Climate Darling or Potemkin Village? Russia’s Carbon-Neutral Experiment in Sakhalin

Early Actions and False Starts

Initial attempts to launch regional climate mitigation programs in Russia started in the late 1990s, with support from a U.S. Environmental Protection Agency grant to the Pacific Northwest National Laboratory (PNNL) and World Wildlife Fund (WWF) to implement international guidelines for greenhouse gas emissions inventory developed by the Intergovernmental Panel on Climate Change (IPCC). The regions of Novgorod, Khakassia, Chelyabinsk, and Sakhalin were selected for this experiment and successfully completed the inventory. In 2001, the Arkhangelsk region declared its intent to become a pilot region for implementation of the Kyoto Protocol in Russia. This initiative, however, was not recognized officially on the federal level due to the low prioritization that climate was afforded by the government in the early 2000s.

Stronger regional engagement on climate issues was expected after the adoption of the Climate Doctrine of Russia in 2009, which sought to incorporate climate policies into regional development strategies and the implementation of broad adaptation and mitigation measures at local levels. However, until recently, very few regional authorities in Russia pursued any sort of climate policy at all. Only the government of the St. Petersburg region gave cursory attention to the issue, presenting in 2016 a Climate Strategy to 2030, primarily focused on flood protection.

Sakhalin’s Carbon-Neutral Plan

Russia’s 2019 accession to the UN Paris Agreement opened new opportunities for climate action at the federal and regional level. Sakhalin governor Valery Limarenko was quick to take advantage of the opportunity to rebrand his region’s international image. In March 2020, he announced that Sakhalin would become a carbon-neutral territory by 2025. This ambitious regional proposal was also an opportunity for the federal government to counter its reputation as a liability in international climate policy. Several months later, on December 28, 2020, the Russian government adopted a roadmap for the implementation of carbon emissions regulation in the Sakhalin region, which envisions the introduction of low- and zero-carbon technologies, mandatory reporting and verification of greenhouse gas emissions, carbon quotas and a carbon trading system, and the creation of green finance mechanisms. The first step in the plan is the development of a greenhouse gas inventory and identification system for the main sources of emissions in Sakhalin in 2021. Next, Sakhalin will launch an emissions registry system for businesses operating on the island, assorted carbon emissions reduction projects in the energy and transport sectors, and carbon offset units by April 2022. The formation of a carbon trading system for these units should follow in 2022–2023.

This regional experiment has several high-level backers. Deputy Prime Minister Victoria Abramchenko is overseeing the project and coordinating efforts of the Russian Ministries of Economic Development, Energy, Industry and Trade, and Agriculture, as well as the Sakhalin government and several financial and industrial majors, including the Bank of Russia, Sberbank, Rosneft, and the state development corporation Vnesheconombank. Part of the motivation for these business partners to participate in green financing and carbon trading initiatives is to reduce their risk of being penalized by a future EU carbon border adjustment mechanism (CBAM) by generating internationally recognizable “carbon units” to offset greenhouse gas emissions by exporters of oil, gas, and other products in Sakhalin and other Russian regions. Even President Vladimir Putin mentioned Sakhalin’s experiment as an important step to building a climate regulatory framework in Russia in his speech at the Leaders Summit on Climate on April 22, 2021.

Hard Realities

What are the current and planned sources of carbon emissions on Sakhalin, and can they be reduced on such a short timeline?

Fossils fuels have become a huge source of wealth and economic growth in Sakhalin. The region is Russia’s fourth largest producer of gas condensate production, seventh in natural gas, 12th in coal and 13th in crude oil. Though its population has declined by 31 percent since 2000, Sakhalin’s gross regional product (GRP) increased by 2.8 times over the same period. In the last 20 years, electricity generation by coal- and gas-fired thermal power almost doubled, crude oil production increased from a negligible 2 to 20 million tons per year, gas production increased by a factor of 18, and coal production increased from 2.4 to 10.8 million tons. These increases were driven by international oil and gas projects such as Sakhalin-1 and Sakhalin-2, which provided substantial revenues for the regional budget due to production-sharing agreements signed in the early 1990s between the Russian government and industrial giants Gazprom, Exxon Mobil, Shell, Rosneft, Mitsui, Mitsubishi, ONGC Videsh (India), and others. The annual production of crude oil is about 19 million tons, gas is 32 billion cubic meters, and liquiefied natural gas (LNG) is 10 million tons. Coal production has recovered from the deep crisis of the 1990s and Sakhalin is now exporting about 6 million tons of coal to neighboring Russian regions and Asian countries.

Sakhalin’s carbon-intensive economy underlines the enormous challenges it will face in balancing an ambitious regional development strategy, which currently envisions an increase in fossil fuel development, with an even more ambitious carbon-neutral future. The region’s 2035 Strategy for Socioeconomic Development includes seven priorities:

1. 1. Development of the Lahskoe coal field, with over 500 million tons of energetic coal reserves. Planned extraction is at least 10 million tons per year;

1. 1. Building of an oil refinery plant for domestic supplies of petroleum;

1. 1. Extraction of peat in Uglegorsk District, with about 34 million tons of peat reserves (for domestic consumption and export to Korea, Japan, and China);

1. 1. Building of a hydrogen production facility based on steam reforming of natural gas, producing “blue,” not “green” hydrogen. Total annual gas consumption should reach one billion cubic meters;

1. 1. Creation of a large-scale chemical plant for production of 1.2 million tons of methanol per year;

1. 1. Building of a cement production plant (0.7 million tons per year); and

1. Development of the industry of small-scale LNG production for power and heat generation, transport, and other needs.

Five out of the top ten priority investment projects include:

1. 1. Launch of Sakhalin-3 work at the Kirinskoe gas condensate field (2010–2025);

1. 1. Building of the Sakhalin Power Plant-2, which will be mostly gas fired (2014–2019);

1. 1. Increase of coal production at the Solntsevo open coal mine, to up to 10 million tons per year (2017–2021);

1. 1. Building of the main conveyer facility for coal transportation (2018–2024); and

1. Creation of the Sakhalin industrial park with the oil and gas projects service center (2018–2023).

Meanwhile, the governor has put forward highly optimistic climate policy proposals:

• • Gasification of local energy system and households (from 38 to 84 percent in 2020–2025);

• • Establishment of a new wind park with 62-megawatt electricity generation capacity;

• • Launch of the first Russian hydrogen rail;

• • Production of hydrogen for domestic supply and export; and

• Creation of “carbon polygons” for planting forests and generating carbon removal units and more.

Is Sakhalin’s pilot carbon-neutrality experiment merely a “Potemkin village”—a façade of bold action to counter Russia’s international image as a poor climate actor? Though it is early to say, common sense suggests that either the regional development plans or the climate goals will have to give. The carbon footprint of Sakhalin’s economy must increase over time if its regional development plans are to be realized—even more so because carbon removals by forests will decline substantially in the next 20–30 years as a result of projected severe forest degradation.

Even if Sakhalin were to revise down its regional development strategy to try to make good on its climate-neutral target, there is no guarantee of success. The hard reality is that Sakhalin’s pilot project will be difficult to implement without sound legal and institutional frameworks, effective mechanisms of emissions control, and incentives for emissions reduction. Russia’s experience with establishing similar legal and institutional frameworks under the Kyoto Protocol took four years (2007 through 2012) and that system was abandoned when Kyoto’s first commitment period expired in 2013. Sakhalin will have to build these frameworks from scratch again. This will include the registry of emissions, projects, and carbon units; ownership rights for emissions credits; and registration of trading deals, including international transfer of credits, which would be highly desirable for the international buyers under the Paris Agreement and the European Union’s CBAM.

The California Model

Given the imperative to build these frameworks—and quickly—Russia may find a good model for  subnational carbon regulation in California. Work on the state’s cap-and-trade system began in 2006 and took seven years to launch after a rigorous process of legislative and institutional arrangements. Now the scheme includes carbon registry, emissions trading mechanisms, project-based offsets, and even an international linkage with Canadian province Quebec. Since then the state’s carbon emissions have declined by 13 percent, primarily due to the carbon price (about $18 per ton of CO₂ in 2021, compared to the world average of $11). The state’s goal is to reach carbon neutrality by 2045. California demonstrated leadership and willingness to cooperate internationally in emissions trading. Its carbon market was linked to the Canadian provinces of Quebec and Ontario in 2014; its experts and officials cooperated with China on its seven pilot emissions trading schemes launched in 2014 and the national carbon market since February 2021.

Could subnational cooperation between California and Sakhalin be possible, especially taking into account strong presence of U.S. companies in neighboring countries of the Pacific?

Sakhalin has much to learn from California. A model for joint climate action could include sharing experience in regulatory approaches to control greenhouse gas emissions and implement carbon projects; methodological cooperation for strengthening emissions inventory and control; corporate experience in carbon emissions management, specifically in the oil and gas sectors as well as renewable energy and transport; and investment opportunities and the transfer of green technology from California to Sakhalin, including in the area of solar photovoltaic (PV) technology, wind and geothermal energy, and green hydrogen production. Unfortunately, Sakhalin residents will likely be unwilling to pay the higher energy prices that California residents do, but both certainly are being directly impacted by significant climate shifts.

It turned out that Chekhov’s reporting about Sakhalin led to substantial changes on the island: the conditions of people’s life improved, governance changed for the better, and residents began to imagine a different type of economy—one based on the island’s abundant natural resources. A second such transformation is needed now. The environment is one area of cooperation between Russia and the United States that cannot wait for “better” times. It was the main topic of discussion during U.S. special presidential envoy for climate John Kerry’s visit to Moscow in early July 2021, which concluded without clear results. Joint efforts on climate are needed now, and Sakhalin is a worthy candidate.

Georgy Safonov was a visiting fellow with the Europe, Russia, and Eurasia Program at the Center for Strategic and International Studies in Washington, D.C.

Commentary is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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