Russia reassures it will not swamp carbon markets

COPENHAGEN (Reuters) - Russia will not sell significant amounts of surplus carbon permits if doing so would undermine carbon markets, but will resist moves to cap such sales, a Russian government official said on Monday.

Under the Kyoto Protocol, which expires in 2012, nations that are comfortably below their greenhouse gas emissions targets can sell excess emissions rights called Assigned Amount Units (AAUs) to countries struggling to meet their own targets.

Russia has billions of dollars worth left over after its economy collapsed in the wake of communism.

Talks this week in Copenhagen to find a replacement for Kyoto have shed little light on the future of surplus AAUs, which analysts fear will swamp the carbon market and dent prices.

"I don't think we'll sell really huge amounts after 2012 or before 2012," Oleg Pluzhnikov of Russia's ministry of economy told reporters. "But why should we think about limits on sales?"

Analysts estimate Russia and the Ukraine, the two countries with the largest AAU inventory, could have around 6.5 billion tonnes available for sale from the 2008-2012 Kyoto period.

This is more than three times the annual CO2 emitted by European Union industry under the EU's Emissions Trading Scheme and nearly six times the estimated global demand for AAUs.

The $126 billion global carbon market, supported by private sector investment, is haunted by the spectre of prolonged AAU trading, which threatens the long-term price stability companies need to make major investment decisions.

Some countries want the threat eliminated through an agreement in Copenhagen to scrap all surplus AAUs, but Pluzhnikov sought to ease concerns about their possible impact.

"Russian Assigned Amounts, whether they be transferred to the next period or not, will not be used to undermine the carbon market," he said.

Up to now, the murky AAU market has consisted of a handful of deals, both confirmed and unofficial, totalling between 125 million and 320 million tonnes of carbon dioxide.

"I have not heard that these deals undermined the market... so I suppose if we talk about similar figures from Russia, we can assume that also will not undermine the market," said Pluzhnikov.

Most transactions are done at a substantial discount to the EU carbon price or Kyoto offset price, and feature eastern EU member states like Poland, Hungary and the Czech Republic as the sellers and Japan, its Kyoto emissions targets firmly out of reach, as the buyer.

(Reporting by Pete Harrison; Editing by Dominic Evans)