FNI Climate Policy Perspectives 2, November 2011
In the absence of functional carbon market opportunities, the approaching gap in the international climate regime beyond 2012 is likely to alienate the major transition economy emitters Russia and Ukraine from the potential future climate regime.
The new carbon market mechanisms currently under negotiation remain too underdeveloped and uncertain to provide incentives for Russia and Ukraine to remain actively engaged. Further, experiences with carbon market mechanisms thus far illustrate many weaknesses in the administrative and political systems of these countries which discourage their involvement in complex future mechanisms.
In the absence of post-2012 carbon market options it seems likely that Ukraine will attempt to preserve its carbon market capacity by establishing a domestic ETS - however, without external involvement and prospects of demand, this may not be successful. Given Moscow's negative attitude towards further Kyoto commitments, it would be easy for Russia to interpret a gap as a broken promise: the surplus of AAUs and the Kyoto mechanisms are considered as a right that Russia was promised in Kyoto in 1997.
Given the functionality of Joint Implementation (JI), its extension seems the most feasible option for engaging Russia and Ukraine in the international climate regime immediately post-2012. However, various politically difficult questions remain as to the JISC recommendation to base ERU issuance on the first commitment period AAUs.
Regardless of the problems and frustrations experienced with JI and GIS during the first commitment period, engaging Russia and Ukraine in the climate regime through the continuation of JI would probably provide the least-effort option for the future. Allowing domestic carbon-market capacities to disintegrate during the gap years would probably lead to serious problems when the support of these countries is sought for the future climate regime, due not least to Russia's confrontational approach to international climate diplomacy.