| Summary: | Although Joint Implementation (JI) under the Kyoto Protocol enhances investment returns on CO2 emission reduction projects, little research has been undertaken as to the potential CO2 emission savings and project viability taking into account different discount rates, prices for fuels and carbon emissions credits. In the case of a fuel switch from coal to gas by the Sakhalin power plants, emissions can be reduced by 54 percent and fuel consumption by 44 percent. In spite of this, due to a generally high discount rate applicable to projects in Russia, this project in Sakhalin is not economically viable without JI. With JI, Emission Reduction Unit (ERU) sales can make up 6–17 percent of power plant sales and 24–47 percent of profits, leading to a positive Net Present Value and therefore feasibility under certain assumptions. However, for the time being, Russia lacks the proper institutional and legal framework to benefit from the opportunity presented by JI. In addition, Russia lacks an ambitious policy to improve energy efficiency and to reduce greenhouse gas emissions. Once these issues are addressed, JI projects, through ERU sales and energy efficiency gains, can make a significant contribution to Russian GDP growth, the environment and CO2 emission reduction, helping to reverse global climate change.
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