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(Reuters) - Russia is likely to issue a further 100 million tonnes of carbon credits by the end of 2012 after completing its inaugural tender this year, Standard & Poor's head of carbon markets told Reuters in an interview.

He added that although Russia has the potential to issue 230 million tonnes in the next two years, bureaucratic hurdles and other factors will keep the volume well below this figure.

"The more realistic expectation is 100 million tonnes by the end of 2012," Michael Wilkins, S&P's managing director for carbon markets told Reuters in an interview on Thursday.

"After 2012, in the Phase 2 of Kyoto, the expectation is around 100 million tonnes per year, so we are going to potentially see a ramp-up after 2012."

Russia, the world's third largest polluter after the U.S. and China, is a late comer to emissions trading, which has taken place in the European Union and other Western nations for several years.

However, it has great potential in the carbon market because the modernization of Soviet-era plants sharply reduces C02 emissions, making companies eligible for sizeable credits.

State-owned lender Sberbank, which organized the nation's initial round of tenders, in July approved 15 projects that could earn close to 40 million tonnes of Kyoto Protocol carbon credits.

These projects still await approval by a separate United Nations body, a process which Wilkins said usually takes about 45 days. It has been held up by a dispute over Russia's payment of U.N fees.

CARBON CONCERNS

Wilkins said that while he was confident Russia's role in the carbon market will grow, concerns remain about the transparency of Sberbank's selection process.

"A lot of the projects that have been approved are related to state-owned companies," Wilkins said. "There are very few, if any, renewable energy projects, most of them are in the oil and gas sector and you could say that a lot of the approval process appears somewhat political."

A list provided by the Point Carbon consultancy showed that of the initial 15 projects to receive Sberbank approval six were from the oil and gas sector while 3 were from the power sector.

Wilkins also said that the uncertainty surrounding the carbon market after the initial phase of the Kyoto agreement expires at the end of 2012 is still a concern, though a follow-on agreement is likely.

"That risk is something that most investors are now starting to manage by having clauses in their contracts to give them the option to withdraw if there is a change in the rules," he said.

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Extpub | by Dr. Radut