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25 September 2017
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Sberbank to issue quotas for greenhouse gas emissions

Russia’s largest bank Sberbank is now to become the sole issuer of quotas for greenhouse gas emissions.

Dmitry: Russia’s largest bank Sberbank is now to become the sole issuer of quotas for greenhouse gas emissions.

Donna: In Russia?

Dmitry: Yes, for all the operations in Russia, international operations with Russia. Now, these extra carbon dioxide emissions that the country is entitled to under the Kyoto protocol.

Donna: Okay, this is something the United States is still not a member of.

Dmitry: That’s right now. How can a bank be doing this? What changes does it bring? This is what we’re looking at today on In between.

A decree has been signed to make Sberbank a mediator in all of deals on Greenhouse gas emission. The idea behind this is that one ecologically friendly company gets money from a not ecologically friendly company.

Russia is a huge country with a population of 140 million, so this carbon dioxide emission per capita is very low compared to China or the US for example. It is somewhat strange, because if you think of Soviet Union and the role of factories and industry in the economy, it makes you wonder how this could be. On the other hand, we have to take into account immense territory that Russia possesses. So with huge territory and relatively small population for this kind of territory, according to Kyoto protocol is has been able to sell extra carbon dioxide it is not producing.

Banks main task would be to analyze all projects connected with these greenhouse gas emissions, conducting tenders, and to control the realization of approved projects. Cap-and-trade is a system of economic incentives to reduce polluting emissions. We’ve come to understand that modern society is polluting the environment, and that something needs to be done, to be changed, but no single way has ever been approved, following which we can combat this problem.

In the Earth’s atmosphere there are greenhouse gases: methane, carbon dioxide, ozone etc. These are all naturally existing gases, which are preserving the temperature of the planet, without them the temperature would be much lower. Since the industrial revolution, a lot of fossil fuel has been burnt, and a lot of carbon dioxide released into the atmosphere. This is what causes global warming, and we can actually see the changes in climate every year, and all these global catastrophes taking place. The question now is how to reverse the effects of what has been going on for centuries. In order to stop the process from aggravating, we need to introduce environment-friendly technologies into our lives. The average annual temperatures have been growing steadily over the past decades, changing climate significantly.

So, the two of us probably cannot change the situation, but the governmental body can introduce limits on greenhouse gas emissions, and it sells “caps”, or limits, to organisations, which represent the right to emit specific volume of specific pollutant. It looks pretty shady, say, like selling air, or selling snow to polar bears. How can you sell such a thing as permission to pollute the air?

Anyways, firms are usually required to have several of these permits. Basically, the more you pollute, the more you pay, so management is looking for ways to reduce the pollution. This requires investing in new technology, resulting in money spent, not earned. Bearing in mind that we are recovering from global financial crisis, it is a burden for companies to engage in such an activity, which they may even be unable to afford financially.

Let’s talk to an expert to find out what this will mean for Russia, if a bank is going to be a third party in every deal. We talk to Nina Korobova from the Institute of Environmental Economics at the Higher School of Economics.

Dmitry: So, with Sberbank now becoming manager of all these environmental quotas, right, do you think this is an important change in the greenhouse gas emissions market?

Nina: It is an important change, but we need to differentiate two things: the bank will not only manage the issuing of emission units, but it will also be agent in so called emission reduction purchase agreements. This will heavily impact the price of these emission reduction units sold to foreign buyers.

Dmitry: So, it will make the price higher, because Sberbank has sworn to keep fair prices, not allowing them to go below a certain level?

Nina: Yes, it will go higher. Partly due to the fact that some contracts were signed several years ago, when the prices for these emission reduction units were low and occupied a small share in the market, and those were first contracts, especially with state buyers. At the European market prices are not that low.

Donna: If we look at how other countries that have signed the Kyoto protocol are managing their emissions and the sale of these quotas, how is Russia different or what makes Russia different in its approach?

Nina: In general, Russia is more strict. Now we would like to supervise everything. The idea to some extent might have come from China, which has also introduced a price threshold, monitoring every agreement and making sure the price doesn’t go below certain line. In Russia it is much more serious, because not only will the contracts be monitored, but also Sberbank will act a third party in purchase agreements. This is very different from the other countries.

Dmitry: Do you think all the previous agreements which were signed without Sberbank’s participation will now become obsolete?

Nina: Probably so, because Sberbank issued letters to the companies, whose contracts provided for a “wrong” price, with recommendation to reconsider the agreements. Now Sberbank will be interfering much more into this business, regulating the talks so that the price more or less coincides with one Sberbank deems correct.

Global warming has been a concern for a long time, and finally people decided something needs to be done about it, and this brings us to Kyoto Protocol. It is an agreement binding signing parties to reduce emissions of greenhouse gases by 5.2% by the end of 2012. It was signed in 1997, ratified in 2005. Twenty developed countries account for 80% of carbon dioxide emissions.

The biggest emitter of greenhouse gas, the United States, isn’t bound by this protocol. Bill Clinton seems to have tried doing something, he even signed the protocol, but never passed it to Congress. United States doesn’t want to be a part of this protocol, because it would mean bankruptcy for businesses trying to meet these targets imposed by international community, which doesn’t have that amount of industry like the US does. All other countries think it’s fair that the US should pay for the pollution it is causing.

Russia has been bullying the United States for that, because the US deems their opinion higher than the international community’s, and says yes, when all the other countries say no. Kyoto protocol expires in 2012, and we’ll just have to see if there’s going to be a continuation to it and whether the United States will start playing by the international rules.

On the other hand, the US invests into developing new technology to help reduce this pollution, and businesses are taking part. So, the US is doing something to solve the problem, just not in the format of Kyoto protocol.

Let’s think of a compromise, what deal could satisfy all parties and lead to a cleaner world? Probably it would be introducing both emission quotas and environment-friendly technology all over the world, making the whole world pay for it.

We’re joined now by Sergey Sitnikov, he is a counsel for Baker and McKenzie.

Donna: What do you think, will the United States ever sign the Kyoto protocol or some sort of similar scheme?

Sergey: I think a scheme like Kyoto protocol is of at least theoretical interest for the US. Different initiatives were in the US, related in this way or another to trading greenhouse gas quotas, so from a very general perspective I would say yes, one day we will see the US join Kyoto or some other agreement of this kind.

Donna: What about Russia? What perspectives does Russia have to continue its sort of position with these things?

Sergey: President Medvedev said that climate is of prior importance in Russia and al over the world. Also, using Kyoto protocol mechanisms could be helpful in attracting foreign investors into the Russian economy. There are two tenders, and about 30 offers have been approved, and the potential sum is quite interesting. Economic interest is one of major facilitators here.

Dmitry: Isn’t this one of the reasons for which Russia has been criticising the US, and that is not signing the Kyoto protocol because the United States is one of the greatest polluters in the world? And is this why the United States don’t want to join, because this will mean loosing a lot of money?

Sergey: I don’t think money is one of the most important arguments here. Comparing with Russia, they already have developed industry, and the technologies used, which means that joining the Kyoto protocol, or any document aimed at reducing emissions, will result in doing something extra to what they’re already doing. For Russia it is easier to be a part of Kyoto protocol, because our equipment is generally outdated, whereas US is on top of technology. However, all these agreements are aimed at global positive changes, and it is important to ensure that the level of emissions is reduced.

So, it is unlikely that the US signs Kyoto protocol, but this protocol may become a good frame for future agreements aimed at reducing greenhouse gas effect. Different countries use different methods for contributing to this global goal, and every effort should be respected. 

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