The former communist dictatorship is set to benefit from the Kyoto Protocol, write Vanessa Houlder and Phelim MacAleer
Alexandru Dragan, the mayor of Tasca in north-eastern Romania, becomes angry when he remembers conditions in his town three years ago. “It was raining cement from the factory and that was mixed with black oil from the works power plant. It was truly awful,” he said. However, an investment by the Danish government, which installed filters on the cement factory and new power plants which also provide heating for domestic users, has changed the area beyond recognition.
But the Danes were not acting out of altruism. Their help was prompted by the 1997 Kyoto Protocol on climate change which allows developed countries to earn emission credits by remedying pollution or greenhouse gas emissions in other countries.
Romania is expected to play a critical role in the global carbon market created under the protocol, which provides incentives to cut emissions at the most cost-effective locations, notably in the former Soviet bloc.
These countries will find their Kyoto targets easily achievable, leaving scope for selling surplus emission “credits’ to other countries.
This is particularly true for Romania because its base level was the figure for emissions in 1989. Nilolae Ceasescu, the country’s former communist dictator, had spent the previous two decades trying to make Romania into an industrial powerhouse. The subsequent industrial decline means Romania has much spare capacity to trade.
There is also significant potential for carbon reduction projects, such as replacing inefficient plant or converting coal-fired power stations to natural gas, which is another potential source of carbon credits for foreign companies and governments.
No country is better placed than Romania to host these “joint implementation” (JI) projects, according to a ranking by Point Carbon, a Norwegian research group and Vertis Environmental Finance, Budapest-based financial advisers. Foreign governments and companies are willing to invest in carbon reduction projects as Romania’s many projects and government support for JI compensate for the risky investment climate.
At least 10 of the 15 current members of the EU are likely to overshoot their Kyoto targets by a wide magin. These countries may be able to make up the difference either by undertaking JI projects or by trading surplus Kyoto allowances. The opportunity to trade allowances may occur as soon as 2005 when the EU,s emissions trading scheme is due to be launched.
The EU’s trading scheme, recently agreed in Brussels, will require member states to set limits on carbon dioxide emissions from industry.
If a company exceeds its limit, it will be able to buy allowances from other EU companies that have reduced their emissions. This trading market could have a yearly turnover of €1.8bn (pounds1.3bn, $2bn) during 2008-12, according to Ecofys, a research group. Those central European countries due to join the EU next year are expected to take part in the EU’s scheme, adding significantly to its liquidity.
However, the prospect of new members selling surplus emissions to western European companies carries a risk of upsetting Russia. Following the US rejection of Kyoto, the treaty will only come into force if it is ratified by Russia.
Although President Putin has declared his intention to rafity it, the decision is still being fiercely debated within the government. Some politicians are concerned that the appetite for Russia’s surplus Kyoto allocations will be undermined if demand from European industry is satisfied by excess central and eastern European allowances (although European governments might still buy Russian allowances to offset surplus emissions from nonindustrial sectors such as transport).
Excess allowances in new EU countries would almost balance expected demand from existing member states, according to Point Carbon.
Atle Christiansen of Point Carbon decribes this as a “very delicate” issue. There is a real concern in Russia that the enlarged EU is likely to meet its targets through domestic measures, he says.
It is a point not lost on Vlad Trusca from the Romanian environment ministry. He says Romania is looking to the Kyoto Protocol as a future useful source of funds but he realises it could still lose out. “If Russia and Ukraine rafity the Protocol and the US doesn’t join there will be a glut of sellers and not enough buyers.”
(From Financial Times 26/06/03)