Russia May Offer Kyoto Backing for WTO Concessions by Europe

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Dec. 11 (Bloomberg) — Russia may agree to targets for reducing carbon dioxide emissions in return for the European Union softening conditions on energy pricing ahead of Russia’s membership in the World Trade Organization, trade lawyers said. “This could be the way out,” said John Weekes, senior policy adviser at law firm Sidley Austin Brown & Wood in Geneva and formerly Canada’s ambassador to the WTO. “From a Russian perspective, there’s been some tactical posturing in terms of what their approach is on Kyoto, so if they can get something additional for signing it in the end, then why not try.”

The EU may moderate demands that Russia stop regulating gas prices and split up OAO Gazprom’s $16 billion export market should Russia agree to sign the Kyoto treaty, a global accord to reduce carbon dioxide emissions.
Governments seeking to join the WTO must first resolve outstanding issues with existing members.

President Vladimir Putin complained last week that the EU’s “baselessly tough demands” on energy prices are blocking Russia’s entry to the WTO. His economic adviser, Andrei Illarionov, said Russia will neither enter the WTO on unacceptable terms nor endorse the Kyoto treaty in its present form.

While Illarionov said the Kyoto accord “places significant restrictions on Russia’s economic growth,” the treaty allots emissions allowances based on Soviet-era levels of industrial activity and allows Russia to sell its unused emissions credits to countries that have exceeded their quota.

The U.S. refusal to ratify the treaty deprived Moscow of its probable best customer for emissions-trading credits. In addition, the price of tradable emissions has plunged, removing an incentive for Russia to sign the accord.

The EU has been the main advocate of ratifying the treaty. The EU says Russia’s domestic energy policies have created an indirect annual subsidy for its industry of $5 billion, an advantage that is forbidden under WTO rules. Gazprom is forced to supply gas to the domestic market at cost, and oil companies can sell only 30 percent of their crude abroad, the EU says.
Both policies create domestic supply gluts that keep prices artificially low, and the EU wants Russia to dismantle these controls before it joins the WTO.

While WTO rules don’t prohibit a member from selling its own resources cheaply at home and at market rates for export, the EU has made Russia’s accession conditional on a solution because the 15-nation bloc doesn’t want competition from Russian products made with cheap energy sources, such as fertilizer, metals and chemicals.
(Bloomberg – Worldwide Financial Communication)