Implementation of Carbon-neutral Projects as a Tool for Sustainable

Development

Tamilla Magomadova

, Tamerlan Magomaev

and Elman Akhyadov

Grozny State Oil Technical University named after Academician M. D. Millionshchikov, Grozny, Russian Federation

Chechen State University, Grozny named after A.A. Kadyrova, Grozny, Russian Federation

Keywords: Global changes, modern globalized workplace, low-carbon development, carbon neutrality, greenhouse gas

emissions, construction, projects.

Abstract: The turn of the Russian economy towards low-carbon development will lead to the fact that in the near future

all major infrastructure programs and projects will be evaluated in terms of their contribution to achieving the

goal of carbon neutrality. Obviously, the closest attention will be paid to projects in the electric power

industry. And if now investors are mainly guided by the ESG factors of companies' activities, then in the

future this will become characteristic of regulators and support institutions. The problem of developing

uniform methods and approaches to calculating the carbon footprint of infrastructure projects is undoubtedly

relevant. In most cases, companies in Russia do not yet disclose non-financial reporting at all, and if they do,

they use foreign corporate methods (GRI, TCFD, and others). In the summer of 2021, the Bank of Russia

issued recommendations on the disclosure of non-financial reporting by issuers, which are built in compliance

with the most common global corporate standards (GRI). Orientation to established practices allows

companies to reduce the time and cost of reporting, if they already report publicly according to foreign

standards. The methods implemented in Russia for calculating the carbon footprint of infrastructure projects

should also be based on the most common corporate standards in the world and strive for international

unification. Another important problem that does not yet have a solution is the verification of calculations and

reporting. And here, to increase confidence in the indicators, digital technologies should come to the rescue.

The Industrial Internet of Things, distributed systems for monitoring the condition of equipment, video

monitoring, and analysis tools without human intervention make it possible not only to generate gigantic

arrays of data on the contribution of this or that equipment to total emissions, but also to obtain objective,

unbiased results of their processing.

1 INTRODUCTION

Large investment projects are designed for decades to

come, therefore, when planning them, a large number

of risks are analyzed - from demand or the level of

planned load to environmental impact assessment

(especially when it comes to infrastructure

development). Different participants in the

implementation of the project - operators, financial

institutions, regulators - may be interested in various

aspects of risks. In view of the ongoing dynamics in

setting carbon neutrality targets, both at the country

and company levels, it is becoming increasingly

https://orcid.org/0000-0002-0146-8989

https://orcid.org/0000-0001-5817-4191

https://orcid.org/0000-0002-0793-1727

important to assess the carbon footprint of a project.

In particular, Russia aims to achieve carbon neutrality

by 2060 (Evangelista, 2020). A lot will depend on

what kind of infrastructure to introduce. Disclosure of

data on the carbon footprint of a project, that is, the

total amount of greenhouse gas (hereinafter referred

to as GHG) emissions associated with its

implementation, is not widespread. It is less common

than company-wide or product-by-product GHG

emissions disclosures, but quite promising. It should

be kept in mind that the carbon footprint of the project

will directly affect the GHG emissions of the

company implementing it. Estimates related to taking

Magomadova, T., Magomaev, T. and Akhyadov, E.

Implementation of Carbon-neutral Projects as a Tool for Sustainable Development.

DOI: 10.5220/0011554200003524

In Proceedings of the 1st International Conference on Methods, Models, Technologies for Sustainable Development (MMTGE 2022) - Agroclimatic Projects and Carbon Neutrality, pages

38-43

ISBN: 978-989-758-608-8

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

into account GHG emissions during project

implementation are mainly typical for climate

projects aimed at reducing emissions or increasing

absorptive capacity. Along this line, the first

approaches and standards for such reporting were

formed. The harmonization of the rules for the

sustainable development mechanism of the Paris

Agreement can give a new impetus to international

climate projects, and the adoption of by-laws to the

Federal Law on "Restriction of GHG Emissions" - for

Russian ones (Surowiecki, 2021; Souter, 2019).

There is a growing interest in the world in assessing

the GHG emissions of projects when making

investment and financing decisions. Such

requirements for a number of projects are already

being made by most International Financial

Institutions (IFIs) and are very likely to be further

extended to the financial sector, both private and

public. First in Europe, and then in other regions. The

European Central Bank plans to set requirements for

EU banks to report on the carbon footprint of their

portfolio (which may include the need to obtain data

on the emissions of borrowers in certain sections - by

company or by project) (Souter, 2019). The carbon

footprint of infrastructure projects includes GHG

emissions at the stages of construction and

maintenance of facilities, which can be influenced by

the investor, and emissions at the stage of operation,

which the investor often cannot influence (with the

exception of the stage of making an investment

decision on technological solutions in the project).

The assessment of such projects includes a so-called

baseline comparison (eg potential reduction in GHG

emissions from combustion engines to electric

vehicles with the development of appropriate

infrastructure and renewal of the vehicle fleet).

2 RESEARCH METHODS

Rapid digitalization is affecting every aspect of life,

including how we interact, work, shop and receive

services, as well as how value is created and shared.

In this process, data and cross-border data flows

become increasingly important for development.

Reflecting the large disparities in willingness to use

data that exist between and within countries, the

traditional digital connectivity divide is exacerbated

by what might be called the data divide. Countries

with limited capacity to digitize data and business

opportunities and use them for economic and social

development are clearly at a disadvantage. This

Digital Economy Report 2021 highlights the

challenges of managing data and cross-border data

flows in a way that can benefit sustainable

development (Egorova, 2020). It also highlights that

the state of the international debate on how to regulate

cross-border data flows is deadlocked and positions

tend to be polarized. The current legal and regulatory

framework is heterogeneous and reflects the very

different approaches taken in different countries, with

the strong influence of major economic powers. An

international framework is urgently needed to resolve

this situation. While the report does not provide a

"solution", its comprehensive, fact-based analysis

aims to rethink and expand the international policy

debate. The growing problems of interconnection and

interdependence in the global data economy require a

shift from a piecemeal approach to a more holistic,

coordinated global approach. This may require new

and innovative ways of global governance, as old

ways may not be appropriate to respond to the new

context. It may also require the creation of a new

international body that focuses on data governance

with the full participation of developing countries and

all stakeholders. The report reflects UNCTAD's

commitment to informing member states on how to

use and get more value from data and the digital

economy (Meckling, 2020). It will also facilitate

much-needed global dialogue on how to set the rules

for a more inclusive digital outcome. It is my hope

that a holistic approach to managing global data will

ultimately lead to increased sustainable development

and economic benefits from the digital economy for

people and businesses in countries at all levels of

development.

Despite the importance of data in the emerging

digital economy, there is no generally accepted

understanding of the concept of data, which can lead

to confusion and complicate analysis and policy

debate. Data is a special resource with specific

characteristics that distinguish it from goods and

services. They are intangible and non-competitive,

meaning that many people can use the same data at

the same time or over time without draining it. At the

same time, access to data may be restricted by

technical or legal means, resulting in varying degrees

of exclusivity. For example, data collected by major

global platforms is not available for use by others,

giving platform owners a monopoly position to

benefit from the data. Moreover, the aggregated value

can often be greater than the sum of the individual

values, especially when combined with other

additional data. The collected raw data can also have

significant "optional" value, as it can become

valuable if new problems that were not there can be

solved based on this data. The more detailed and

detailed the data, the more purposes it can be used in

Implementation of Carbon-neutral Projects as a Tool for Sustainable Development

filtering, aggregating and combining in various ways

to obtain various information. In addition, the data is

multidimensional. From an economic point of view,

they can provide not only private value for those who

collect and control data, but also social value for the

entire economy. And the latter cannot be provided by

markets alone. In addition, the distribution of data

private income gains is highly skewed. As a result,

policy development needs to support the goals of

efficiency and equity. However, non-economic

aspects also need to be taken into account, since data

is closely related to privacy and other human rights,

as well as national security issues, all of which need

to be addressed (Hibbard, 2019).

To understand data and its flows, you need to look

at it from different angles. First, there has always been

data and information associated with commercial

transactions, such as payment details, bank details,

names and shipping addresses, which are mostly

provided voluntarily and rarely create political

problems, while new players in the digital economy

work on those the same rules as normal economics.

Second, raw data collected from individual actions,

products, events, and behaviors has no value in and of

itself, but can create value when aggregated,

processed, and monetized or used for social purposes.

Third, the processing of raw data into digital

information—in the form of statistics, databases,

ideas, information, and so on—results in “data

products” that can be thought of as services in trade

statistics for international sales. There are also

various taxonomies that classify data types according

to various criteria. Important differences relate to

whether the data is collected for commercial or

government purposes; used by companies or the

public sector; are instantaneous or historical;

sensitive or insensitive; or are personal or non-

personal (Vladimirov, 2019; Molchanova, 2019). The

categorization of data is important as it can have

implications for the kind of access each type needs to

be granted, both nationally and internationally, and

how data and its cross-border flows are handled from

a political perspective.

3 RESULTS AND DISCUSSIONS

The carbon footprint is usually defined as the total

amount of GHG emissions associated with the

activities of an individual or organization, or

accumulated as a result of the production of goods

and services, as well as the implementation of

projects. It takes into account both direct and indirect

GHG emissions. According to the GHG Protocol

widely used in the world, there are three scopes of

GHG emissions (Braverman, 2019).

The main interest in disclosing the carbon

footprint of projects at the current stage is shown by

international financial organizations. Leading

organizations, including the World Bank, the

European Investment Bank, the European Bank for

Reconstruction and Development, the Asian

Development Bank, the African Development Bank,

the Inter-American Development Bank, and since

2012 have been collaborating in the format of the

Technical Working Group on Carbon Reporting to

improve and harmonize approaches to accounting for

GHG emissions when evaluating projects

(Korchagina, 2019). In 2015, when the Paris Climate

Agreement was reached, the UNFCCC Secretariat

joined the group and agreed approaches were

presented for projects for renewable energy, energy

efficiency and transport. The European Investment

Bank positions itself as a leader in accounting for

GHG emissions and sees accounting as a key step in

understanding the climate impacts of an

organization's project portfolio. At the same time,

IFIs have not set targets for reducing GHG emissions

for their portfolio of projects. The European

Investment Bank provides a list of industries for

which projects are generally required and not required

to disclose their GHG emissions (in order to receive

funding from this institution). Regulators at the

national and regional levels are only looking at the

possibilities of assessing the carbon footprint of

projects. For example, when conducting

environmental impact assessments or when making

decisions on the financing of large infrastructure

projects (as in the EU). It can be recalled that the

refusal to support coal generation projects also began

to be broadcast by IFIs, and then other financial

institutions and regulators began to join it.

Recommendations of international associations on

conducting a voluntary assessment of the carbon

footprint of infrastructure are being formed. An

example of a regional association is the Climate

Leadership Cities (C40), which, as part of the

Transforming Cities initiative, has published

guidelines for low-carbon and sustainable projects.

An example of an industry association is the

International Union of Railways, which offers

reviews, recommendations and best practices for

estimating GHG emissions at all stages of the

provision of railway services, including construction.

Finally, there are individual climate-responsible

investors and companies that also voluntarily disclose

the GHG emissions associated with their projects

(Braverman, 2019).

MMTGE 2022 - I International Conference "Methods, models, technologies for sustainable development: agroclimatic projects and carbon

neutrality", Kadyrov Chechen State University Chechen Republic, Grozny, st. Sher

The carbon footprint of the project, along with the

carbon footprint of the company, as well as the goods

and services it produces, is an integral part of

corporate carbon reporting, which is usually used to

assess and manage climate risks (regulatory,

reputational, etc.) of the company. At the company

level, the carbon footprint of projects is usually

measured by their operators. Estimating a project's

carbon footprint is a relatively new development in

corporate carbon reporting, reflecting the gradual

shift in business from reactive to proactive climate

risk management (Gakaev, 2020). A distinctive

feature of the carbon footprint of projects is its

predominant use for assessing future climate risks.

The motivation for the calculation may be the need to

provide such reporting in order to attract concessional

or cheap financing in international or domestic capital

markets, the need to demonstrate the benefits or the

level of the project's environmental impact to

potential clients or other persons influencing

decisions on the project. Also, such a calculation can

become a demonstration of the company's

responsibility in the field of sustainable development

- as an indicator that GHG emissions are taken into

account at all key levels of business operation. The

main target audience of such reporting are investors,

financial institutions, counterparties of companies

and regulators (Vladimirov, 2019). The company's

management is also interested in the formation of

carbon reporting, since the availability of accurate

data on GHG emissions allows improving the quality

of strategic planning in this area and monitoring its

performance, including in comparison with

competitors (Molchanova, 2019).

In this case, the criteria for the need to report are

financial performance and the number of employees

(that is, the size of the company) or participation in

regulated markets. If the new legislation and

standards are adopted by the end of 2022, then

European companies will apply the new reporting

standards for the first time in 2024, following the

results of 2023. After leaving the EU, the UK also

stated that it intends to make ESG disclosure

mandatory in a phased manner by 2025. At the same

time, there are no unified ESG reporting standards at

the international level, and aggregators of this

information (for example, CDP or Trucost) use

different methods to evaluate and compare issuers, so

it is difficult for regulators, as well as investors, to

assess the real impact of companies on climate

change. In Russia, mandatory ESG reporting, despite

a discussion that has been going on for about 10 years,

has not yet been introduced. Nevertheless, as part of

the implementation of the Federal Law "On the

Limitation of GHG Emissions", new regulations are

being prepared directly on carbon reporting. In

particular, criteria have been prepared for classifying

legal entities and individual entrepreneurs as

regulated organizations, that is, those that must

submit reports on GHG emissions on a mandatory

basis. From the infrastructure sector, only enterprises

with the type of activity "Transportation of oil

through main pipelines", "Transportation of natural

gas" and "Treatment, incineration and disposal of

solid waste" (if this industry is broadly referred to as

infrastructure), emitting more than 150 thousand tons

of oil, should report. tCO2-eq per year until 2024 and

more than 50 thousand tCO2-eq per year from 2024

(Egorova, 2020).

A certain element of indirect regulation of the

carbon footprint of a project, product or service is

stimulating its reduction through "green" or low-

carbon public procurement (Green Public

Procurement). In the EU, for a number of goods

and services, criteria for their classification as "green"

have been established - for the inclusion of

environmental requirements in open tender

documents. However, these are not mandatory

requirements, but recommendations for national

government authorities. There are also such criteria

for infrastructure projects - for the design,

construction and maintenance of roads, as well as

water disposal systems (sewerage and treatment

facilities). At the same time, in the criteria for roads

there is an explicit indicator of the carbon footprint,

and for wastewater systems, the goal of reducing

GHG emissions is regulated through energy

efficiency indicators. Such an integrated (project)

approach as in the EU is rare - more often

requirements are set for individual goods or services,

and it is the carbon footprint that has not yet become

the main element of "green" public procurement. The

United States also defines “green” criteria for

procurement by public authorities, however, in terms

of the implementation of infrastructure projects (road

construction), requirements are set only for individual

materials (products) used, and not for the project as a

whole, while there are no requirements for GHG

emissions, and the main features are associated with

the use of bio-based materials in materials. If an

infrastructure project qualifies for debt or grant

funding, low or reduced GHG requirements often

become a mandatory selection criterion. However, in

most cases, such requirements are set not by

government agencies, but directly by financing

structures - funds, banks and other development

institutions and investors (Meckling, 2020).

Implementation of Carbon-neutral Projects as a Tool for Sustainable Development

For example, in the EU, the climate impact of

projects is taken into account when selecting the so-

called Projects of Common Interest (PCI) - these are

key cross-border infrastructure projects linking the

energy systems of the Union countries. By definition,

such projects should contribute to the EU's climate

and energy goals. All projects have certain

(depending on sectoral affiliation) sustainability

requirements, including for some the level of

sustainability must be measured by directly assessing

the reduction of GHG emissions. A project included

in the approved list receives a number of support

measures, including: accelerated approvals and

issuance of permits, improved regulatory conditions,

lower administrative costs due to streamlined

environmental assessment processes. An even more

important benefit of PCI status is the right to apply

for grant funding from the Connecting Europe

Facility (excluding oil projects and commercially

viable projects). In addition to Connecting Europe

Facility funding, PCIs can also apply for support

under other EU programs such as the European

Strategic Investment Fund and the European

Structural and Investment Funds, in particular the

European Regional Development Fund. It is also

possible to obtain concessional financing in the EU

through the main financial and credit institution - the

European Investment Bank.

4 CONCLUSIONS

Approaches to calculating the carbon footprint of an

investment project have not yet been established and

are not fully standardized. They may differ and cover

different stages of the project life cycle depending on

the motivation of the company and the type of project

(climatic or not, which industry it belongs to). In

addition to the purpose of calculating the carbon

footprint of a project, the choice of methodology may

also depend on the type of investment project

(Egorova, 2020; Meckling, 2020):

1. As a result of the project implementation, GHG

emissions will be reduced compared to the

baseline. In this case, the methodology should

answer not only the question of the possible

carbon footprint of the project, but, more

importantly, the contribution of the project to

the reduction of GHG emissions compared to

the baseline. Such calculations, for example,

can be found in projects for the development of

the use of railways (compared to road and air

transport), the transfer of the fleet to electric

vehicles (compared to internal combustion

engines on liquid hydrocarbons), the

construction and operation of nuclear power

plants (especially, compared with thermal). At

the same time, calculations of avoidable GHG

emissions should be accompanied by monetary

metrics to compare different options. For

example, in some methodologies, it is proposed

to provide a calculation of the specific effect

(reduction in kg of CO2-eq. per year for every

dollar invested) (Molchanova, 2019).

2. As a result of the project implementation, GHG

emissions will increase. For such projects, they

usually proceed from the principle of the best

available technologies (how to achieve the best

socio-economic effects from the

implementation of the project with its optimal

cost, if it cannot be implemented using other

technological solutions, but in general to

achieve the smallest contribution to GHG

emissions) (Molchanova, 2019; Egorova,

2020).

Driver of sustainable development, introducing

environmental impact indicators, including targets for

reducing greenhouse gas emissions, into the risk

assessment and project selection system. For the

purposes of developing investment activities and

attracting extrabudgetary funds to sustainable

development projects and mainly projects to reduce

greenhouse gas emissions, the Government of the

Russian Federation in 2021 approved the criteria for

sustainable (including green) development projects in

Russia, as well as the requirements for their

verification system. But a significant part of

infrastructure projects (including transport ones)

remains outside the parameters of the taxonomy. In

doing so, they can make a significant contribution to

achieving the goal of carbon neutrality (Egorova,

2020). The carbon footprint calculation tool could

become one of the elements of the methodology for

evaluating such projects, including as part of

attracting government funding. Climate change is one

of the major challenges facing the world community

today. To counter this challenge, developed countries

have taken a course towards decarbonizing their

economies. The European Union's measures to

introduce cross-border carbon regulation and the

refusal to implement large, including infrastructure,

projects in the field of traditional energy are

controversial. There are risks that decarbonization

instruments will be used to protect domestic markets,

promote own technologies by non-market methods.

At the same time, it is obvious that without

calculating the carbon footprint, it will not be possible

to reduce the anthropogenic impact on the climate in

MMTGE 2022 - I International Conference "Methods, models, technologies for sustainable development: agroclimatic projects and carbon

neutrality", Kadyrov Chechen State University Chechen Republic, Grozny, st. Sher

the future. The Russian Federation fully supports and

shares the need to implement measures to combat

climate change. To achieve the goals of

decarbonization and maintain the country's

competitiveness in foreign markets, it is necessary to

develop our own systems for calculating and

capturing greenhouse gas emissions, as well as their

recognition at the international level, including in

Europe, which will avoid negative consequences for

Russian exports and double taxation. At the same

time, of course, the priority should be the principle of

economic expediency in the implementation of the

energy transition. World practice shows that the

financial sector is a driver of sustainable

development, introducing environmental impact

indicators, including targets for reducing greenhouse

gas emissions, into the risk assessment and project

selection system. For the purposes of developing

investment activities and attracting extrabudgetary

funds to sustainable development projects and mainly

projects to reduce greenhouse gas emissions, the

Government of the Russian Federation in 2021

approved the criteria for sustainable (including green)

development projects in Russia, as well as the

requirements for their verification system. But a

significant part of infrastructure projects (including

transport ones) remains outside the parameters of the

taxonomy (Meckling, 2020). In doing so, they can

make a significant contribution to achieving the goal

of carbon neutrality. The toolkit for calculating the

carbon footprint could become one of the elements of

the methodology for evaluating such projects,

including as part of attracting public funding. Climate

change is one of the major challenges facing the

world community today. To counter this challenge,

developed countries have taken a course towards

decarbonizing their economies. The European

Union's measures to introduce cross-border carbon

regulation and the refusal to implement large,

including infrastructure, projects in the field of

traditional energy are controversial. There are risks

that decarbonization instruments will be used to

protect domestic markets, promote own technologies

by non-market methods. At the same time, it is

obvious that without calculating the carbon footprint,

it will not be possible to reduce the anthropogenic

impact on the climate in the future. The Russian

Federation fully supports and shares the need to

implement measures to combat climate change

(Meckling, 2020; Hibbard, 2019; Mauritzen, 2016;

Monasterolo, 2018). To achieve the goals of

decarbonization and maintain the country's

competitiveness in foreign markets, it is necessary to

develop our own systems for calculating and

capturing greenhouse gas emissions, as well as their

recognition at the international level, including in

Europe, which will avoid negative consequences for

Russian exports and double taxation. At the same

time, of course, the priority should be the principle of

economic expediency in the implementation of the

energy transition.

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Implementation of Carbon-neutral Projects as a Tool for Sustainable Development