Expert Club: The anti-carbon initiative: pros and cons

The Russian government is working on measures to meet its commitments under the Paris Agreement on climate change, in particular, a tax on carbon dioxide emissions. That could leave the economy facing a burden in the billions: the power industry alone would have to pay out 700 billion rubles in 2020. The initiative has divided experts into two opposing camps.

Expert Club: The anti-carbon initiative: pros and cons

Alexander PEROV, Special Project Manager, National Energy Security Fund (NESF):

“There’s no point now, most likely, in discussing whether or not Russia should have signed up to the Paris Agreement. What’s done is done. The main agenda item today is how we go about upholding the terms of the agreement. In particular, remember that, under the Paris framework, Russia has committed itself to working out a long-term development strategy for the period to 2050 that is consistent with low emissions of greenhouse gases.

In that connection, it’s essential to clarify that, first of all, our country doesn’t set the ‘rules of the game’ on climate. No matter how impractically broad our involvement in the global ‘anti-warming’ process, we have very little chance of winning any concessions.

Second, in formulating climate change policy we have to bear in mind the pattern of economic life that has taken shape in Russia, where energy-intensive production plays a major role and a lot of activity is bound up with raw hydrocarbon exports.

As I see it, some of the bold ‘anti-carbon’ initiatives proposed recently appear quite reckless. That includes, for example, the proposed charge on carbon emissions and plans to set up a carbon-free zone in East Siberia. That kind of gesture, aimed at showing the world community how we’re going to win the battle against carbon emissions, comes across as foolish, to say the least. Such measures have nothing useful to offer this country; on the contrary, they can only undermine our social and economic well-being.”

Alexey KULAPIN, Head of the Department of State Energy Policy, Russian Ministry of Energy:

“In the longer term, the Paris Agreement is bound to have a significant impact on both developments in the global energy sector, the main emitter of greenhouse gases, and the broader economy. For example, ‘green’ products could benefit from significant preferences in international trade.

The agreement itself does not lay down any particular mechanisms, financial or otherwise, for reaching its goals: the choice of instruments is left to each signatory country. In Russia’s case, a comprehensive analysis of current and potential tools for regulating greenhouse gas emissions, along with the possible impact of any changes, shows that we need to take a variable approach, applying different emission control tools to different sectors of the economy.

Right now, Russia’s Ministry of Energy is creating conditions that will lead to a reduction in the country’s emissions of greenhouse gases. That includes efforts to exploit existing scope for energy savings and increased energy efficiency, to develop renewables, to apply innovative and environmentally-friendly technology in the energy sector, and to make using the best available technology our guiding principle. Taken together, these measures will provide a further impetus to innovative upgrades in the energy sector, the development of domestic expertise and Russia’s emergence as a global technology leader.”

Brian YEUNG, independent consultant on investment and innovation, previously with The Economist and Russia Beyond the Headlines (China):

“Based on IMF estimates, if taxes on carbon dioxide emissions – in other words, on the carbon content in fossil fuels – rise by 5 US dollars a year between 2017 and 2030, then CO2 emissions will be 30 percent lower by 2030. There are serious obstacles, however, to imposing such a tax policy on the Chinese economy. The most important of these is China’s unbalanced energy consumption. At this time, fossil fuels account for as much as 70 percent of the power generated in China, and using such fuels to generate electricity is a major source of the country’s CO2 emissions. China doesn’t yet have the necessary experience with alternate energy sources or generating power from renewables. That’s why Chinese investors are trying to borrow from the experience of foreign countries, by bringing outside investors into the renewable energy sector. This is true for both state-sector and private enterprises.

The structure of the Chinese economy is another issue. Right now, the country is moving away from the ‘Made in China’ model to the development of specifically Chinese products, which means re-orienting the economy, moving from mass production to innovation. Despite that transition, energy consumption in China remains high: in 2015 it reached 5.5 trillion kWh.”

Alexander GRIGORIEV, Deputy General Director, Institute of Natural Monopolies Research (IPEM):

“In my opinion, companies that run coal-fired CHPPs will be the first to suffer from a carbon tax. The owners of oil and gas power stations are also likely to take a hit from any carbon initiatives, not just directly, but also via a rise in the price of natural gas.

Another inevitable consequence of introducing a carbon tax is higher energy prices. Although a carbon tax will not impose any significant extra costs on the owners of HPPs, NPPs and renewable generating capacity, the cost of electricity produced at such plants will still rise. The Russian wholesale electricity market operates on the marginal pricing principle, which means the final price is determined by the highest-cost supplier to make it through a competitive selection process. Even in regions where hydropower is well developed, it’s CHPPs that determine the wholesale price of electricity, and not HPPs, NPPs or renewable power generation. Companies with non-carbon generating capacity stand to earn extra profits if the tax is introduced, and the ultimate consumer will see a significant rise in electricity prices. Based on our calculations and the current mix of generation facilities, a carbon tax would add roughly 0.45–0.58 rubles per kWh to the price, allowing for the higher price of gas. That would mean a 19–25 percent increase relative to current prices for major commercial users, plus increases of 11–14 percent for smaller commercial users and 19–25 percent for the general population.”

Boris REUTOV, CEO, All-Russia Thermal Engineering Institute:

“We are trying to be an ‘active participant’ under the Paris accord without weighing the economic impact of an unduly active role in cutting emissions of greenhouse gases. As we start this process, it’s important to remember that we have already cut greenhouse gas emissions substantially relative to their 1991 level (in accordance with the terms of the Kyoto Protocol), a goal that many western countries who talk about saving the planet failed to achieve. Furthermore, little weight has been given, either now or in the past, to the fact that Russia – thanks to its boreal forests – is a net sink for CO2, i.e. it absorbs more than it emits. And note the fuel mix in most environmentally-friendly countries: in Germany, for example, ‘dirty’ coal accounts for around a third of the mix. The US, China, India, Australia and Indonesia fall into the same category – it’s a very long list.

Given the economic, geographic and technological environment, we have to realize that hydrocarbons are going to be the main fuel for a long time yet in resource-driven countries like Russia. We have to be sensible in our approach to developing renewable energy. Furthermore, Russian scientists have stated that the Earth is starting to experience a period of reduced solar activity that will lead to a fall, not a rise, in average temperatures on the planet. So our hydrocarbon resources may be very much in demand, with high-tech, environmentally-friendly fossil fuel energy driving Russia’s economic development.”

Fyodor VESELOV, senior researcher, Higher School of Economics Energy Institute:

“For all their seeming simplicity, it is far from clear that taxes are an appropriate route to a carbon-free future. Carbon taxes are often seen as a way to increase the competitiveness of low- or zero-carbon energy sources, by raising the cost of power generation at thermal plants. But given Russia’s intrinsically lower domestic coal and gas prices, the carbon tax will have to be at least 50–70 dollars per ton of CO2. The way tax revenues are handled is also a problem. Can they be earmarked for technological renewal in the energy sector itself, creating a feedback mechanism that reduces the cost of low- and zero-carbon projects, instead of subsidizing other industries or simply inflating the budget? Also, the extra tax burden will be translated into a higher price for energy, including electricity and heating.

A low-carbon future is expensive, as the situation in Europe makes plain: strong growth in renewable energy there has been financed by equally-intensive growth in the ‘green’ taxes paid by industry and home users, whose share of the cost of power continues to rise. To what extent are we prepared to tolerate that kind of price trend in the long term? Just how much will a carbon tax affect the economy and GDP? To answer those questions, we need serious, quantitative estimates of macro- and micro-economic impacts to compare alternative mechanisms for regulating greenhouse gas emissions, including market-based approaches.”

04-12-2016 14:34

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