Carbon fund set up by EBRD and EIB in first Russian venture

By EBRD  Press Office
@ebrd

In the first such transaction in Russia, carbon credits generated by utilising gas which would otherwise be flared at an oilfield in eastern Siberia are to be purchased through a carbon fund set up by the EBRD and the European Investment Bank (EIB), the Multilateral Carbon Credit Fund (MCCF).

The gas which will be re-utilised under this scheme is a by-product of oil extraction. The underlying project involves Irkutsk Oil. The EBRD holds an 8.15 percent stake INK-Capital, the primary holding of Irkutsk Oil.

The carbon credits being bought through the MCCF are to be generated via the Joint Implementation (JI) mechanism under the Kyoto Protocol in a project centred on Irkutsk Oil’s main Yarakta field.

The MCCF, whose other participants are the governments of Finland, Belgium (Flanders), Ireland, Luxembourg, Spain and Sweden, as well as six private sector participants, is one of the few such funds dedicated specifically to countries from central Europe to central Asia. This transaction is its first in Russia.

Once Russian government approval has been obtained and various other conditions fulfilled, the carbon credits will be bought from Irkutsk Oil’s subsidiary, UstKutNefteGas.
The EBRD earlier this year agreed to lend Irkutsk Oil up to €90 million, part of which was ear-marked for implementing gas-flaring cuts. UstKutNefteGas is building a gas processing plant and installing re-injection equipment at the Yarakta field.

The plant will separate condensate from Associated Petroleum Gas (APG). The company plans to sell the condensate or mix it with oil. The dry gas will be re-injected into the field – with Liquid Petroleum Gas (LPG) to be produced at a second stage through the separation of butane and propane.

This process will allow some 95 percent of the total volume of APG produced over the whole life of the field to be re-used, resulting in significant reductions of greenhouse gas emissions.

Russia is the single biggest source of gas flaring in the world. To combat this, the government earlier this year set a 2012 deadline by which oil companies will have to raise utilization of associated petroleum gas to 95 percent or face crippling fines.

JI is a market-based approach for addressing global climate change that uses international relationships to achieve lower-cost reductions in greenhouse gas emissions. A JI project generates carbon credits (known as Emission Reduction Units), which may then be traded internationally or used to meet a buyer’s compliance obligations.

This transaction was negotiated for the MCCF by GreenStream Network Plc., which acts as a carbon manager for the MCCF in Russia.