RUSSIA’S CAP&TRADE WINDFALL

Russia’s Carbon Credits Seen as Barrier to Warming Curb
James Kanter, December 7, 2009 (NY Times)

"Does Russia hold hostage the future of a carbon cap-and-trade system that many experts see as a critical tool for curbing global greenhouse gases? Improbable as it may seem, the answer appears to be yes.

"That is because Russia, as a result of the collapse of much of its heavy industry in the 1990s, owns one of the largest stocks of credits to offset carbon emissions…The unearned windfall, a legacy of the Kyoto agreement that tried to deal with the threat of climate change, is worth several billion dollars. If abruptly sold abroad, those credits could send the price of carbon on the world’s fragile emissions markets plunging toward zero."

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"Without a predictable and reasonably high price for carbon emissions, most economists say, there is little prospect of setting in motion the many investments needed to shift from a carbon-intensive industrial economy to a more sustainable energy base in developed and developing countries alike…

"…[T]he European Union… has called on all industrialized countries to have systems in place by 2015 and for rapidly emerging economies like China and India to adopt them by 2020. A similar system is being debated in the United States…But even if a global market develops, many experts warn that carbon trading should not be relied on…Environmental groups warn that carbon markets may end up providing only a fraction of the money some poor countries expect, largely because wealthy countries are not willing to set their caps stringently enough…"

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"The prospect of Russia dumping its credits is just the latest challenge facing emissions trading, the expected financial backbone to any global agreement that may emerge from the talks taking place in Copenhagen…

"Industrialized countries, including the United States, are counting on trading as the most inexpensive and efficient way to help meet future emissions targets …[and transfer] the large sums of money that poorer countries have demanded as a condition for a deal at Copenhagen…[and] an emissions market could be worth $3 trillion by the end of the next decade, compared with about $130 billion a year now…[but] powerful lobbies, often backed by the coal industry, have blocked efforts to pass legislation to cap emissions…and volatility in carbon markets [has] spooked investors…"