The Kyoto Protocol Emission Allocations: Windfall Surpluses for Russia and Ukraine

The Emission targets adopted in the Kyoto Protocol far exceeded the likely level of emissions from Russia and Ukraine. These countries could sell their surpluses if the Protocol is followed and industrialized countries establish an international emission trading system. Critics have condemned the potential sale and dubbed the surplus 'hot air' because it does not represent any reduction in emissions below the level that would have occurred anyway. Using the most recent, comprehensive regional scenarios for the emissions of carbon dioxide from the energy system, we estimate that during the Protocol's 2008-2012 'budget period' the surplus will range from 9 MtC (million tons of Carbon) to 900 MtC for Russia and from 3 MtC to 200 MtC for Ukraine. Even scenarios with high economic growth and carbon-intensive technologies do not exhaust the surplus before the budget period. In the central ('middle course') scenario, the total carbon surplus exceeds 100 MtC and is worth 22 to 170 billion U.S. dollars (4 to 34 billion U.S. dollars per year). This flow of revenues, which could exceed Russian earnings from natural gas exports ($10 billion in 1997), is comparable with the projected total investments of the Russian energy system for 2008-2012. If directed towards low-carbon infrastructure investments (e.g. gas pipelines), surplus transfers could reinforce and partially lock-in decarbonization of the world energy system