Upcoming changes in the legal regulation of greenhouse gas emissions

Law firm Pepeliaev Group advises of the public consultation concerning the draft law[1] proposed by the Russian Government to introduce legal regulation of activity involving the emission of pollutants classified as greenhouse gases.

The draft law has been prepared within the scope of the Plan of measures to ensure a reduction of greenhouse gas emissions by 2020[2]. It introduces rules and restrictions on activity involving gas emissions as well as certain ground-breaking mechanisms for regulating relationships in environmental protection.

• It specifically provides for the following:

• definitions of such concepts as ‘climate change’, ‘greenhouse gases’, ‘greenhouse gas emissions’, ‘greenhouse gas emission reduction unit’^[3], etc.;
• methods of state regulation of greenhouse gas emissions, including by imposing requirements on business and/or other activity in order to reduce such emissions and/or increase the absorption of such emissions;
• state recording of greenhouse gas emissions;
• an obligation of businesses to measure greenhouse gas emissions and report accordingly;
• establishing targets for greenhouse gas emissions in Russia, i.e. the maximum allowed level of greenhouse gas emissions (by the Russian Government for a certain period of time);
• it being mandatory to obtain permission to produce greenhouse gas emissions based on established targets;
• an obligation of businesses to implement measures to reduce and absorb greenhouse gas emissions;
• a charge for greenhouse gas emissions, but only if they exceed the allowed targets that have been established.

• It is expected that the following provisions of the draft law will be introduced stage-by-stage:

• regulating the arrangement of, and making, transactions with greenhouse gas emission reduction units - starting from 1 January 2022;
• providing for permissions for emissions to be obtained and for the payment of charges for greenhouse gas emissions - starting from 1 January 2025.

• A ground-breaking mechanism of regulating environmental protection for Russia will be the market principles set out in the draft law for trading greenhouse gas emission reduction units, including:

• the right of businesses (that are subject to the state regulation of greenhouse gas emissions) to transfer and acquire greenhouse gas emission reduction units, including those resulting from projects aimed at reducing emissions or increasing absorption;
• reviewing reports of businesses regarding projects implemented to reduce greenhouse gas emissions and/or for other businesses to increase such emissions;
• indirect participation of the state in trading with greenhouse gas emission reduction units through accreditation, recording greenhouse gas emission reduction units in the relevant state register and legal regulation.

• If the current version of the draft law is adopted, this will result in the need to amend other regulations and, specifically, the Russian Tax Code:

• because it affects accounting and the taxation of transactions involving a sale of greenhouse gas emission reduction units and/or greenhouse gas absorption units;
• because the draft law provides for tax benefits as economic incentives for reducing greenhouse gas emissions and/or increasing the absorption of such gases; specifically, the accelerated depreciation of fixed assets involved in activity to reduce greenhouse gas emissions and/or increase their absorption.

What to think about and what to do

The provisions of the draft law need to be analysed together with tax and environmental (technological) departments of companies. Then suggestions for improvement need to be prepared and sent to the relevant business associations and state authorities.

The public consultation regarding the draft law will end on 29 December 2018. Subsequently an independent anti-corruption expert review and regulatory impact assessment procedures will be carried out, after which the draft law will be submitted to the Russian Government for consideration. If the draft law passes all the stages successfully, it will be put before the State Duma of the Russian Federal Assembly (the lower chamber of Russia's parliament).

Help from your adviser

Pepeliaev Group’s lawyers are ready to analyse risks arising in connection with the draft law as a whole, and with regard to specific companies, to draw up proposals for improvement and to send them to the corresponding business associations and state authorities.