Is something interesting happening in Russia?

Seppo Remes,
Professor of Practice,
School of Energy, Lappeenranta University of Technology,
Finland

It is natural that news from Russia is part of everyday life in Finland. It is mainly about politics, civil rights violations, negotiations with the U.S. president, the Nord Stream pipeline, and Navalny. These topics are well covered by both domestic and international news flows. One may wonder whether anything else is happening in Russia.

It is possible that the real new subject for interesting research, analysis and also governmental follow-up could be Energy Transformation and also elements of Sustainable Development, the most important task being the fight against climate change. As we know, for the time being, Russia is clearly lagging behind in its actions in both areas.

Russia is a hydrocarbon economy. On average, some 40% of the country’s budget revenue comes from export duties on oil and gas. These products also largely define Russia’s place in a global, political and economic context. Could this change in the future? Or is it already changing?

In his 2021 address to the Federal Assembly, President Putin unexpectedly raised these questions. He set up a target that “for the forthcoming 30 years, the accumulated greenhouse gases in Russia must be less than in the EU”. For some reason, this fundamentally important policy statement went almost unnoticed.

Russia’s elite has been skeptical towards the effects and even the phenomena of climate change for decades. This is gradually changing. Ecological catastrophes in the Far North caused by melting of the permafrost have caused shock waves – this could be extremely drastic for the Russian oil and gas industry, and also, for example, the whole city of Norilsk. Year-by-year enlargement of areas of forest fires and more recurrent river floods are also improving understanding thereof.

The Russian government approved hydrogen strategy just a few months ago. In essence, it is an export strategy. Until 2035 the focus will probably be the production of hydrogen from natural gas, with gradual increase of emission-free hydrogen using nuclear, hydro and renewables in process. The Russian Union of Industrialists and Entrepreneurs (RSPP) has set up a widely representative working group for questions concerning Sustainable Development. The Ministry of Economic Development has arranged meetings with key Russian companies on the issue. Russia’s main gas company, Gazprom, is also studying the possibilities of hydrogen.

One important reason for changes of attitude has been actions outside Russia, especially in the EU. More concretely, the EU Green Deal will cause the reduction of European hydrocarbon demand and specifically, the introduction of carbon border tax in the near future will affect other Russian exports. Russia cannot ignore these developments.

Solar and wind power construction is increasing by special tenders and special state support. For example, companies like Fortum and Enel are actively involved in this area. Russia is also aiming to produce domestically both solar and wind technology and equipment. The sum of the green megawatts is still modest – only 1.5 MW – but is, however, increasing: previously agreed-upon projects increase the figure to 5.4 MW in 2024 and there are plans to increase it to 12.6 MW in 2035.

In addition, an $11 bn programme for the development of electric cars has been adopted by Russia’s government. Its aim is to support the production of Russia’s own electric cars, to build charging stations and give consumers a 25% subsidy to purchase Russian electric cars. By 2030, annual production should reach 217,000 vehicles. Today, there is no production and the figure for of electric vehicles is negligible, only 687 vehicles last year, one-2,000th of the number of electric vehicles produced in China. This year’s sales estimate is roughly 1,000 cars. Russia still has a long road ahead.

It is also interesting that President Putin nominated talented reformer and effective businessman and administrator Anatoly Chubais as his representative in international organisations for Sustainable Development. It is a completely new position.

The really important question is whether Russia will choose a defensive approach or a strategy of long-term change. A defensive strategy seems to be supported by big business and their union, RSPP. The Ministry of Energy is also inclined towards it. Its core elements are to negotiate delays, minimise the effect of the EU carbon border tax and in general, wait-and-see. A strategy of change would focus on an active search of alternatives to today’s hydrocarbon economy to fulfil a target set up by the president and to find new drivers for Russia’s economic growth. This approach is gradually getting more support in Russia’s government, for example, in the Ministry of Economic Development and also – in a source of support which is more important – the Kremlin. But when do we see Russia’s Grand Sustainable Development Strategy?

These are very fundamental questions currently affecting the whole of Europe and especially Finland. Actions and figures are still minor, but there is a certain breed of progress taking place, as also seen by a critical commentator. Perhaps it would also now be wise to set up a permanent group of Finnish researchers, businesspeople, and government officials to follow, analyse and react to these developments in our neighbouring country. Russia may be changing.

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