The Issues of Carbon Pricing in the Russian Federation: The Local and International Perspectives Under the Cost Approach and the Role of Afforestation Projects

Round 1

Reviewer 1 Report

Comments and Suggestions for Authors

Economic analyses have long recommended carbon pricing as an indispensable strategy for efficiently reducing greenhouse gas emissions and tackling climate change. In this study, the roles of afforestation projects and other climate technologies in the green agenda for Russia are illustrated, and the arguments for anchoring carbon pricing in the cost approach are enumerated, especially with regard to afforestation projects. The overall logic of the manuscript is not clear. I think this manuscript needs a major revision because there are still too many mistakes in it, some of which are vital to estimate the results.

 

1. L15-24: The abstract seems to lack a clear statement of the research objective. It's important to explicitly mention what the study aimed to achieve. The abstract lacks sufficient detail to fully represent the main findings and conclusions of the paper.

2. L28-113: There is a lack of coherence between the research question and the rest of the introduction. Ensure that all parts of the introduction build up to and support the research question.

3. L28-185: It is recommended to combine the introduction section and the literature review section. The literature review section is too extensive and unfocused. Narrow down the review to relevant studies that directly relate to your research.

4. L187-224: It should be explained in detail how to value carbon units by the cost approach.

5. L226-306: The description of the data analysis methods is insufficient. Explain how the data were processed, analyzed, and interpreted.

6. L256-262: The author should elaborate in detail how the data in this part was obtained and analyzed. Besides, can the afforestation financials data in the Western temperate zone of Russia represent the whole Russian Federation?

7. L294-298: It's not clear how the data were processed or cleaned. Describe the data preprocessing steps to ensure the reliability of the results.

8. L308-365: The discussion does not fully interpret the results. Analyze each finding in depth and explain its significance within the context of the research question.

9. The Sakhalin has been mentioned many times in this paper. I know that it is a test area for the GHG quota experiment. However, at present, it is impossible to judge the relationship between your research and the Sakhalin, as well as the relationship between the Sakhalin and the afforestation project.

10. L355-365: The section requires improved organization to ensure readers understand.

11. There are some formatting errors in the manuscript, please correct them.

Author Response

1.L15-24: The abstract seems to lack a clear statement of the research objective. It's important to explicitly mention what the study aimed to achieve. The abstract lacks sufficient detail to fully represent the main findings and conclusions of the paper.

In Line with the Comment the abstracts has been re-written and expanded to reflect the aims of the study. All the key changes in the text of the manuscript have been highlighted with the markers: green -- for additions and yellow – for edits.  

2. L28-113: There is a lack of coherence between the research question and the rest of the introduction. Ensure that all parts of the introduction build up to and support the research question.

The introduction has been re-written in line with the comment , some content on verification standards has been deleted in as well to keep it trimmed. 

3. L28-185: It is recommended to combine the introduction section and the literature review section. The literature review section is too extensive and unfocused. Narrow down the review to relevant studies that directly relate to your research.

This recommendation has been followed in the revision process. Now the merged section also incorporates 5 new recent sources on carbon pricing, while lots of material from the old literature section has been transferred to the results part of the paper under the new rubric of “results under the (market) comparison approach to valuation”.   

4. L187-224: It should be explained in detail how to value units by the cost approach.

Now the relevant descriptions have been expanded in the revised manuscript as highlighted with the marker.

5. L226-306: The description of the data analysis methods is insufficient. Explain how the data were processed, analyzed, and interpreted.

Now the sentences in this section have been made more detailed and Table 1 updated in the manuscript to explain the technological basis of the projects, with citations to the Normative-technological maps given in the new reference. Those Normative-technological maps that have been followed in the process of preparation and analysis of cost-related project data lay down requirements to the seedling preparation, density and care standards expected of man-made forest plantations. As to the scaling of unit costs, the nearest scaling standard being adopted for our analysis was a 10 000 hectare standard of plantations. The rate of carbon absorption in the plantations was calculated based on the formulas and tables presented in the newly added source [37] (paras 2.1, and 2.3.3), resulting in the reported range of 6-8 tonnes СО2-eq/ha in Table 1 of the manuscript. The technique for that implies the use of baseline carbon absorption projections (i.e. how much carbon the wild area would have sunk on its own absent the afforestation interventions). Thus, our estimates of carbon sequestration are more conservative (i.e. are by about half less) than those cited e.g. in source [26]. Also, we analyse the apportionment/depreciation of the initial CAPEX costs cited in Table 1 over the 10 year period as required in the newly cited guideline management document for Russian forestry projects [38], since the first harvest will arise in connection with the first main thinning of the plantation. If the analysis were to be rendered over the full cycle till the climactic period of biomass growth the resulting estimates of the apportioned CAPEX would have been 20-35% less (depending on the discount rate being adopted for the next round of thinning and post-thinning CAPEX costs, which makes the relationship non-linear). The analysis in Table 1 has been carried out based on the price level prevailing in the year 2021 (generally, the inflation that has ensued since that year has been offset by the weakening of the national currency, the rubble, not much affecting the dollar-denominated  carbon-capture CAPEX economics in the afforestation projects reported in Table 1). In the process of data analysis, some of the unit costs, whenever older sources have been relied upon, have been indexed for the intervening-period inflation, e.g. forestry industry labour costs from [37] have been updated using the change in the average nominal wages between the year 2010 -2020.  

6. L256-262: The author should elaborate in detail how the data in this part was obtained and analyzed. Besides, can the afforestation financials data in the Western temperate zone of Russia represent the whole Russian Federation?

See reply to the preceding comment. For the second part of this comment, generally the answer is no, we haven’t analysed the boreal forest projects, and only the temperate zone projects. For boreal projects we should expect the apportioned CAPEX costs to be more, both due to the remoteness of such projects and due to the colder climate making the annual CO2 absorption rates smaller. Again, the best approach, in our view, should be to plant forests where their existence and use values are expected to be the highest and where the public will be able to enjoy, after some years, beatified landscapes on accounts of the projects.        

7. L294-298: It's not clear how the data were processed or cleaned. Describe the data preprocessing steps to ensure the reliability of the results.

Unlike Table 1, Table 2 reports secondary data which we didn’t compile ourselves but use for the purposes of our analysis in order to be able to compare afforestation projects that we analysed to the opportunity costs represented by other types of carbon-capture technologies. So we can’t comment on that Table. In the revised manuscript version, we now emphasize that Table 2 represents secondary data to avoid the confusion.

8. L308-365: The discussion does not fully interpret the results. Analyze each finding in depth and explain its significance within the context of the research question.

The key function of this section was to discuss the comparison of costs per tonne of CO2 abated between the afforestation and other more-technologically advanced carbon capture technologies with implications for the national carbon pricing targets and carbon unit markets, which as the Section aims to explain are under-priced in the operations of the Sakhalin experiment . The last part of the Section also provides taxation/funding implications in case the jurisdictional cost of carbon is set based on the results obtaining from these comparisons. As shown now, the annual funding that will result based on the findings for the fair carbon price obtained under the cost approach in the Paper will be close to 1% of GDP target, which is more or less in line with the targets and experience of the more advanced jurisdictions.   

9. The Sakhalin has been mentioned many times in this paper. I know that it is a test area for the GHG quota experiment. However, at present, it is impossible to judge the relationship between your research and the Sakhalin, as well as the relationship between the Sakhalin and the afforestation project.

The reason the Sakhalin experiment has been mentioned so many times is because it sets the current statutory level for carbon prices which is being criticized in the paper for under-valuation. It is also because the current architecture of the carbon pricing mechanisms and taxes as described in the Paper  is encapsulated in this experiment.  Finally, the administration of the Sakhalin district is proactive exactly in the area of afforestation projects, pushing for uniform standards for the carbon analysis and management of carbon-related afforestation projects, which it also aims to fund from the carbon levies.         

10. L355-365: The section requires improved organization to ensure readers understand.

There now have been edits to the section, including a footnote to explain how the cited budgetary effect at the suggested cost of carbon has been estimated. 

11. There are some formatting errors in the manuscript, please correct them.

We tried to capture and correct those mistakes during the revision process.

We appreciate this reviewer's comprehensive, detailed and considerate analysis of our manuscript

Reviewer 2 Report

Comments and Suggestions for Authors

The paper presents a relevant topic on the international panorama for the development of carbon policies at world level.

The review for the state of the art is relevant but should pay also attention to the latest initiatives at EU level regrading carbon accounting (https://climate.ec.europa.eu/eu-action/international-action-climate-change/emissions-monitoring-reporting_en) .

The proposed methodology follows a practical approach which should be better described for understanding the components of the "teleological vector". A better detail on the procedure used on the calculations is also relevant.

The results are presented following a high-level approach which should also include the data sources as a necessary reference for the figures presented on the graphics.

The conclusions should include an international reference on the application of the teleological vector methodology compared to other approaches.

Author Response

The paper presents a relevant topic on the international panorama for the development of carbon policies at world level.

1. The review for the state of the art is relevant but should pay also attention to the latest initiatives at EU level regrading carbon accounting (https://climate.ec.europa.eu/eu-action/international-action-climate-change/emissions-monitoring-reporting_en) .

Reply: We are aware of the changes in the EU carbon legislation initiatives and refer to EU CBAM in connection with the subject matter in the Paper. Carbon emission accounting is now deployed in most of the countries serious about the carbon agenda.  Verification of GHG emissions has also been implemented in the Russian Federation since 2023, with polluters emitting more than 150 kton of CO2 eq. per year currently being required to report their emissions to the Carbon Emission Registry (the entries to which should be verified by accredited carbon emission verifiers, with the verification costs borne by the polluters).  The Carbon Emission Registry, being thus based on the verified records, substitutes the old national Carbon Inventory system of reporting which was used previously under the Kyoto protocol. In the Paper, we refer briefly to the activities of accredited carbon emission verifiers, indicating the standards which they use and that those same entities are also responsible for the validation of carbon units from climate projects, on which subject the paper focuses more. The problem is that the national validation and verification standards are not differentiated by project types, unlike the internationally recognized Gold and Verra standards. This, and the problem it poses for offsets in the context of EU CBAM mechanism operations going into effect,  is now mentioned in new Footnote 3 in the revised manuscript.        

 

 

2. The proposed methodology follows a practical approach which should be better described for understanding the components of the "teleological vector". A better detail on the procedure used on the calculations is also relevant.

Reply: The Methodology and Results sections of the Paper have now been re-arranged and re-written to address the points. The methodology is to coordinate the results of the cost approach to carbon pricing against the international comparison with carbon credit prices being recently observed. The teleological vector cited in the Paper is about having certainty in which climate projects to ground the cost approach valuation analysis. The criteria here can be the apparent and actually adopted objectives of the climate agenda and proportions between different climate project types currently initiated in the jurisdiction. Another criterion is the least-cost substitution principle on which the cost approach is based [2]. Luckily, as the Paper shows, afforestation projects in the jurisdiction are both predominant in terms of the bulk of climate project initiations and in terms of being the least costly carbon emission abatement/sequestration options, so it is natural to focus the cost approach to the valuation of carbon units on the cost economics of such projects. From this logic ensues the organization and arguments in the manuscript.           

3. The results are presented following a high-level approach which should also include the data sources as a necessary reference for the figures presented on the graphics.

Reply: This has now been remedied in the revised version of the manuscript, with the update to Table 1 and associated comments referencing specific budgeting sources which we utilized in our analysis. These were mostly the Normative-Technological maps and other normative and costing documents, now captured in references [37] and [38].  Specifically, the Normative-technological maps that have been followed in the process of preparation and analysis of cost-related project data lay down requirements to the seedling preparation, density and care standards expected of man-made forest plantations. As to the scaling of unit costs, the nearest scaling standard being adopted for our analysis was a 10 000 hectare standard of plantations. The rate of carbon absorption in the plantations was calculated based on the formulas and tables presented in the newly added source [37] (paras 2.1, and 2.3.3), resulting in the reported range of 6-8 tonnes СО2-eq/ha in Table 1 of the manuscript. The technique for that implies the use of baseline carbon absorption projections (i.e. how much carbon the wild area would have sunk on its own absent the afforestation interventions). Thus, our estimates of carbon sequestration are more conservative (i.e. are by about half less) than those cited e.g. in source [26]. Also, we analyse the apportionment/depreciation of the initial CAPEX costs cited in Table 1 over the 10 year period as required in the newly cited guideline management document for Russian forestry projects [38], since the first harvest will arise in connection with the first main thinning of the plantation. If the analysis were to be rendered over the full cycle till the climactic period of biomass growth the resulting estimates of the apportioned CAPEX would have been 20-35% less (depending on the discount rate being adopted for the next round of thinning and post-thinning CAPEX costs, which makes the relationship non-linear). The analysis in Table 1 has been carried out based on the price level prevailing in the year 2021 (generally, the inflation that has ensued since that year has been offset by the weakening of the national currency, the rubble, not much affecting the dollar-denominated  carbon-capture CAPEX economics in the afforestation projects reported in Table 1). In the process of data analysis, some of the unit costs, whenever older sources have been relied upon, have been indexed for the intervening-period inflation, e.g. forestry industry labour costs from [37] have been updated using the change in the average nominal wages between the year 2010 -2020. 

 

4. The conclusions should include an international reference on the application of the teleological vector methodology compared to other approaches.

Reply: The methodology that we used was based on the classical approaches from valuation theory [2], namely the cost approach and the (market) comparative approach coordination to value carbon credit assets and provide fair pricing for carbon in the jurisdiction. In that the benchmark adopted for comparison was supplied by reliance on the afforestation projects, which  -- according to our analysis, and as supported by the breakdown of initiated carbon projects recorded in the National climate project registry -- represent the key teleological vector in the current state of the green agenda for Russia. The country due to its relative technological isolation and backwardness is, nonetheless, endowned with rich land resources that can be put to good use in the context of afforestation projects. And it is indeed commendable that this absolute advantage of the country is being harnessed in the service of the climate agenda. However, to induce the proliferation of even such technologically-conservative projects the price of carbon pricing instruments has to be set at the proper and economically-justified level, which is the consideration that the Paper aims to advance.           

Reviewer 3 Report

Comments and Suggestions for Authors

1.     Recommend that the authors further expand the literature review section, particularly studies concerning the specific situation in Russia, to enhance the depth and breadth of the paper.

2.     Is the cost approach suitable for assessing the value of carbon units in Russia's specific economic and policy environment? Are there other methods that can provide supplementary or comparative analysis?

3.     Considering Russia's current political and economic context, are the data used in the paper the most up-to-date?

4.     What are the environmental and social impacts of carbon pricing policies? And is there a possibility of unintended negative consequences?

Author Response

1.Recommend that the authors further expand the literature review section, particularly studies concerning the specific situation in Russia, to enhance the depth and breadth of the paper.

Seven new recent studies that relate to the literature review, including the source on legal and accounting status of carbon units in Russia, have been added to the references but the literature review section itself has been re-arranged, streamlined and merged with Introduction, as suggested by other reviewers.

2. Is the cost approach suitable for assessing the value of carbon units in Russia's specific economic and policy environment? Are there other methods that can provide supplementary or comparative analysis?

Yes, the cost approach is a relevant technique, with the validity checks on it provided by the international comparisons coming from the (market) comparison approach. The Results section of the Paper has now been reorganized and expanded to reflect such a mutual coordination and checks between the results of the two approaches as discussed in the revised manuscript. Essentially, the carbon pricing results indicated by the cost approach application for Russia (with the focus on afforestation projects, which are shown to be the most prevalent and generally the least costly ones) fall right in the median of the range for carbon prices in international comparisons (Fig. 1 of the Paper), providing the validity check, whereas the carbon tax collection potential estimated to be at $10 bln (or 0,7% of the GDP) in the Discussion section (based on the suggested carbon price), also falls in line with the climate transition financing targets (around 1% of GDP for the group of OECD states).  Some sentences in the Methodology section have been rewritten and the Section itself expanded to better justify the applicability of the cost approach , as per provisions of the International Valuation Standards (Source [2]), and valuation views and accounting treatments for the asset class  (Source [36])  The cost approach application actually obtains to be the most relevant one in the context -- in view of the inchoate, sporadic nature of the market for carbon units in Russia and the non-specificity of the carbon emission verification standards (i.e. the lack of differentiation between different climate project types when issuing carbon units -- suggesting a wider scope for the principle of substitution on which the cost approach is based).    

3. Considering Russia's current political and economic context, are the data used in the paper the most up-to-date?

The analysis which we report in Table 1 has been conducted by us in 2021, so it is more or less up-to-date. Since it was conducted as translated to dollars terms, the domestic inflation that has ensued since that period has been offset by the weakening of the national currency, the rubble, not much affecting the dollar-denominated carbon-capture CAPEX economics in the afforestation projects reported in Table 1. Other data which we cite for comparisons and in support for our cost approach analysis (e.g. Table 6, Fig. 2) are also denominated  in the US dollars and were gathered in the neighbourhood of our analysis date (i.e. relate to the 2018-2021 period), thus, they also predominantly relate to the period before the burst of inflation that happened in 2021 and 2022 following covid-induced quantitative easing, and are therefore quite comparable to the data we cite for our own analysis.   

4. What are the environmental and social impacts of carbon pricing policies? And is there a possibility of unintended negative consequences?

While the exact modality of nation-wide carbon taxation will be discussed following conclusion of the Sakhalin experiment in 3 years (it is precisely called “an experiment” on a regional scale, in order to be able to learn about any risks of unintended consequences and avoid any mistakes on the large scale), there is less a risk of unintended consequences as much as the risk of inefficiency of the carbon pricing measures taken. One of the new Papers we cite suggests that not every system of carbon pricing put in place globally achieves carbon emission reductions ex-post. And in Russia, due to the absence of any designated fund into which the carbon levies are meant to go, the risk of such an inefficacy is going to be especially pronounced – all the collected carbon levies will just dissolve in the consolidated budget coffers, without any proper targeted earmarkings or carbon agenda appropriations. That is why we mention explicitly in the Paper about the need to have clarity about the exact teleological vector of carbon pricing policies. 

Thank you for your dedicated effort in reviewing the Paper 

Round 2

Reviewer 1 Report

Comments and Suggestions for Authors

The authors have revised and addressed the previous comments accordingly. I would suggest the acceptance of this manuscript now.

Reviewer 2 Report

Comments and Suggestions for Authors

All the points raised on the first review have been adressed.

The paper is ready for publication.