· 12 min read
For the Russian Federation, the net-zero goal poses a great challenge—on the one hand, it means the need for a radical restructuring of all sectors of the economy in the domestic market; on the other, it poses great threats to the sustainability of export revenues.
Unlike in many other countries in the world, the issue of climate change until recently has been of little interest to the Russian government, society, businesses, and financial institutions. For a long time, Russia has been widely seen as one of the countries which were most behind in terms of the climate agenda. Despite being the fifth largest emitter of CO2 in the world, it ranks as low as 52nd out of 61 countries in the 2021 Climate Change Performance Index. Russia signed the Paris Agreement in 2015 but did not adopt it until September 2019. For a long time, decarbonization was not among the priorities for the Russian authorities.
Emission targets declared by Russia in the framework of the Paris Agreement have long been met. They envision a 30 per cent reduction in its domestic emissions by 2030, compared to 1990 levels. However, current Russian emissions already amount to approximately 50 per cent compared to 1990 levels: due to a profound transformation of the economy, this obligation was met at the start of the 1990s. Clearly, the Russian regulators have had no serious reasons to introduce additional regulation of greenhouse gas emissions and promote the development of green technologies. Russia was able to meet its climate commitments without any particular effort, thanks to factors such as the absorption capacity of its forests and relatively low carbon intensity of the electricity mix (with its high share of natural gas, nuclear, and hydro).
The fight against climate change was not mentioned among the goals and priorities of the Russian government for the period to 2024. Neither was this task specified in any other strategic documents, including the new Energy Strategy of the Russian Federation Up to 2035, adopted in 2020. The latter still envisions actively growing hydrocarbon exports and does not set any considerable targets for replacing fossil fuels with green energy sources in the domestic market. Despite Russia having the largest wind and solar power technical potential in the world, in 2020 the share of wind and solar power generation in the balance of the Unified Energy System (UES) of Russia was just 0.32 per cent. Calculations show that even if the most ambitious of the current power sector development plans were to be implemented, by 2035 the share of renewable energy (excluding hydro power) in electricity generation in Russia would only reach 2–2.5 per cent.
However, in 2020–2021 the situation started changing rapidly. As the move towards carbon neutrality gathered pace around the world (and in particular, commitments were announced by Russia’s core export markets—EU, China, Japan, and Korea) and the prospects for the introduction of new regulations in the main export markets became imminent, Russian leaders were forced to take a much closer look at climate issues. The EU Green Deal and many regulations within the Fit for 55 framework have particularly influenced Russian decision-makers. The main export market for Russian hydrocarbons is now consistently creating comprehensive regulation that will push its participants and national governments towards meeting their climate targets. The Carbon Border Adjustment Mechanism project, proposals for which were published by the European Commission on 14 July, has prompted particularly intense discussion in Russia.
The Russian authorities are becoming increasingly serious concerning the climate agenda. Firstly, it provides Russia with an opportunity to improve its international image. An environmental policy report published in April by the Higher School of Economics states: ‘Preservation and conservation of nature should become an important component of the Russian national idea, its mission for itself and the world, an important element of the Russian international identity.’
The Russian authorities are also influenced by economic considerations. On the one hand, global decarbonization poses serious long-term threats to Russia. If the Paris Agreement members meet their targets pledged for 2030, Russian energy exports will be 20 per cent below its baseline scenario, not taking into account the impact on other sectors of the economy.
On the other hand, Russian export-oriented business is aware of the threats to its niche in foreign markets and is extremely interested in the deployment of new green technologies, to remain competitive on a global scale. And, finally, the country’s low economic growth over the past decade (just 1 per cent per year on average) justifies a change in focus from rapid GDP growth to sustainable development accompanied by slower economic growth but focused on resolving environmental and climate issues. The resource-based economic model failed to ensure Russia’s GDP growth, and a change in the technological order prompted by the energy transition and the sustainable development agenda at least gives a chance to look for new economic growth models.
Thus, the combination of geopolitical considerations, awareness of long-term threats to the Russian economy, and pressure from Russian corporations operating in the global market forces the country’s leadership to pay more attention to the climate issue.
In his April message to the Federal Assembly, Russian President Putin for the first time explicitly identified the environment and the climate agenda as one of the country’s development priorities, thus sending a clear signal to government officials of all ranks. Many foreign observers were surprised by his subsequent speech at the Leaders Summit on Climate with Biden, where Putin called for broad international cooperation in the fight against climate change.
In May, Putin instructed the government to specify a reduction in the accumulated volume of greenhouse gas emissions to levels below those in the EU within the Strategy for the Socio-economic Development of the Russian Federation to 2050. He also instructed the Cabinet of Ministers to prepare a road map for the period to 2050, with the aim of reducing Russia’s carbon intensity and ensuring the implementation of ‘major innovative projects of national importance’ in any way related to the green transition, giving a deadline of 1 October. These projects include the development and implementation of new approaches in the areas of renewable energy, nuclear power generation, hydrogen energy, and energy storage, as well establishing a national system for precise monitoring and utilization of climate-active gases.
At the St. Petersburg Forum in early June, Putin said it was ‘nonsense’ to claim that Russia was not concerned with climate change, and for the first time emphasized that Russia, like other countries, is affected by ‘the risks and threats in this area, including desertification, soil erosion, permafrost melting’.
On 2 July 2021, the president signed the long-awaited Law on Limiting Emissions of Greenhouse Gases, which had undergone numerous discussions and approvals since November 2018. It implements ‘soft’ regulation minimizing additional burdens on companies. It includes obligatory reporting of emissions for large emitting companies; however, quotes or payments for emissions in excess of certain limits, which were part of the initial version of the document, did not make it to the final version. The companies can execute ‘climate projects’ with emissions reduction or negative emissions and sell corresponding ‘climate units’ on a voluntary carbon market. The idea is that those units will be recognized by international counterparts and can help protect Russian exporters against EU carbon border adjustments. The legislative work on this topic continues, focusing on the mechanics of climate units verification, registration, and sales.
The final text still appears to be much of a compromise: the law does not specify a mechanism for capping emissions. For now, regulation is limited to reporting. (In addition to the oil and gas and electricity sectors, other carbon-intensive industries— metallurgy, transport, chemicals, and the pulp and paper industry—are subject to reporting requirements.) However, for the first time, the law introduces the necessary definitions of terms (greenhouse gases, carbon footprint, climate projects, carbon units, etc.) and a fairly vague concept of a ‘target for reducing greenhouse gas emissions’. The exact mechanism for calculating this indicator is still unclear (the law mentions that it will be calculated taking into account the absorbing capacity of forests). The companies which file the necessary reports will be entered into a special federal emissions register. Those which fail to submit their statements or do so with violations will be subject to sanctions (these are also unclear).
RSPP (the Russian Union of Industrialists and Entrepreneurs) supported this document, which is not surprising given the large influence that coal and oil and gas players have in the organization—the RSPP Climate Committee is led by Andrey Melnichenko (the main beneficiary of the chemical company Eurochem and the coal mining company SUEK) and co-led by Leonid Fedun (a member of the board and major shareholder of the largest privately held company, LUKOIL). Representative of the Trade Industrial Chamber (an organization uniting a broader set of businesses and industries) Oleg Pluzhnikov expressed some criticism of the document, stating that the only achieved goal is ‘minimization of the burden on business, obtaining reliable information on emissions and decarbonization are more a declaration, and are not addressed by the law’.
Another milestone of decarbonization could have been the Ministry of Economic Development’s Integrated Plan of Activities to Improve the Energy Efficiency of the Russian Economy, which was published after almost a one-year delay in June 2021. Although the final document is a bit less ambitious than its draft version, it is an important milestone in promoting energy efficiency in various sectors as a means of decarbonization. It is still missing some key elements—such as ambitious sectoral targets on energy efficiency improvement and, for example, a requirement to use only the most energy-efficient technologies in state-funded procurement activities.
The Ministry of Industry and Trade together with the Ministry of Economic Development published the Concept of Development of Production and Use of EVs till 2030, which includes demand support initiatives for low-carbon vehicle sales, such as discounts on leasing and car loans. Producers will get grants to fund 30–40 per cent of research and development and pilot productions for fuel cells, electric engines, control units, power train electronics, and other relevant new technologies. KAMAZ, which is developing a hydrogen bus prototype, is already benefiting from this program. However, no ban on sales of internal combustion vehicles is planned.
Significant attention of the government is also dedicated to creating a Russian hydrogen program. Prime Minister Mishustin created a working group headed by Deputy Prime Minister Novak and incorporating the minister of industry and trade, minister of economic development, minister of energy, and several other prominent experts from the corporate world and academia. Hydrogen is believed to be the new export commodity, which is due to substitute declining exports of coal and hydrocarbons. The task of the group is to develop a specific road map on how to achieve that, including necessary state support measures.
The low-carbon economic development strategy of Russia will be updated following the order of President Putin in April 2021. The overall accumulated greenhouse gas emissions between 2021 and 2050 will have to be lower than those of the EU. The base scenario described in the previous version of the low-carbon strategy is now described as conservative, and two more aggressive scenarios, including apparently a net-zero option, are also considered. Multiple ministries and representatives of business and academia are part of this work. This strategy will have to be ready by October 2021, although there are some concerns whether this is feasible, given the lack of readily available analytical tools.
Additionally, an experiment to reduce CO2 emissions in the Sakhalin Region is to be launched shortly. It is intended as a pilot project to test the concept of a national CO2 trading system. There are plans to establish a carbon trading system, the first in Russia, and ensure that the region achieves carbon neutrality as early as 2025, as part of the approved road map for the implementation of the pilot.
Russian government officials are also actively working on a scheme for the development of green bonds to finance climate projects, discussing the so-called carbon farms.
We can expect that such a shift in Russia’s approach will lead to increased government support for green technologies and projects. For example, ambitious goals for the development of a hydrogen economy are already being voiced at all levels. In June 2021, Deputy Prime Minister Alexander Novak noted that in future Russia plans to occupy 20 per cent of the world hydrogen energy market (comparable to Russia’s current share of the hydrocarbon market). Having said that, there is not yet a single low-carbon hydrogen production project in Russia that has gone beyond the stage of memorandums of understanding.
Great ambitions are also pinned on the development of a new generation of nuclear power. Solar and wind energy have started to develop and localize, and the first energy storage projects have emerged. However, for now, Russia’s position on green energy comes down to the statement ‘we have great potential.’ The most promising areas are in their infancy in terms of availability of their own technologies and qualified personnel, and also given regulation and a more than modest scale of projects being implemented. Ensuring sustainability of hydrocarbon and other resource exports by reducing their carbon footprint, as opposed to a fundamental green transformation of the economy, remains Russia’s main task.
With such a background, Russia’s perspective on the COP negotiations is really controversial. In theory, climate and green energy are the areas in which Russia, the US, the EU, China, and developing countries have a common interest. It is possible to speculate about potential joint projects, new investments, and the transfer of green technologies to Russia. However, a radical difference in goal setting and the regulatory framework makes a less optimistic scenario fairly probable. The current heated debate around European cross-border carbon regulations, the methodology for assessing the absorptive capacity of Russian forests, and the acceptability of various methods of hydrogen production (‘grey’, ‘green’, ‘blue’, and ‘yellow’) are the first examples of potential conflict points in this area. For now, despite a surge of interest in the green agenda in Russia, it is impossible to say with any certainty that Russia is ready to move from loud statements to real measures for combatting climate change, or that the climate agenda can make Russia’s cooperation with other countries more constructive.
At COP 26, countries are expected to announce new increased nationally determined contributions to reduce emissions by 2030. In addition, it is expected that the countries will present more specific national plans to meet Paris Agreement targets and that the carbon markets issue relating to Article 6 of the Agreement will be resolved.
Particular attention will be focused on the United States, as Joe Biden’s planned speech will mark the return of the United States to the Paris Agreement. The US is expected to announce a double increase in the annual volume of climate finance allocated to developing countries. From a geopolitical viewpoint, Russia, which regards itself as an equally important global player, needs to make a comparable appearance—not necessarily in financing, but potentially in any other area. It is expected that Russia will oppose discrimination in international climate regulation, in particular regarding Carbon Border Adjustment Mechanisms. Far less certain is its position on achieving the goal of net zero. Though there were some internal discussions on this topic leaking into the public space, so far no official statements have been made; and given the huge uncertainties related to the green transition for Russia, it is questionable whether Russia will make such a commitment at Glasgow.
The article was co-authored by Irina Gaida and Tatiana Mitrova.
This article is also published in Oxford Institute for Energy Studies Energy Forum. Energy Voices is a democratic space presenting the thoughts and opinions of leading Energy & Sustainability writers, their opinions do not necessarily represent those of illuminem.
