Russia Struggles to Shake its Hydrocarbon Addiction

In 2019, President Vladimir Putin endorsed the Paris Agreement, joining 196 other countries, pledging to eventually reduce hydrocarbon-based emissions in Russia to levels 33% lower than in 1990. This pledge, however, does not see Russia shifting away from the production of energy from non-renewable sources; rather, their proposed long term energy strategy seeks to further exploit vast reserves of natural resources instead of promoting the production of non-renewable energy. Russia’s unambitious targets have been labelled as ‘critically insufficient’ by Climate Action Tracker, an independent scientific organisation that tracks government climate action in an aim to limit global warming to 1.5oC. Russia’s annual carbon emission level peaked in 1988 at 3.9 billion tons, according to data from the World Bank, which has offered them the freedom to set lagging climate change targets. To put this into context, the US, as the largest carbon emitter at the time with a significantly larger population, produced 4.9 billion tons of carbon emissions. This means that per capita, Russia’s emissions are remarkably high and that reaching pre-1990 emission levels may not see them creating the energy infrastructure change the world was hoping for. IRENA, the International Renewable Energy Agency, estimates that under current plans, renewables in Russia will form nearly 5% of total final energy consumption by 2030; however, accelerated deployment could enhance this to more than 11% in the same timeframe. One must wonder why Russia is not aiming to grow its renewable energy sector, especially with renowned potential in wind and hydropower.

 

Russia’s proposed coal program also provides evidence to suggest that their endorsement of the Paris Agreement is more of a façade for positive publicity than a commitment to green energy. Early last year, Russia’s prime minister, Mikhail Mishustin approved a special program aiming to intensify the country’s domestic coal industry until 2035. This programme could see growth in the sector of up to 668 million tons of coal from the current total of 439 million tons. The projected investment is sizable and amounts to 6 trillion RUB (83 billion USD). However, the plan should be economically profitable and improve economic growth domestically, should demand not falter. Russia is currently the world’s sixth-largest coal producer with the second largest total coal reserves of 173 billion metric tons. Despite this, it remains surprising that Russia has identified coal as the sector to develop. Notoriously dirty and cheap as an energy source, coal is especially bad for the environment. Not only is it by far the single largest source of global energy-related carbon emissions at 39%, according to the International Energy Agency (IEA), but impurities in the source release sulphur and nitrogen oxides that contribute significantly to acid rain. For a country pledging to cut down its emission levels, Russia’s investment decisions thus far seem to be taking a backward approach.

 

This strategy to expand Russia’s coal sector is likely to encounter further issues besides heightening emissions. Firstly, it is unlikely that this plan to increase and exploit the coal reserves will have the intended success of profitability and scale. Igor Bashmakov, the executive director of the Russian Centre for energy efficiency and a lead author of key U.N. science reports has said that Russia’s current fossil fuel-based growth model would ‘not be sustainable in the future.’ According to the IEA, the forecasted increase in global coal demand of 2.6% up until 2025 is likely to be a short-lived rebound after the COVID-19 crisis saw global coal demand plummet from –1.8% in 2019 down to –5% in 2020. In the rest of Europe, the outlook for coal is even bleaker as other European powers strive to meet a lower carbon-emitting future through switching to renewables. Coal’s main source of demand comes from the Asia-Pacific region, which purchases more than 75% of the world’s coal according to the IEA. Russia will require efficient transport infrastructure to compete with other major suppliers to the region: Indonesia, Mongolia and Australia are all better geographically suited to supply coal to those regions. The success of this strategy then mainly depends on the efficiency of the infrastructure to transport coal from mines scattered across some of Russia’s vast and isolated regions (84% of its coal reserves reside in Eastern Siberia) as opposed to productive efficiency.

 

Russia’s coal strategy is also thrown into question given Russia’s high potential in renewables, namely hydropower. The country is currently the 7th largest producer of hydropower globally, however, it is estimated to only be exploiting around 20% of its capacity, according to the International Hydropower Association. En+, the world’s largest independent hydropower generator operating in three of the five largest hydropower plants (HPP) in Russia, has seen its HPPs operate with average profit margins of 81%, suggesting economic reasons are unlikely to be the deterrent for Russian investment in renewables. It would seem other factors are at play in creating resistance against investment in alternative energies in Russia. Most likely, given the country’s hushed and yet very real oligarchical structures ruling the energy sector, these factors are not competitively or free market-driven. In the not-so-distant future, it will be interesting to see the outcome of Russia’s intention to remain strong in the production of fossil fuels and whether the clauses of the Paris Agreement could incite a shift in the growth of renewable energy in the region.

 

By Jack Reid

Sector Head: Edouard Nelson

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