GREENHOUSE GASES. WILL A NEW TAX-FREE FEE BE INTRODUCED?

By the Russian Government Decree of 21 September 2019, the Russian Federation officially adopted the Paris Agreement, thereby committing itself to limiting greenhouse gas emissions by 2030 to 70% of the figure of 1990. Unlike the Kyoto Protocol, the Paris Agreement does not establish a specific mechanism to reduce emissions to the atmosphere, but gives States the right to determine on their own what measures countries will take to achieve the objectives of the Paris Agreement. It is important that efforts to reduce greenhouse gas emissions do not lead to an "ice age" for Russian industrial production.

FROM KYOTO TO PARIS

From 2008 to 2012, Russia was covered by the Kyoto Protocol to the United Nations Framework Convention on Climate Change. The Kyoto protocol included quantitative commitments to reduce gas emissions to a certain level. However, the Kyoto Protocol has ceased to apply to Russia since 2013, when the first commitment period under the Protocol ended and the second commitment period (until 2020) was not accepted. Given that the level of greenhouse gas emissions in Russia 's recent history never exceeded the 1990 level, compliance with the Kyoto Protocol did not require any serious efforts and therefore did not affect Russian national legislation. With the Paris Agreement, it 's harder. Greenhouse gas emissions now fall within a corridor of 70-75% of 1990 emissions, but in the 2020s, without special measures in the event of even minimal industrial  rowth, this threshold will be crossed. The ways of fulfilling the declared obligations will be determined by the national legislation of the country participating in the agreement. In Russia, there are no relevant normative acts, but by 2020 it is planned to develop a provision on adaptation of the Paris Agreement to the current norms of the Russian Federation. In other words, the Paris Agreement will not directly affect the work of the organizations operating in Russia, but it is worth expecting to intensify the efforts of the relevant Russian authorities, which are responsible for regulation in the field of ecology.

MEASURES TO REDUCE EMISSIONS PLANNED IN RUSSIA

The concept of the draft law "On the State Regulation of Greenhouse Gas Emissions" was developed in 2018 in response to the Government 's action plan to reduce greenhouse gas emissions to no more than 75 per cent of 1990 emissions by 2020. The preparation of the bill itself is included in the Plan for the Implementation of the Set of Measures to Improve the State Regulation of Greenhouse Gas Emissions and Preparation for Ratification of the Paris Agreement. The text is due by December this year. At the meeting of the Government of the Russian Federation, at which the adoption of the Paris Agreement was announced, it was also mentioned that the law is planned to be adopted within a year. Given Russia 's ratification of the Paris Agreement, it is likely that this deadline will be met.

At the moment, the bill provides for the introduction in Russia of a system to stimulate the reduction of greenhouse gas emissions through such measures as:

1. Setting targets for direct greenhouse gas emissions in general for the Russian Federation and for selected sectors of the economy
2. Establishment of general requirements for activities to reduce greenhouse gas emissions and/or increase their absorption
3. Authorization of direct greenhouse gas emissions for regulated organizations (quota mechanism)
4. Establish economic regulatory mechanisms for greenhouse gas emissions and removals by sinks, including a mechanism for the transfer of reduction units and greenhouse gas removals.

In addition, the bill provides for the possibility of implementing projects in certain sectors of the economy aimed at reducing greenhouse gas emissions. Such projects are likely to include, inter alia, projects promoting greenhouse gas absorption, such as forest expansion, soil fertility measures, crop production and other environmentally recommended measures. Such projects can be stimulated by the State by setting off the costs of the company implementing the project by paying for greenhouse gas emissions in excess of the authorized volumes. The draft law also provides for the possibility of obtaining direct financial support for such projects by the State. The specific procedure for the implementation of such projects will be determined by the authority authorized to do so.

NON-TAX FEE FOR GREENHOUSE GAS EMISSIONS

A mechanism to quota greenhouse gas emissions is likely to be one of the key ways of government regulation in this area. However, the draft law in this part does not provide for special specificity: it is established only that the authorized body will determine quantitative restrictions on gas emissions (quotas) for the organization in the process of which greenhouse gas emissions occur. The procedure for issuing such permits and, perhaps, the amount of quotas will be established by the Government of the Russian Federation after the adoption of the law under consideration.

It is worth noting that in case of excess of greenhouse gas emissions established by the permit, the organization will pay a fee, the amount of which is not currently determined. This fee, including according to the Ministry of Economic Development, has all the signs of a new non-tax payment. Thus, the adoption of a law with appropriate provisions would entail:increasing the fiscal burden of companies with greenhouse gas emissions. First of all, additional fiscal burden threatens sectors using fossil fuels: traditional electricity industry on hydrocarbon fuels, transport sectors, metallurgy. Because of the emissions of methane from livestock complexes, which also belongs to greenhouse gases, there is also a threat to some agricultural sectors.

Economic incentives are expected to encourage market participants to adopt technologies that reduce greenhouse gas emissions and thus help reduce the rate of global warming. At the same time, taking care of the environment, we should not forget about the economy on which the well-being of Russian citizens depends. If the increase in fiscal burden on market participants is too rapid, the shock consequences for the Russian economy will be as severe as the excessively rapid global warming. We recommend that key market participants in the above-mentioned sectors of the Russian economy participate in the discussion of both the bill and other government plans to combat climate change. The sooner the economic consequences of the new regulatory measures are calculated and the sooner the arguments for the least painful instruments for reducing greenhouse gas emissions are heard, the better for business and for Russia 's economy as a whole.