Engaging Russia on Climate Change - Untapped Opportunities

UNCLAS SECTION 01 OF 05 MOSCOW 000842

AIDAC STATE FOR USAID/E&E A/AA YAMASHITA, BREWER, ROBINSON AIDAC
STATE FOR USAID/EGAT/ESP/GCC
STATE FOR OES/STC, OES/PCI, EUR/ACE, EUR/RUS, EUR/PGI
STATE FOR OES/EGC
STATE PASS TO NASA
INTERIOR PLEASE PASS TO USFWS
OSTP FOR MARBURGER, RUSSELL
COPENHAGEN FOR ERIK HALL

SIPDIS

E.O. 12958: N/A
TAGQ EAID, TSPL, OSCI, KGHG, ENRG, SENV, KSCA, RS
SUBJECT: Engaging Russia on Climate Change - Untapped Opportunities

REF: A. 08 MOSCOW 3673

B. MOSCOW 438

C. 08 MOSCOW 3693

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SUMMARY
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1. In response to State, USAID, and DOE discussions over the future
direction of the Global Climate Change (GCC) and Clean Energy
Initiative programs in the Europe and Eurasia region, Post's
Assistance Coordination Working Group has reviewed potential
approaches to engage Russia. As the country with the third largest
emissions of CO2 from fossil fuels, the world's largest forest
resources, the largest natural gas reserves, and one of the least
efficient energy production and consumption systems, Russia can make
a substantial contribution to addressing GCC. However, it faces
technological shortcomings and political obstacles stemming from the
country's continued economic dependence on hydrocarbon exports.
Post proposes exploring targeted engagement with Russia on (1) clean
energy, including energy efficiency, (2) sustainable management of
forests and affected ecosystems, and (3) policy coordination and
science cooperation. Progress on GCC issues would benefit from a
renewed bilateral cooperation structure that provides high-level
political blessing and regular review of progress. With modest
resources the USG could help shape Russia's response to GCC and
expand channels of cooperation. Post welcomes Washington
recommendations and further discussions on how best to engage Russia
on GCC. END SUMMARY.

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Why Engage Russia on Global Climate Change?
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2. RESOURCES: Russia is the world's second largest oil producer
after Saudi Arabia. Following the collapse of the Soviet Union,
Russia's oil output fell sharply, but rebounded significantly in the
early 2000s. Oil production dropped in 2008 for the first time in a
decade and is forecast to drop again in 2009. Russia has the
largest natural gas reserves in the world and is the largest natural
gas exporter. Until the recent financial crisis, rising electricity
consumption had increased natural gas consumption. Russia has the
second largest amount of recoverable coal reserves in the world, and
the Russian Energy Ministry is optimistic about future growth in
coal use. Since Russian coal is predominantly dirty, burning it at
power stations greatly contributes to CO2 emissions. Introduction
of clean coal technologies is vitally important as coal continues to
play a key role in the Russian energy mix. Russia's forest
resources, which cover 22 percent of the world's forested areas,
also represent one of the world's largest potential carbon sinks, if
managed and measured appropriately. These resources make Russia a
huge factor in the GCC equation and also grant the country some
financial capabilities that can be focused, especially given the
country's scientific capacity, to address the challenge.


3. ENERGY INEFFICIENCY: Russia is one of the least efficient users
of energy in the world, due in part to its inherited Soviet-era
capital stock and system of continued government subsidies. A
September 2008 World Bank study grabbed headlines with its findings
that Russia can save 45 percent of its total primary energy
consumption, and that Russia's current energy inefficiency is equal
to the annual primary energy consumption of France. Given this
situation, the GOR recognizes it can benefit from relatively cheap
efficiency gains. Currently, natural gas prices are kept at low,
regulated levels. In 2007, the Russian government instituted a plan
to transition industrial consumers to market prices for gas by 2011,
in hopes of encouraging energy efficiency. President Medvedev has
rolled out several green initiatives, including hosting a June 2008
conference to discuss sustainable environment and energy efficiency
and signing a decree in June 2008 calling for new laws to create
energy-efficient technologies and setting a goal of increasing the
country's energy efficiency by 40% by 2020 (ref C). Unfortunately,

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we understand that the economic crisis has derailed many of these
plans. The government has continued to increase natural gas prices
despite the economic crisis, but the deadline for market pricing is
once again up for debate, and may be delayed even as the market
price continues to drop closer to the subsidized price.


4. A major portion of Russia's greenhouse gas emissions comes from
flaring of natural gas by Russian oil companies. These companies
are forced to flare due to Gazprom's refusal to allow them access to
the natural gas transport system. Estimates of gas flaring range
from 390 Bcf (RosStat) to 2,400 Bcf (US National Oceanic and
Atmospheric Organization),or 11-70 Bcm; roughly 25% of production.
The government of Russia has called on oil companies to reduce their
gas flaring by 95% and GazpQm to allow oil companies access to its
pipeline network so that associated gas from oil wells could be
captured and sold, rather than being burned away. However,
government-owned Gazprom has thus far refused to comply.


5. RUSSIAN POSITIVE MOTIVATION: Russia will be one of the first and
greatest victims of climate change and is now in a position to be
motivated to tackle GCC. A November 2008 report from Russia's lead
scientific agency on climate change issues, the Federal Service for
Hydro-meteorology and Environmental Monitoring (Roshydromet) (ref
A),warns that GCC will have a disproportionate effect on Russia
because of its geographic position. A rise in Arctic temperatures
will endanger infrastructure that is built on permafrost. The water
supply in the south, critical to agricultural production, will
suffer due to changes in rainfall patterns. Climate trends could
increase the spread of certain vector-borne diseases, negatively
affecting human health. Droughts could increase the risk of forest
fires in some regions, and other parts of the country could see
significant increases in flooding along rivers.


6. Another potential motivator for Russia is cracking down on lost
tax revenue from illegal logging, which would indirectly help GCC by
preserving more of Russia's forests. Russia is a particularly large
source of illegally harvested timber, much of which is then
illegally exported into China, eventually making it into the United
States and other developed countries in the form of finished wood
products. Russia's forests act as a carbon sink and thus directly
affect global climate.


7. OBSTACLES: Russia's economic dependence on the export of fossil
fuels and the entrenched interests of Russia's fossil fuel
industries are among the greatest obstacles preventing Russia from
embracing efforts to combat climate change. In many cases, internal
political deadlocks have prevented Russia from making progress on
its most important GCC problems. For example, efforts to tackle
Russia's greenhouse gas emissions must involve the country's largest
methane emitter and its largest corporation, Gazprom. The gas
monopoly has cooperated with EPA, though only on a small scale, to
share best practices on reducing methane emissions, and cooperation
could be expanded. But making a significant dent in emissions from
natural gas flaring will require sustained political will and
internal efforts on the part of Russia's federal government.


8. Significant constituencies in Russia's scientific and policy
communities still dispute the evidence of climate change, while
others argue that Russia will actually benefit from warming trends.
However, Dr. Yuriy Izrael, from 2002 to 2008 a vice-chairman of the
Intergovernmental Panel on Climate Change (IPCC) and one of the lead
authors of the Roshydromet report on climate change, told us in a
December 2008 meeting that the evidence of climate change is clear,
and that a high degree of confidence exists that human activity has
been its primary cause since the mid-20th century. That scientific
certainty, however, has not yet made its way to all parts of the
Russian government structure and populace.

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Three Opportunities for Technical Cooperation
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I. Improve Energy Efficiency in Domestic Operations and the Energy
Supply System:


9. Clean energy and energy efficiency are of keen interest to a
range of Russian local, regional, and national institutions and are
areas where the USG has programmed on a small scale in the past with
good success. USG implementing partners have established
relationships with a range of national, regional, and local entities
on energy-related issues. With appropriate technical assistance,
these organizations could serve as a basis for advancing a number of
USG policy, technological, and resource management issues in Russia.
As one example, regional and municipal governments have been active
participants in USAID's Community Development Support Program (CDSP)
which encourages improvement of local resource management through
energy efficiency projects.


10. There are several areas where the USG could increase efforts,
contingent upon additional resources:

a) Encourage the development of energy-efficiency policies in
cooperation with local governments and the Ministry of Regional
Development.

b) Encourage strengthening of energy-efficient building standards.
Commercial, residential, and public buildings account for more than
50% of the country's total energy usage. Russia's progressive
efficiency standards will also need to be reauthorized soon in order
to remain in force beyond 2010.

c) Encourage new legislation establishing efficiency targets for
heat generation facilities and distribution networks. Nearly 70
percent of the heat supplying Russia's buildings is generated by
large and inefficient centralized district heating systems. New
legislation should mandate the installation of meters and
temperature controls in buildings so that utility bills reflect
actual energy use.

d) Engage local and regional government on energy efficiency
policies, practices, technologies, financing structures, and
demonstration projects which raise community awareness and reinforce
existing democracy programs.

e) Develop partnerships with the private sector and Russian
government agencies to address natural gas leakages during
transportation, the excessive flaring/venting of gases, and
re-injection technologies.

f) Provide technical assistance to explore renewable energy sources,
including the largely untapped hydropower potential of numerous
rivers, geothermal energy, biomass production in agricultural
regions, wind on the sea shores, and solar energy applications in
the south.

g) Provide technical assistance in development of a domestic
cap-and-trade system. The Russian Minister of Energy supports the
idea of such a system among power plants to facilitate energy
efficiency, and the government may be receptive to cooperation on
design and development of a Russian system.

II. Enhance Sustainable Management of Forest Resources and Affected
Ecosystems:


11. Given Russia's vast forest resources and fragile Arctic habitat,
there are significant opportunities to cooperate, exchange
knowledge, and improve forest and natural resource management
practices in Russia. In response to a Congressional directive, Post
has made a modest contribution to the GCC earmark in the past
through USAID/Russia's work with the U.S. Forest Service (USFS) to
promote sustainable forest management in parts of the Russian Far
East and Siberia. USAID also partners with the Russian Federal
Forest Agency and the Russian Ministry of Natural Resources to
address fire management, illegal logging, and watershed management,

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which directly relate to climate change. Large portions of the
Russian Far East remain under threat from illegal logging and
ineffective resource management.


12. Initiatives the USG could pursue in this area include:

a) Scale up limited forest management efforts throughout the Russian
Far East in partnership with Russian NGOs and the Russian Forest
Agency to improve forest management, increase public awareness about
resource management, and reduce illegal logging.

b) Explore options for adaptation and mitigation through sustainable
woody biomass utilization. In addition to offering significant
social benefits to local communities, woody biomass utilization
would result in reduced greenhouse gas emissions and atmospheric
concentrations of greenhouse gases through substitution of fossil
fuels and provision of "carbon neutral" energy.

c) Provide technical assistance to forestry agencies on carbon sink
accounting to ensure that Russia accurately measures forest
resources in relation to carbon trading.

d) Develop public-private partnerships to address illegal logging
practices in the Russian Far East, Siberia, and along the
Russia-China Border.

III. Step up Policy Coordination, Information Exchange, and
Capacity-building:


13. Sustainable policy and technical cooperation on GCC, as in other
issues, is hampered by the stifling top-down nature of Russia's
bureaucracy, combined with a tendency to read U.S. designs as taking
advantage of perceived Russian weakness. After the 2000 end of the
Gore-Chernomyrdin Commission, cooperation in many areas dwindled to
a trickle or ceased because of the lack of a political
superstructure for high-level blessing and regular progress review.
The Russia-U.S. Climate Change Policy Dialogue Working Group,
launched in January 2003, has not met since 2005, although certain
projects under the Dialogue continue. Progress on GCC issues would
benefit greatly from a renewed cooperation structure, such as a
bilateral interagency task force on Russian climate change issues.


14. Enhanced U.S.-Russia technical cooperation on global climate
change could provide substantial benefits to both countries in areas
including technologies and practices to reduce greenhouse gas
emissions, improved monitoring and management of international
ecosystems and the Arctic, the development of Russia's carbon
accounting capacity, and improved coordination in the development of
policies. Such cooperation would also more generally strengthen the
U.S.-Russia dialogue on climate change in the run-up to and
following the United Nations Framework Convention on Climate Change
(UNFCCC) COP-15 in Copenhagen in December 2009. Russian Academy of
Sciences (RAS) President Yuriy Osipov agreed with Ambassador Beyrle
on February 17 that bilateral science cooperation should be
increased to a more robust level (ref B),proposing joint work on
natural sciences, environment and climate change, energy efficiency
and renewable energy, among others. The Russian Energy Ministry
announced in January that the Russian government plans to invest in
research and infrastructure for water, heat, solar, and wind power,
as well as attract private funds to industry that could provide a
basis for joint activities with the United States.


15. In the areas of policy coordination, information exchange and
capacity building, the USG could increase engagement in a number of
areas including:

a) Arctic monitoring issues such as ocean observations, especially
of trends in ocean temperature and changes in ecosystem structure in
a warming ocean; efforts to quantify current values and detect
future trends in methane emissions from thawing permafrost, shallow
Siberian lakes, and shallow gas hydrate fields in the coastal Arctic
Ocean; and enhancing atmospheric observations at the Tiksi

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Observatory and expanding this effort to other sites in Russia.

b) Bilateral expert-level discussions on methods of adaptation,
including cooperation in design and development of financing
mechanisms for adaptation vital to many of Russia's small
communities.

c) Addressing shared resource management challenges in the Arctic
stemming from climate change, including: threats to the
Alaska-Chukotka cross-border polar bear population and other
migratory endangered species, coordinated standards of shipping in
Arctic seaways, and coordinated fishery regulations.

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COMMENT
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16. Climate is one area where the Russian Federation and the United
States often share similar viewpoints and, potentially, objectives.
Global progress on climate change cannot happen without Russia's
participation; even modest changes in Russian practices can have a
significant impact globally. Agencies at post and in Washington are
well-positioned to more actively engage Russia, building on past
work in the areas of clean energy, forest management, and science
cooperation to move Russia towards bilateral partnerships and joint
ventures, joint science, public-private collaboration, new
technology, and financing. U.S. policy and technical cooperation
can bring our positions closer in international GCC negotiations,
catalyze new observations and science, and facilitate better use of
resources to most effectively address GCC. Post requests guidance
from State, USAID, EPA, DOE, NOAA, USFWS and other agencies on how
best to capitalize on this opportunity.

BEYRLE