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Russia: Show me the
money
By Sergei Blagov
MOSCOW
- Russia first said "yes" to the Kyoto Protocol, then
"maybe", then "no", then "yes" again, then another "no"
last week. This pattern of mercurial behavior, far from
being a sign of indecisiveness, is an indication of
hard-nosed bargaining, with Moscow trying to use its
Kyoto vote as a bargaining chip.
Such
flip-flopping has fueled speculation that Russia's
threats to derail the Kyoto Protocol are a tactical
maneuver to receive concessions, and possibly guarantees
of financial incentives, from the European Union and
Japan - two of the protocol's most ardent and affluent
backers. Hence a Russian "yes" to Kyoto may mean big yen
and euros.
The Kyoto Protocol came out of the
United Nations Framework Convention on Climate Change in
a December 1997 meeting held in Kyoto, Japan. Under the
agreement, industrialized nations must reduce their
emissions of greenhouse gases (GHG) by an average of 5.2
percent (from 1990 levels) by the period of 2008 to
2012.
The 120 nations that have ratified the
Kyoto Protocol since it was drawn up are counting on
Russia's support because it accounted for 17 percent of
greenhouse gas emissions at 1990 levels. The protocol
must be ratified by industrial nations that produce 55
percent of greenhouse gases for it to take effect. The
United States, the world's biggest producer of such
pollution with 36 percent of 1990 emissions, has
rejected the treaty. If Russia joins Australia and the
US in their rejection, the accord will not have the
support it needs to be implemented globally -
essentially meaning Russia holds the trump card in the
Kyoto game.
Initially, Russia had expected to
benefit from the treaty. Kyoto provides for setting up a
market in which countries could sell unused pollution
"quotas" - or emissions-reduction "credits" - to
defaulting nations that are heavy polluters. The trade
in emission quotas is designed to reward clean
industries - Russia has already met its targeted
reduction of GHG - and to serve as an incentive for
dirty industries to invest in more environment-friendly
technologies. According to the Energy Ministry, Russia
had hoped to gain between US$500 million and $4 billion
a year by selling these emission quotas to other
countries.
However, the lack of US participation
in the treaty brings down the potential funds available
for Russia and so this is being cited as one of the main
reasons for its reluctance to ratify the pact. Kremlin
officials have said Moscow wants guarantees from Western
nations that they will buy Russia's emission quotas if
it does ratify the treaty.
When Andrei
Illarionov, Russian President Vladimir Putin's economic
advisor and a long-standing critic of the protocol, sent
shock-waves all over the world last week by stating that
Russia would not ratify the protocol, he incidentally
lashed out at some major polluters. However, Illarionov
added that Moscow might be willing to reconsider an
amended protocol. Hence, he acknowledges that nothing is
set in stone, indicating that that Russia is open for
bargaining and its position could change.
Among
would-be amendments, Illarionov pointed to the fact that
Kyoto does not require some major polluters, notably
China and India, to meet emission reduction quotas. As
developing countries, India and China are not required
to reduce the emissions of GHG. Rather, they are
expected to benefit from the transfer of technology and
additional foreign investment into sectors like
renewable energy, energy generation and afforestation
projects if the protocol comes into force. Polluters
bigger than Russia should also be required to meet
emission reduction quotas before Moscow would consider
ratification of the protocol, Illarionov said.
A
day later, Putin's deputy minister for economic
development, Mukhamed Tsikanov, changed gears. "Russia
will ratify the protocol if it proves to be in our
interest," said Tsikanov, whose ministry is in charge of
Kyoto negotiations. Tsikanov echoed the financial
argument when asked what approval depended on.
"You should put this question to Japan and the
EU about when they will start to speak to us in economic
language," he said. Polluting countries "are yet to
express any interest in buying quotas", Tsikanov said.
"Movement towards ratification of the protocol depends
on this," he added. The warning came as representatives
of 180 countries met in Milan, Italy, to discuss the
pact.
Until recently, Moscow pledged to support
the protocol. Last year, Russian Prime Minister Mikhail
Kasyanov told the World Summit on Sustainable
Development in South Africa that ratification would take
place "in the very near future". This is why
Illarionov's latest threat to jettison the protocol came
as a bolt from the blue.
Putin has so far failed
to comment or to clarify his country's position. Last
September, Putin surprised the Moscow conference by
saying: "If it were two or three degrees warmer, this
would be no big deal. Maybe it would even be a good
thing - we would spend less money on fur coats." In
other words, Russia does not mind a bit of global
warming.
Another reason for Russia's indecisive
behavior could have been that polls for the lower house
of parliament were imminent, and that presidential
elections are due next March. With Russian industries
split over the pact, Putin may see ratification as a
political risk he just isn't willing to take.
But Russia's bargaining on the Kyoto Protocol
could bring undesired results, including calls for trade
sanctions against countries refusing to cut their
emissions of greenhouse gases. The New Economics
Foundation, a British independent think tank, reportedly
urged the EU to tax imports from these countries because
they enjoy a competitive disadvantage as energy costs
increase.
Japan has expressed hope that Russia
will ratify the Kyoto Protocol after all, and is
expected to remind Moscow of the protocol's financial
prospects during Kasyanov's visit to Tokyo from December
15 to 17, when he is set to meet with Japanese Prime
Minister Junichiro Koizumi.
Pipeline
pondering
Issues other than the Kyoto Protocol
are not exempt from Russia's high-stakes bargaining
tactics, with Moscow quick to recognize when it has the
upper hand. For instance, China and Russia have been
discussing the 2,400-kilometer Daqing link since 1994.
The pipeline is expected to transport 700 million tons
of Russian crude in eastern Siberia to northeast China
over 25 years. The countries signed the framework
agreement on the project in March 2003.
However,
in yet another spat of sure-nyet-maybe policy, the
Russian Ministry of Natural Resources came up with a big
nyet - or no - in September, saying that it might
block the planned route for the Angarsk-Daqing pipeline
due to environmental reasons. In other words, it was
tacitly stated that Russia might be willing to bargain
on the issue. Later in September, Kasyanov then said
yes, indicating that Russia would stand by an agreement
to build a pipeline to China during a meeting with
Chinese Premier Wen Jiabao in Beijing.
Bargaining is always an option for Russia,
notably when big oil profits are at stake. China is one
of the world's largest oil consumers, while Russia is
one of the world's largest oil producers. China wants
Russian oil so it can cut its reliance on the Persian
Gulf and maintain its high rate of economic growth.
Meanwhile, the current troubles of the Russian
oil giant Yukos, which happened to be the main advocate
of a Chinese pipeline, made it urgent for China to speed
up discussions. Chinese officials have voiced hope that
the Yukos affair would not have any impact on the
China-Russia oil pipeline project. Incidentally,
following arrests of Yukos top executives, the Kremlin
said that there would be "no bargaining" over the
enforcement of Russian law.
It has been
understood that Russia's wavering over the Siberian oil
pipeline might be, at least in part, the result of hard
lobbying by Japan for a rival pipeline bypassing China
and stretching to Russia's Far East port of Nakhodka.
China and Japan - competing for Russian oil -
are sponsoring rival pipeline routes. China National
Petroleum Corp is backing a $2.8 billion link to China's
northeast city of Daqing. Meanwhile, Tokyo has offered
to fund the $5.8 billion cost of building a pipeline to
the port of Nakhodka on Russia's Pacific coast. At some
point, Russian officials floated an idea to combine both
Daqing and Nakhodka routes.
Since both China and
Japan seem interested in limiting reliance on the Middle
East's oil supplies, Moscow does have bargaining power
vis-a-vis potential East Asian importers of Siberian
oil. If Russia skips either the Daqing or Nakhodka
route, it could come as a sort of blow to oil import
plans for China and Japan.
Moreover, another
major pipeline project has been under discussion for
eight years, indicating that a lot of bargaining has
been going on. The planned 4,887-kilometer gas Kovykta
pipeline would cost up to $17 billion. The longest of
its kind in Asia, it would link the Kovykta gas field
located in the Irkutsk Oblast in Russia's East Siberia
to the cities of Shenyang, Beijing and Dalian in China
and will finally reach Pyeongtaek in South Korea via a
sub-sea pipeline.
China and South Korea are
expected to import 600 billion and 300 billion cubic
meters of gas, respectively, from Russia over a 30-year
period. But a formal deal is yet to be clinched, hence a
lot of space remains for yes and no bargaining.
Moscow mulls other ambitious projects in East
Asia as well. On December 5, Russian Atomic Energy
Minister Alexander Rumyantsev announced that Russia
would seek new contracts to build more nuclear reactors
in China.
What remains to be seen is whether
Russia will continue its flip-flop maneuvering
concerning the future of potentially lucrative projects,
and if so, just how much waffling potential partners are
willing to accept before they look elsewhere.
(Copyright 2003 Asia Times Online Ltd. All
rights reserved. Please contact content@atimes.com for
information on our sales and syndication policies.)
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