News; Leaders
Russia, EU Fox On Kyoto Deal

25 May 2004
Australian Financial Review

2004 Copyright John Fairfax Holdings Limited.

A Russian proverb has it that "the fox knows many things; the hedgehog one big thing". Was Russian President Vladimir Putin playing the fox or the hedgehog when he said his country would speed up the process of ratifying the Kyoto climate-change treaty in exchange for European concessions on entry into the World Trade Organisation?

The one big thing Russia needs is WTO membership to hasten industrialisation and lessen its dependence on oil. This is a boon as oil prices soar, but the Russians know it won't last forever, and no large country ever built long-term, shared prosperity which it needs to avoid social disintegration on oil wealth alone. Russia needs the WTO in order to move to the next stage of development.

Conversely, the one big thing for the Europeans, worried that European Union emissions trading will make their industries even less competitive, is that they need Russia to raise domestic gas prices as much as they need a symbolic victory on the stalled Kyoto treaty. This Mr Putin agreed to do by 2010 as part of Friday's Kyoto-WTO quadrille. He also promised to open up Russia's pipeline and other key sectors to foreigners, cut industrial tariffs and cap agricultural tariffs.

Because Russia has the swing vote on the deeply flawed Kyoto Protocol, anything positive it says is a symbolic victory. Even so, the more you look at this deal, the less it actually has to do with cutting greenhouse gas emissions. And with surging US, Chinese and Japanese growth threatening to keep oil dear in the absence of Organisation of Petroleum Exporting Countries production increases, the West needs Russia inside the global trading system as soon as possible but not at any price.

Just what that price is in the EU's case is unclear. Mr Putin's words leave room for manoeuvre, something Russia has insisted on over seven years of tortuous negotiations to bring Kyoto into force. "The EU has met us halfway in talks over the WTO and that cannot but positively affect our position on the Kyoto Protocol," he said on Friday. "We will speed up Russia's movement towards the Kyoto Protocol's ratification."

Speeding up a spluttering vehicle doesn't ensure it will reach its destination. Obstacles include the need to complete WTO-entry negotiations with the US, Japan, China and Australia. There are still deep concerns among Russia's scientists and economists that it would either have to cut growth or spend trillions of dollars on emissions permits under Kyoto, though the EU may have offered Russia a deal on post-2012 obligations. Other large polluters such as Japan and the EU have already admitted they won't make their emissions targets.

There are many things being juggled here, not one big thing. Mr Putin's guarded words don't change the calculations for Australia. Staying out of Kyoto is a risk, but incurring its open-ended obligations might be a bigger one. This doesn't mean we couldn't be doing more to restrain emissions taking determined steps to do so would help show that Kyoto is not the only game in town.