REVIEW & OUTLOOK (Editorial)
Hot Air in Moscow

26 May 2004
The Asian Wall Street Journal

(c) 2004 Dow Jones & Company, Inc.

Russia took one step closer to World Trade Organization membership on Friday, but the net result could be a big step backwards for Russia's economic development. In an apparent quid pro quo, President Vladimir Putin announced that, in return for European flexibility on certain WTO issues, he looked forward to speeding Russian ratification of the Kyoto Protocol. That's terrible news, if true, because Russian ratification would be enough to activate the ill-considered treaty.

Mr. Putin's statements caught Russians on both sides of the Kyoto debate by surprise. But first, some background. The treaty will not go into effect until countries accounting for 55% of the "greenhouse gasses" emitted by industrial nations ratify. When the U.S., responsible for 24% of those emissions, said it would not ratify, it became clear that Russia, with 17%, held the key.

Until now, Russia has been smart, looking beyond potential short-term gains from trading emission rights to the costs of the treaty -- hundreds of billions per year across the world economy, in addition to the opportunities forgone for real economic development. All this, dreamed up in the U.N. hot house, would be in hope of slowing climate change by a smidgen, if at all.

But on Friday, Mr. Putin blinked. "The EU has met us halfway in talks over the WTO, and that cannot but affect positively our position on the Kyoto Protocol," he said, promising to "speed up" Russia's ratification process. While he didn't set a date, he went further than ever before toward a commitment to ratification.

It looked as if Mr. Putin agreed to speed Kyoto ratification in turn for Europe backing off demands that Russians meet certain energy requirements as a condition for joining the WTO. That doesn't seem fair, but as one pro-Kyoto source within the Putin administration said, "It's very hard to win an arm-twisting game with the European Union."

That Mr. Putin would engage in such horse trading doesn't surprise us, but it must disappoint his chief economic adviser, Andrei Illarionov. For years Mr. Illarionov has made economic, scientific and environmental arguments against the treaty that environmental radicals treat as sacred text. He is convinced that Kyoto would stunt the growth of the Russian economy. He argues, with graphs and data, that countries that have embraced the Kyoto rules already have slowed their economic growth relative to countries that haven't.

Mr. Illarionov free-market philosophy is the best thing that ever happened to Russia. He said in an interview with this page last week that he objects to the philosophy of "interventionalism" behind the treaty. He explained that Russians have had many bad years of experience with central planning and he's suspicious of what he called "Kyotoism," which looks to him like an attempt at "the global management of human efforts."

Mr. Illarionov's influence showed at the World Climate Change conference in Moscow in October 2003, when Mr. Putin was expected to announce Russia's rubber-stamp ratification of the treaty. Instead, to the surprise and horror of the assembled enviros, he told the group that Russia needed time to study the protocol. Recently Russia's best scientists said Kyoto would hurt Russia's economy and the science behind it was bunk.

Kyoto opponents thought Russian policy was unchanged earlier in the week when Mr. Illarionov, traveled to London to discuss the harm Kyoto could cause. But in the end, all Mr. Illarionov had on his side were cogent arguments, the interests of the Russian people, and economic and scientific facts. His boss seemed to hear only the siren song coming from Brussels.

Happily, Mr. Putin didn't promise immediate ratification, which may mean he is playing for time. Russia might be able to land its WTO membership without paying a crippling price. As Mr. Illarionov said last week, "We are not in a rush. Climate change takes hundreds and thousands of years to materialize, so that is why we have some time." Indeed, given the massive price and meager yield of this U.N. project, a good time horizon for implementation would be never.