group of scientists said the science behind global warming was full of holes.

READY-MADE REDUCTIONS. So why did Putin ratify Kyoto? It's only partly because of the environment. Much of the answer lies in trade, economics, and nitty-gritty details about natural gas.

The story starts with Europe's commitment to tackling climate change. British Prime Minister Tony Blair sees global warming as one of the biggest issues of our time and has put Britain on track to slash by 60% emissions of greenhouse gases by 2050. Germany has made significant reductions. And the European Union has largely embraced Kyoto and its targets. But the EU knew the U.S. wouldn't sign on. So to have the pact become legally binding, they needed Russia on board.

Plus, Europe can meet its targets under Kyoto more easily now that Russia has signed on. Under Kyoto, countries are required to make cuts in emissions compared to 1990 levels. But because of the fall of the Soviet Union and the economy's collapse, Russia is producing far less -- and emitting less greenhouse gases -- than it did in 1990. Thus, Russia has not only met its targets but it has essentially already "cut" more emissions than it needs to under Kyoto.

VALUABLE COMMODITY. Now, consider that Europe has also embraced a carbon-trading scheme as part of its climate-change strategy. That means the right to emit certain amounts of carbon can be bought and sold. So let's say a country is required to reduce emissions by 1 million tons of carbon. If its steps are so strong that it ends up cutting emissions by 2 million tons, then it can sell the 1 million tons of "excess" cuts to a country that wasn't able to make such large reductions.

Economists favor emissions trading because it results in the lowest-cost emissions. A company or a country has the choice to make cuts itself. But it can purchase them if it's less expensive to buy emissions credits from a nation that can cut more cheaply.

That's why the collapse of Russia's economy left the country with a valuable commodity -- its large emissions reductions. In a global emissions-trading system that includes the U.S., the value of those Russian reductions could be as high as $3 billion, by some estimates. Without the U.S. participating, however, the value drops to several hundred million dollars.

WTO COMPROMISE. When the EU asked Russia to join in on Kyoto, not surprisingly, "Russia said: What's in it for us?" explains Annie Petsonk, international counsel for Environmental Defense (ED). Russia wanted more than the dollars from emissions trading, it wanted EU support for its entry into the World Trade Organization.

The problem with this sweetener was that European companies feared Russia would have a trade advantage because of its cheap natural gas. The chemical industry, in particular, worried that this would cause it to lose out to Russian rivals in many markets around the world.

But the EU wanted Russia in Kyoto badly enough to compromise and support its WTO membership bid. Europe will allow Russia to keep natural gas prices lower at home -- as long as Russia agrees to slowly raise them. The Continent's companies also realized that having Russia sign on to Kyoto would help them because they could meet their own Kyoto targets more cheaply by buying Russian emissions reductions.

AFTER KYOTO. One more important event occurred before Russia took the Kyoto plunge -- a Sept. 16 conference in Moscow to look at the economics of tackling global warming. At the conference, economists pointed out major technical and methodological flaws in Putin adviser Illarionov's analysis, concluding that the Russian economy could grow just fine despite the Kyoto limits. The technical discussion was "very important," says the ED's Petsonk. "They actually do look at economics analyses of what decisions mean for their country."

More recently, the Kyoto Protocol has come under criticism for not going nearly far enough. Even if businesses meet their targets by the required date of 2012, greenhouse gases will continue to build up in the atmosphere. That's why many nations have already begun to think about what comes after Kyoto -- and Russia's decision will speed up this process.

"Kyoto has a trigger that requires negotiations for what comes after 2010," explains Eileen Claussen, president of the Pew Center on Global Climate Change. "Those negotiations have to start as soon as the protocol goes into effect." Putin's decision to ratify Kyoto, it seems, will put the world more firmly on the path to seriously combating global warming. Carey is a senior writer for BusinessWeek based in Washington


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