June 28, 2005

Russia signs first Kyoto project, more seen

By Oliver Bullough

MOSCOW (Reuters) - Power giant UES signed Russia's firstprojects under the Kyoto pact's investment rules on Tuesday, inwhat it hopes is a step to cutting greenhouse gas emissions andraising cash for the aging electricity sector.

The projects are themselves small as they cost the Danishgovernment 20 million euros ($24.25 million) for a yearlysaving of 1.21 million tonnes of carbon dioxide, but aredesigned to show the potential of Russia for Kyoto investors.

Under the terms of the pact, which assigns countries withpollution quotas in a bid to stabilize levels of the gases thatcause climate change, investors can cut emissions in anothercountry and book the savings as their own.

The so-called Joint Implementation (JI) clause is intendedto allow emissions cuts to be as cheap as possible.

In this case, Denmark's Environmental Protection Agencyinvested in Unified Energy System (UES) Siberian subsidiariesKhabarovskenergo and Orenburgenergo.

"These are pilot projects, but we are sure they will beeffective... and they will help the government understand theefficiency of this route," said UES board member Yakov Urinsonat the signing ceremony.

"Just by modernising existing stations and changing steamturbines to gas turbines would let us reduce... (carbondioxide) emissions by 90 million tonnes (a year)."

Russia does not have to cut emissions to satisfy Kyoto'sdemands because it pollutes around a third less than its quotabut companies like UES see the pact's mechanisms as a handy wayto raise cash.

Plant modernisation could help UES avoid power cuts such asone that blacked out much of Moscow last month, in anembarrassing reminder of the effects of post-Soviet neglect.

Although UES's emissions have collapsed along with theeconomy since the end of communism, it still emits more than300 million tonnes of carbon dioxide -- around two percent oftotal world emissions.

Urinson suggested Joint Implementation projects could helpUES improve energy efficiency by almost a third, which couldreduce the world's carbon dioxide emissions by more than half apercent.

Other UES officials said they had 20 projects currently outto tender in Europe.

"We have talks with Austria, Belgium, Germany, GreatBritain, these are similar projects," said Andrei Gorkov, headof UES's Energy Carbon Fund, which spearheads Kyoto projects.

"The price of these projects in Russia is less than buyingquotas (on the open market), this is because at the momentthere is a higher risk. But we hope we can make it so the pricewill not be lower than quotas."

UES has long led the Russian push for Kyoto-linkedprojects, but other firms including gas giant Gazprom andaluminum firm SUAL have also expressed an interest. Someexperts say investment could top $2 billion by 2012.

($1=.8248 Euro)