Russian Federation: Sakhalin — A front-runner of Russian climate policy

In brief

In July 2021, Russia adopted its first ever law on reducing greenhouse gas (GHG) emissions ("Core GHG Law").1 The Core GHG Law establishes the framework for federal-wide mandatory carbon reporting and voluntary climate projects. It does not set a price on carbon — either as a carbon tax2 or as an emission trading system (ETS).3


In depth

Taken broadly, in addition to the Core GHG Law, the Russian climate package will include the following:

  1. Regional carbon pilot schemes — to test heavier GHG regulation for a given region without burdening the rest of Russia (Sakhalin will pioneer such experiment with its local ETS, and Kaliningrad oblast, Khanty-Mansi autonomous district, Altay krai, Bashkiria republic and some other Russian regions may follow)4
  2. Low-carbon development strategy until 2050 — to define Russia's strategic vision of possible paths and targets of decoupling economic growth from GHG emissions with some prospects of carbon neutrality
  3. National green and transitional projects taxonomy — to mobilize finance into projects with positive climate and environmental impacts, with potential incentives for both lenders and borrowers
  4. Carbon polygons and farms experiment — to ensure scientifically validated stock taking of Russian forests and other plants, soil, swamps and other natural systems' absorbing capacity (in case of polygons) and running carbon sequestration projects (in case of farms)
  5. Related cleantech policies — to ramp up the development of new industries and to modernize the existing ones while reducing GHG, for instance, Russia recently extended its renewables program until 2035,5 announced its plans in the hydrogen6 and electric vehicles industries,7 and it plans to increase the ambitions of its energy efficiency improvement plan and to tighten its waste management system8

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1 See Baker McKenzie, Russia: Government adopts its first ever greenhouse gas law - The core of its national climate package.

2 Per today, there are 35 carbon pricing initiatives on a national or a subnational level. Examples of national systems are Canada, Mexico, Argentina, Colombia, South Africa, Japan and several European countries. Subnational examples are Catalonia, several US states and several Canadian provinces. See World Bank, Carbon Pricing Dashboard.

3 Per today, 38 jurisdictions have or are about to set up their ETS or so-called cap and trade systems on regional (EU ETS), national (China, Indonesia, Turkey and Chile) and subnational levels (several US states, and several Canadian and Chinese provinces). See World Bank, Carbon Pricing Dashboard.

ETS implies that its regulator sets upper limits for GHG emissions (caps) for companies participating in the ETS. Companies that exceed their caps in a given year have to purchase the emissions allowances (right to emit) from companies that manage to decrease their emissions lower than their caps. Companies that fail to comply with their caps or that fail to purchase the required number of emissions allowances must pay a fine, which is usually much higher that the costs of buying the allowances.

4 According to media reports. No information about legislative initiatives in those regions is available yet.

5 See Baker McKenzie, Russia to kick-off second round of its renewables program in September 2021.

6 See Baker McKenzie, Russia Taking a Stand in Global Hydrogen Race. The targets for hydrogen exports have grown following the date of the publication.

7 See Baker McKenzie, Russia: Jump-start of a national electric vehicles industry.

8 For further details on Russia's climate, cleantech and environmental protection policy, see Section 25 of Baker McKenzie's Doing Business in Russia guide.

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