Greenhouse gas law threatens Russian dairy industry

The National Union of Milk Producers ("Soyuzmoloko") expressed concern about the impact on the industry caused by the law "On limiting greenhouse gas emissions" and the draft government decree developed by the Ministry of Economic Development which should define the criteria for entities subject to the law. The draft resolution in its current form cannot be supported, since in terms of agriculture it does not comply with the international practice of regulating emissions, as well as Russia's goals to reduce them.  This point of view was stated by the Union in a letter sent to the Ministry of Agriculture.

Dairy Russia

New law and draft resolution

The purpose of the new Federal Law "On limiting greenhouse gas emissions" is to create conditions for sustainable and balanced development of the Russian economy while reducing the level of greenhouse gas emissions. Restrictive measures prescribed by the law include:

- state accounting of greenhouse gas emissions;

- setting targets for their reduction;

- supporting activities to reduce emissions and increase absorption of greenhouse gases.

The Ministry of Economic Development has prepared the Draft Decree of the Government of the Russian Federation "On Approval of the Criteria for Economic and Other Activities Used to Classify Legal Entities and Individual Entrepreneurs as Regulated Organizations".

In accordance with the Federal Law "On limiting greenhouse gas emissions," measures of state regulation in this area should apply only to regulated organizations. The draft resolution proposes to determine the criteria that will allow attributing an organization or to regulated entities that will be subject to the requirements for limiting greenhouse gases, or to non-regulated entities that will not be subject to such requirements.

Dairy sector can lose 16% profit

In its letter, Soyuzmoloko explains that the proposed regulation will unjustifiably increase the costs of market participants. So, in 2020, the total profit of the dairy industry amounted to 30.8 billion rubles, while the trend towards its growth has not yet been observed. According to the Union, following the requirements of the law starting 2025 will take from the industry about 4.8 billion rubles (16%) profit. There will be also risks of incorrect accounting of emissions in the dairy industry. All this can lead to a reduction in livestock numbers. Milk producers proposed to take into account greenhouse gas emissions at the federal level, use publicly available information from state statistics and other existing reporting requirements.

Soyuzmoloko considers it necessary to exclude agricultural activities from the draft resolution. As an alternative, the Union proposes "to consider the possibility of accounting for greenhouse gas emissions from the dairy industry by multiplying the volume of finished products in the industry in terms of a liter of milk by a scientifically grounded, annually revised coefficient." The Ministry of Agriculture has already studied the appeal. The representative of the Ministry agreed that agricultural activity should be excluded from the government decree due to its insignificant share of emissions and the possible increase in costs for enterprises.

Need for rational approach

According to General Director of Soyuzmolok Artem Belov,  agriculture in general is considered as an industry with a relatively low potential for reducing emissions. In Russia, the share of emissions from the agro-industrial complex is 5.9%, which is significantly lower than in developed countries (Germany - about 7.6%, France - 17%, USA - 10%, EU on average - 10%).

Direct demands to limit emissions are extremely rare for agricultural sector. Developing countries that have recently initiated their own emissions trading systems (for example, China) also do not include agriculture in such mechanisms. The exception is New Zealand, where 47% of emissions are from the agro-industrial complex, and starting 2025 the industry may be included in the carbon trading system." "Soyuzmoloko" believes that in Russia there is no need to "run ahead of the locomotive" in solving the problem, there must be a rational approach.

Now the Federal Law "On limiting greenhouse gas emissions" contains rather strict mandatory requirements, including reporting and, if necessary, not exceeding a certain level of greenhouse emissions. If necessary, submit and verify climate reporting, the industry will incur additional costs. Thus, according to the estimates of Soyuzmoloko experts, the preparation of a full-fledged report on greenhouse gas emissions, taking into account all factors and sources of emissions, will cost about 1.1 million rubles for one legal entity. “In general, we are not talking about the fact that nothing needs to be done to reduce emissions from livestock production. However, for example, for the construction of biogas plants in the dairy sector, it is necessary to invest more than 1 trillion rubles, while methane emissions will decrease by only 10% and only in one sub-sector of the agro-industrial complex,” Belov said.

Tools to solve the problem

There are three available tools that could be used to solve the problem, according to Belov:

1. Increase in animal productivity, which reduces the carbon footprint per unit of production. For this, it is necessary to maintain the volume of state support in key areas including soft loans, CAPEX and modernization.

2. Development of plant growing and precision farming, the reasonable use of mineral fertilizers.

3. Practice of efficient handling of animal by-products. This also includes the elimination of regulatory obstacles.

For example, now manure is legally considered as waste, which complicates its rational use. In addition, there are start-up projects that should be implemented in the field of food and feed additives and in development of vaccines that reduce methane emissions in animals. This is an issue that requires large-scale scientific research, and it is a promising work area.

Source: Agroinvestor