Conclusions

Despite the obvious benefits to Russia from its signing of the Kyoto Protocol, it took several years for Russian politicians to ratify the treaty. The protocol was a bargaining tool in the WTO negotiations, and Russian leaders promised to speed up ratification after the European Union withdrew its request for Russia to sharply increase its domestic natural gas prices. Hidden subsidies for natural gas allow Russia to keep a significant share of natural gas in the fuel mix. With regard to the absence of any other meaningful environmental policy, the subsidies for gas consumption are the only way to prevent the sharp increase of conventional pollution and carbon emissions.

During the economic crisis of 1991-98, Russian carbon emissions declined along with GDP, but the emissions reduction was not as large as the GDP reduction. Likewise, the increase of CO2 emissions during the recovery period was not as sharp as the GDP increase: elasticity of CO2 emissions with respect to GDP was about 0.25. The major factor determining carbon emissions was structural change in GDP. The industrial sector contributes a substantial share of CO2 emissions; changes in total industry production significantly influenced carbon emissions and help to explain the decoupling of CO2 and GDP. The GDP share of industry increased during the economic crisis and then declined during the recovery period.

Structural changes within the industry are important as well. The variation of carbon intensity across industrial sectors declined. Decline in the share of most carbon-intensive sectors led to a decrease in aggregated carbon intensity. In the industrial sector the combined effect of these factors allowed for the avoidance of a significant amount of emissions. If the GDP structure and carbon intensity held, then 2004 emissions would have been about 2,130 megatonnes instead of their actual 1,610 megatonnes. All structural changes and improvements of efficiency were the result of the integration of the Russian economy into the world economy and the general effect of economic liberalization.

As of now there are no specific incentives for CO2 emissions reduction. Thus all improvements in carbon efficiency can be explained by the alteration in energy efficiency of the economy. CO2 emissions closely follow energy consumption. Therefore, some additional incentives could be created by the Kyoto Protocol, which will help determine CO2 emissions in the future.

The future of carbon emissions is uncertain. Nobody can tell exactly how long the existing forces driving carbon emissions will determine these dynamics and when new factors will take over. To address these uncertainties, the Monte Carlo method to predict the range for CO2 emissions was applied. Surely, Russia will meet its Kyoto target, and with 90 percent confidence, will have a cumulative surplus of assigned amount units equal to 2,000 megatonnes of CO2. Most likely Russian CO2 emissions will remain below 1990 levels during the next decade. A more precise projection requires the application of a general equilibrium model with endogenous technological changes, because technological changes and further improvements in efficiency will be important factors for GHG emissions.

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