Russia at Early Stages of Carbon Regulation Development

5 september 2016

Carbon pricing was invented to give conscientious companies and citizens means to support climate change initiatives. This important tool serves to shift profitability towards progressive types of energy and support the demand for new equipment. Analytical Center’s experts discuss this and other issues on the pages of the new Energy Bulletin.

Naturally, this process changes profitability for businesses, narrows down the prospects for energy commodities producers, and forces companies to make new investments while reducing the value of their old equity. The experts are convinced that while existing international tools for carbon pricing (Kyoto Protocol) are quickly declining, and the new tools (Paris Agreement) are yet to be agreed, it is national initiatives that come to the fore. These currently cover about 13% of the global greenhouse gas emissions (GHG), but in April 2016, the Carbon Pricing Panel, which brought together a number of world leaders convened by the World Bank and the International Monetary Fund, set the target to 25% coverage of the world’s GHG emissions by 2020, and 50% by 2030. Russia is currently at early stages of carbon regulation development, the analysts note. In their view, the discussion on the introduction of carbon pricing is currently limited to experts and the corporate sector, which on the whole reacts negatively to initiatives like that. However, there are some companies out there volunteering to test the future rules of the game.

As far as gas storage is concerned, the experts believe that domestic underground gas storage facilities are on a par with their US and EU counterparts in terms of operating reserves and other technical parameters. "The increasing role of independent gas producers and the current government focus on developing competition in the gas industry are running against the existing system of monopolies in gas storage infrastructure management, where one supplier can get a competitive edge by owning the underground storage system while the rules and responsibilities for independent suppliers are not clearly defined," experts argue. In their opinion, US and EU experience in the gas market demonstrates that underground gas storage is an indispensible part of market development and has to be part of comprehensive quality changes in the industry. Hence the need to resolve the emerging conflicts in order to develop competition in the domestic market, the experts are convinced.

They also note that Europe is about to complete the development of regulation for a singe gas market to be formed, though at the latest stages of adopting the final elements of the grid codes system there have been some delays. Not all countries and companies have been able to adopt and implement the new regulations in full. The European Commission is generally pursuing a flexible policy in terms of implementing the general plan, and as a result, market formation is proceeding at varying pace. The opportunity to use external providers to develop internal infrastructure in the EU has also been lost. The (imputed) losses from the market’s immaturity are largely offset by the general drop in gas prices and, as a result, by the scale of difference in gas prices.

Read more in Carbon Pricing: Opportunities Overview Bulletin.

For other issues of the Energy Bulletin, see the Publications section.