Dec. 11 (Bloomberg) -- Russia may agree to targets for reducing carbon dioxide emissions in return for the European Union softening conditions on energy pricing ahead of Russia's membership in the World Trade Organization, trade lawyers said.

``This could be the way out,'' said John Weekes, senior policy adviser at law firm Sidley Austin Brown & Wood in Geneva and formerly Canada's ambassador to the WTO. ``From a Russian perspective, there's been some tactical posturing in terms of what their approach is on Kyoto, so if they can get something additional for signing it in the end, then why not try.''

The EU may moderate demands that Russia stop regulating gas prices and split up OAO Gazprom's $16 billion export market should Russia agree to sign the Kyoto treaty, a global accord to reduce carbon dioxide emissions. Governments seeking to join the WTO must first resolve outstanding issues with existing members.

President Vladimir Putin complained last week that the EU's ``baselessly tough demands'' on energy prices are blocking Russia's entry to the WTO. His economic adviser, Andrei Illarionov, said Russia will neither enter the WTO on unacceptable terms nor endorse the Kyoto treaty in its present form.

The 1997 Kyoto treaty obliges signatories to limit emissions that cause environmental damage. Scientists say carbon dioxide emissions, such as those produced by factories, power plants and cars, are a cause of global warming.

The U.S. Senate refused to ratify the protocol when former President Bill Clinton signed it in 1997, and President George W. Bush hasn't submitted it for ratification since then. The U.S. is the biggest emitter of greenhouses gases.

Binding Signature

Russia's signature is needed because the pact only becomes binding when countries representing at least 55 percent of the industrial world's greenhouse-gas emissions in 1990 adopt it. So far, 120 nations including Japan, China, Canada and New Zealand have signed up.

``Both Russia and the EU are masters in horse-trading and bundling seemingly unrelated issues into one deal,'' said Geoff Townsend, an independent consultant in Moscow who advised the Russian government on market reform when he worked at accounting firm KPMG. ``If a tradeoff could be done, it would be a great deal for Russia.''

Government representatives and environmental specialists from 188 countries are meeting in Milan for a new round of United Nations climate talks. They are evaluating how much progress has been made in cutting greenhouse gas emissions and discussing details of the Kyoto protocol during the 12-day meeting, which wraps up tomorrow.

Selling Credits

While Illarionov said the Kyoto accord ``places significant restrictions on Russia's economic growth,'' the treaty allots emissions allowances based on Soviet-era levels of industrial activity and allows Russia to sell its unused emissions credits to countries that have exceeded their quota.

The U.S. refusal to ratify the treaty deprived Moscow of its probable best customer for emissions-trading credits. In addition, the price of tradable emissions has plunged, removing an incentive for Russia to sign the accord.

The EU has been the main advocate of ratifying the treaty.

``If Kyoto represents an issue that is important to the EU, the Russians may well find negotiating leverage in discussing whether they'll support it,'' said Daniel Crosby, a trade lawyer for White & Case in Geneva. ``The energy issues in the Russian accession have become so intractable that negotiating leverage needs to be identified in the form of issues outside the WTO.''

Russia, which has been trying to join the WTO for a decade to open up more trading and investment opportunities, is the biggest economy still outside the organization. China joined in 2001. The WTO's 148 members account for 90 percent of global trade.

Indirect Subsidy

The EU says Russia's domestic energy policies have created an indirect annual subsidy for its industry of $5 billion, an advantage that is forbidden under WTO rules. Gazprom is forced to supply gas to the domestic market at cost, and oil companies can sell only 30 percent of their crude abroad, the EU says.

Both policies create domestic supply gluts that keep prices artificially low, and the EU wants Russia to dismantle these controls before it joins the WTO.

While WTO rules don't prohibit a member from selling its own resources cheaply at home and at market rates for export, the EU has made Russia's accession conditional on a solution because the 15-nation bloc doesn't want competition from Russian products made with cheap energy sources, such as fertilizer, metals and chemicals.

`Way Out'

``Russia is looking for a way out,'' Crosby said. ``The Europeans are also looking for a way out, because what they're asking the Russians to do is beyond the WTO rules.''

The EU has no intention of linking the two during negotiations, said Arancha Gonzalez, spokeswoman for EU Trade Commissioner Pascal Lamy.

``We are certainly not going to mix them,'' she said.

Russia, too, says it has no plan to connect the two issues, said Yuri Afanasiev, the country's WTO negotiator in Geneva.

``I never heard about any attempt of Russia to suggest such a possibility and I don't detect any link between the two,'' he said. ``We never discussed that with our partners.''

Russia's public position is probably masking plans to make signing the Kyoto treaty a bargaining chip in hastening its WTO membership, said Alexey Kokorin, head of the WWF's Russian climate program in Moscow.

``There is a link,'' he said. ``The idea of packaging WTO and Kyoto is in the Kremlin.''

Last Updated: December 10, 2003 19:12 EST