Russia, one of the world’s leading suppliers of fossil fuels, is facing new challenges: as the world is entering a zero-emission path, the country’s future will largely depend on diversification of the country’s economy, including decarbonizing its energy sector.
With more countries setting their net-zero targets and developing their decarbonization strategies, new economic risks appear for large oil and gas exporters, including Russia. These risks are already being discussed in the country but a clear strategy to address these challenges is still lacking.
For many years, Russia has been a quiet if not absent player in the global climate debate. Climate change has not been taken seriously on the political, economic and social levels. In many ways, Russia arrived rather late to realize the importance of the issue and is trying to catch up on it now.
With climate skepticism (or avoidance) widespread within Russia’s political, social and media landscape even 10 years ago, the situation is drastically different now. The ”turn” towards and interest in the climate agenda originated around 2009, when then-president Dmitry Medvedev came to the COP-15 in Copenhagen, signing a Climate Doctrine, which became the basis for all further climate policies in the country. Since then, Russia has joined the Paris Agreement, submitted its first (rather unambitious) NDC (Nationally Determined Contribution, a country’s emission reduction goal under the Paris Agreement), drafted its first (also rather unambitious) long-term low carbon development strategy, is working on its first legislation introducing carbon reporting for large polluters and voluntary carbon projects for companies but with no binding carbon price in sight, with the exception of an emission trading experiment due to be launched in the Sakhalin region in the very Far East of the country.
There were several drivers behind these changes, moving the country towards realization of the importance of the climate agenda. Among them – observed and forecast climate risks, from melting permafrost to forest fires, droughts in the south of the country and floods in the west. Russian scientists keep warning that the climate is warming 2.5 times faster than the world average in Russia, especially in its Arctic regions, which means further drastic changes not only for the country but for the whole world. On the other hand, two further drivers: the realization of economic risks resulting from decreasing global demand for oil, natural gas, and coal, resulting from the decarbonization policies of other countries, and EU plans to introduce the carbon border adjustment mechanism (CBAM) as part of the Green Deal plan, seem to have been a wake-up call for Russian climate awareness.
The impact of climate change policies worldwide has long been discussed by Russian researchers, experts and environmentalists. However, here I would argue that is it still being taken as a very distant and long-term risk, both by political elites and by companies, including major fossil fuel producers, who still hope for growing or at least stable markets for their commodities at least until 2030, which, together with a wide-spread preference for short-term planning and quick profits make it a factor which is not strong enough to tackle the current system now.
However, a more recent phenomenon, that is, the CBAM, seems to be a much more powerful factor in bringing new life to climate discussions (and possibly actions) on the political and business levels. Since summer 2020, Russian officials and company representatives have been engaging in various official/unofficial, open/closed discussions and consultations about the new mechanism. Even though the CBAM rulebook is still not clear, various estimates of potential economic losses by Russian exporters of fossil fuels, metals, chemicals, etc., have been made public in the country. That process led to companies’ increasing interest in the climate/decarbonisation agenda, as well as ESG reporting and investment. Russian companies are active in their SDG/ESG corporate reporting and in their interaction with partners/investors/customers from the EU; however, within Russia, they’re still criticizing and blocking any attempts to introduce ambitious carbon regulation, said Russia’s presidential climate envoy Ruslan Edelgeriev in his recent interview.
Still, recent years have seen some modest development of renewable energy, even though the country is still far behind global trends in green energy: wind and solar account for 1% in installed generation capacity and for 0.3% in energy generation. Now that hydrogen has become a new trend (with blue and pink hydrogen named as the preferred kinds), the government has approved a plan for hydrogen energy development, with Gazprom, Novatek and Rosatom being potential major players in the new sector. Russia’s government will push for global recognition of nuclear energy as carbon-free and climate-friendly, Russia’s vice prime minister responsible for environmental and climate policy, Viktoria Abramchenko, suggested in her report to President Vladimir Putin. Economic Development Minister Maxim Reshetnikov also recently announced that Russia’s classification of ”green” projects (which is currently being developed by the country’s state-owned development corporation, Veb.RF), among others, will also include projects in the area of nuclear energy. Yet plans to push for nuclear energy at the international and domestic levels as a solution to climate change are met with criticism from Russian environmentalists, who see nuclear energy as a “too slow and ineffective solution to the climate problem” presenting “undeniable risks”.
Yet, a specific plan for decarbonization, energy transition and economy diversification are still not there. Most economic and energy development documents as well as socio-economic strategies predict growth in fossil fuel production and consumption (and base economic growth on these sectors), thus foreseeing increasing GHG emissions (at least for some). However, as many experts argue, the hidden truth is that Russia does indeed have huge physical and economic potential in renewable energy, “green” hydrogen generation, as well as other prospective “green” sectors from resource-efficient and climate-smart agriculture to sustainable forestry, and other sectors. The question now is when the strategies, plans and policies will be updated to reflect the new global reality.