Sakhalin carbon experiment law to come into force on 1 September 2022
The legal framework for the possible model of carbon regulation in Russia has been established in a Federal Law* adopted on 6 March 2022 (the “Law”). This model will be tested during the experiment in the Sakhalin Region from 1 September 2022 to 31 December 2028.The main goal of the experiment is to achieve carbon neutrality in Sakhalin by the end of 2025.The approved carbon management model will likely be extended to other regions of the Russian Federation if the experiment proves successful.Main provisions of the LawThe Law introduces quotas for greenhouse gas emissions as a new instrument for carbon regulation and as the basis of the experiment.A quota is defined as a certain amount of allowable greenhouse gas emissions annually set by the competent body for regulated companies, based on an approved methodology, to achieve carbon neutrality. The regional government will approve the list of such companies.If a company exceeds the established quota, it will be charged at rates that the Russian government will approve. On the contrary, if the quota for the accounting year is met, units of fulfilment of the quota in an amount corresponding to the difference between the established quota and the actual mass of greenhouse gas emissions will be credited to the account of the organisation in a special register.Subsequently, the company may credit such implementation units to its account in the register to meet its assigned quota or the company may transfer them to another entity for which they are necessary to meet its own quota. In this way, the prerequisites for the emergence of a market for trading in quota implementation units are created.In addition to quotas, the Law envisages other mechanisms to regulate emissions and absorption of greenhouse gases:• An inventory of emissions will be made once a year at the regional level.• Regulated organisations will have to conduct mandatory carbon reporting.• Economic and financial mechanisms that stimulate emission reductions will be established. They may be realised in the form of tax credits for regulated organisations or subsidies for the reimbursement of production costs.CommentsIn contrast to the previously adopted federal law on limiting greenhouse gas emissions (which we reported on earlier), the Law stipulates stricter regulation of greenhouse gas emissions and absorption in the experimental area through quotas.Even though implementing regulations provided for by the Law in furtherance of its provisions have yet to be enacted, the rules the Law creates are already a bold step forward in the climate-change agenda.However, in the current circumstances, the successful implementation of the experiment within the announced timeframe raises legitimate concerns. It is very likely that, by the time the Law comes into force in September 2022, the plans for the experiment will have to be substantially revised due to the need to reallocate budgetary resources for other needs.* In RussianCo-authored by Elena Foteeva, Paralegal in Real Estate.