Is Russia Looking for Greater Control in the Carbon Credit Market?

  • Published on December 21st, 2008

It seems that after using oil & gas as tool to punish the East European nations for their closeness to United States and showing Europe how dependent it is on its supplies, Russia is further trying to wield power by what seems is an intent to control a major share of the carbon credits market.

[social_buttons]Russia has declared that it will not sell surplus carbon emission permits to other countries and will stockpile about $58 billion worth of the Kyoto carbon credits. It plans to use these surplus emission permits under the next climate treaty.

According to an official representing Russia at the climate talks in Poland, Russia has more emission permits than it requires but is not willing to sell them to any other country. The official argued that by stockpiling the surplus emission permits Russia is only securing its future economic growth.

Ukraine too has surplus carbon credits and it too intends to save them for use under the climate treaty that would succeed the Kyoto Protocol. But there is a difference between the two cases. Russia has the world’s largest gas reserves. By controlling a major portion of the carbon credits market Russia could indirectly control the control a major part of the global gas supplies.

Lesser the number of emission permits in the market higher will be their rates, higher the rates harder the industries would try to use cleaner fuels. Coal, although cheap, is highly polluting and eats up all the emission permits that an industry has so it has to either buy new costlier permits or switch to cleaner fuels – natural gas.

Russian natural gas company, Gazprom, is already marketing gas supplies with emission permits. The company plans to use this scheme while selling gas to European power generation companies. Europe is already dependent on Russian gas supplies by stockpiling such great amounts of emission permits Russia could create a virtual monopoly of carbon credits.

But there’s still more for Russia to gain. Last year the carbon credit market was valued at $63 billion with estimated increase to $100 billion by this year and $550 billion by 2012. By that calculation Russia holds 58 percent of the total emissions permits available in the market today and it would be safe to assume that this percentage would rise further as the world toils through a recession. In addition it is also possible that under the next climate treaty more nations (developing countries & major polluters like India and China) would be required to invest in clean energy projects through the carbon credits markets thus increasing demand.

Russia has used its resources to gain geopolitical mileage and by deciding to withhold such great amounts of emission permits, which are instruments not only for emission reduction but also industrial growth, it stands to gain even more strategic and economic leverage.

Image source: Mollivan Jon at Flickr under Creative Commons License.

About the Author

currently works as Head-News & Data at Climate Connect Limited, a market research and analytics firm in the renewable energy and carbon markets domain. He earned his Master’s in Technology degree from The Energy & Resources Institute in Renewable Energy Engineering and Management. He also has a bachelor’s degree in Environmental Engineering. Mridul has a keen interest in renewable energy sector in India and emerging carbon markets like China and Australia.

2 comments

  • Colleen, i usually don't see Russia motives as unfriendly but this case is bit different. Russia is holding about 60% of all the credits available in markets. Plus its companies are trying to bundle them up with the gas supplies (that story we all know).

    The number of surplus credits Russia has will only increase in the future and once the world moves out of recession the price of carbon credits will shoot up dramatically.

    Russia has used gas supplies as a efficient tool to put pressure on various countries and with such large amounts of surplus credits (and combing them with gas supplies) Russia will definitely get some extra leverage.

  • Hi, I think that it's a bit much to think that there are ulterior motives to everything that Russia does.

    "Securing its future economic growth" is a perfectly valid explanation and, heck, they're helping combat pollution in the process.

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