Nature-Based Offsets in Russia: Key Challenges and Conditions for Success

Abstract

The article discusses the key problems and conditions for the successful development of the nature-based offset projects (NBOPs) in Russia. The conditions for the successful entry of verified carbon units from Russian nature-based offset projects into the global market were determined considering the state and prospects for development of global carbon markets. The key limitations for the national carbon market for offsets are presented: the lack of internal economic incentives for companies to buy carbon units and to invest in Russian NBOPs; the lack of national methodologies for the NBOPs; legal restrictions for land-use; lack of available tools for assessing costs and profitability of NBOPs on given land plots; failures of carbon market regulation under the Sakhalin experiment. The limitations of the narrow agency-based approach to the development of NBOPs are shown. These limitations result in inconsistent decisions that do not fit real conditions in the global market. It is necessary to create a competence center to solve the issues of the NBOPs from specific methodologies of individual projects to science-based assessments of their total potential in Russia. Two scenarios of the use of NBOPs for decarbonization of the Russian economy are analyzed. Scenario 1 assumes large-scale sale of carbon units generated in Russian in foreign markets in order to maximize mid-term profit. Scenario 2 assumes the use of carbon units generated in Russian NBOPs mainly by Russian companies to achieve net zero by 2060. A realistic and balanced strategy assumes that the key buyers of carbon credits from Russian NBOPs in the first stage should be export-oriented Russian companies that can use these credits to reduce the carbon footprint of their products and implement corporate climate strategies.