Transformation of Business Behavior in the Russian Carbon Market

At present, it can be stated that the initial stage of development has been successfully completed, encompassing the establishment of basic infrastructure, the creation of a regulatory and legal framework, and the launch of trading and settlement mechanisms for carbon assets.

However, sustainable financial and economic models, as well as practical scenarios for integrating these instruments into economic activities, are still in the process of active development. Statistical data from the national registry as of early September 2026 clearly illustrate the scale of the emerging imbalance: with 37.6 million registered carbon credits and a total estimated issuance potential of 120.5 million credits, the actual volume of transactions since the market's institutionalization has not exceeded 300,000 credits.

This quantitative disparity between issuance volumes and actual liquidity should not be interpreted as evidence of an oversupply or lack of demand for issued climate assets. The registration of a carbon credit in the state registry does not automatically imply its immediate availability for public trading. Businesses and climate project developers often prefer a holding (hedging) strategy, reserving their accumulated assets to offset their own future obligations, implement long-term corporate decarbonization strategies, or minimize future regulatory risks.

During the initial stage of Russia's climate regulatory development, priority was rightly given to establishing the regulatory and legal architecture and institutional environment. A key element of this process was the introduction of a comprehensive experimental environmental regulatory regime across an entire constituent entity of the Russian Federation — Sakhalin Oblast. Within this pilot framework, a substantial portfolio comprising 136 climate projects of various types has been developed since autumn 2022.

As the system approaches maturity, the fundamental challenge facing the national climate regulatory framework is no longer simply the extensive expansion of carbon credit issuance, but rather the academically grounded development of clear, reliable, and economically balanced supply and demand scenarios. The Sakhalin experiment has demonstrated its role as a major driving force behind the development of Russia's entire national climate system. Its practical implementation marked the first time in Russian institutional practice that fundamental mechanisms for achieving managed carbon neutrality within a specific territory were tested. The experiment also assessed the functionality of the mandatory emissions quota segment, its synergy with the voluntary market segment, and identified parameters requiring further methodological refinement.

An analysis of the quota system's performance has demonstrated the importance of moving beyond simplified methodological approaches. The condition of the carbon market cannot be assessed solely through indicators of direct purchases and sales of carbon credits or quota fulfillment units (QFUs). The observed decline in mandatory demand among participants in the experiment over the two-year period (2024–2025) — from 124,700 to 68,100 units — should not be mistakenly interpreted as market deterioration or contraction.

This decline resulted from an objective reduction in the number of enterprises exceeding their established limits, accompanied by a twofold decrease in the total volume of quota exceedances recorded in verified climate reports. Consequently, a profound transformation in business behavior is taking place: enterprises are shifting from a passive offsetting model toward the active implementation of corporate greenhouse gas emissions accounting systems, modernization of production facilities, reassessment of climate risks, and integration of these risks into investment planning.

The experience of the mandatory market segment highlights an important economic principle: demand for carbon assets cannot be considered independently of alternative methods for fulfilling regulatory obligations. The broader the opportunities available to enterprises for technological modernization and the implementation of internal climate projects, the more accurately market mechanisms reflect the real economics of decarbonization, reducing businesses' direct dependence on purchasing offset instruments. This reveals a key institutional paradox of carbon regulation: when a quota system operates efficiently and enterprises successfully comply with established requirements, the need for external offset mechanisms in the mandatory segment inevitably decreases. A superficial interpretation of such statistics may mistakenly suggest negative market dynamics, whereas in reality they demonstrate the direct achievement of the primary objectives of government regulation.

One example of this positive incentive effect is the accumulation of substantial quota "savings" by participants in the experiment, with the potential issuance of QFUs based on the results of the initial years exceeding 535,000 units. Organizations entitled to register these units will have the opportunity to commercialize them in subsequent periods by selling them to entities that have exceeded their established limits. In the medium term, increased activity is expected specifically in the quota fulfillment unit trading segment. In this context, the issues of sound quota design, equitable allocation, and compliance monitoring are gaining particular academic and practical significance. The economic efficiency of the system and the level of trust it commands within the business community depend directly on the transparency of these processes, highlighting the need for continuous improvement of the regulatory and methodological framework.

Therefore, a mature carbon market should not operate under conditions of artificially stimulated demand driven by an ever-increasing number of quota violations. At present, up to 90% of demand for carbon assets is generated by a relatively small group of regulated organizations in Sakhalin Oblast. However, strict administrative pressure and increasingly severe sanctions cannot serve as the sole incentives for businesses. The fundamental sustainability of the national climate regulatory system must be based on a substantial expansion of the applications of carbon credits. Achieving this requires the active integration of carbon instruments into regional, sectoral, and corporate strategies, the development of voluntary emissions offset programs, and the establishment of international validation mechanisms.

To preserve the competitiveness of the Russian economy and ensure its steady environmental transition, it is essential to achieve balanced growth in demand, both qualitatively and quantitatively. This can be accomplished by extending the experimental regime to new pilot regions and key industrial sectors, introducing more flexible and differentiated regulatory mechanisms, and strengthening overall confidence in the quality of Russian carbon credits with a view to their subsequent recognition on international trading platforms, particularly within BRICS+ and the Asia-Pacific region.

Today, the Russian carbon market stands on the threshold of a new major stage of development. Russia has demonstrated in practice its ability to generate, verify, and account for climate outcomes at every level — from individual local projects to entire constituent entities of the federation. The next logical and strategically necessary step is to transform the scientific, technological, and regulatory achievements already made into long-term economic value for Russian businesses, regions, institutional investors, and the global climate partnership.

Author: Candidate of Economic Sciences, Associate Professor at the Department of World Econom