An energy revolution is coming in Russia. What does the EU have to do with it?

The Russian government plans to fully agree and approve a new strategy for the country's socio-economic development until 2030 by the end of this year. On September 3, Deputy Minister of Economic Development of Russia Ilya Torosov announced this, speaking on the sidelines of the Eastern Economic Forum in Vladivostok.

According to the official, the strategy is aimed at maintaining the pace of development of the Russian economics above the world average: “This is primarily for Russia and within the framework of our national interests. In order for the country's economy to grow steadily, with a high growth rate above the world average (...), and despite the changing environment, including with the balance of payments, exports, changes in the energy balance of the world and, in particular, of Russia "(quoted by TASS ).

Coal is being replaced by green finance

The draft of a new strategy for the socio-economic development of Russia has been developed with four different scenarios, which contain the main parameters of economic development and planned investments. The scenarios differ in a number of key positions: the speed of decarbonization, the specifics of energy transition, and the costs required for their implementation.

The key provision of the country's new development strategy is a sharp increase in the share of nuclear power in the Russian energy market from 20% to 37% and a simultaneous radical reduction in coal consumption from the current 13% to 5%. Simply put, an energy revolution is planned in the Russian economy. For an almost threefold decrease in coal consumption, coupled with an almost twofold increase in "nuclear energy" within such a large country as Russia, will require simply gigantic investments.

The reason for such a sharp refusal from coal, which, as you know, is very successfully mined in Russia, and therefore extremely cheap, is obvious - “green finance”.

Climate neutral EU and its new taxes

In mid-July 2021, the European Union unveiled to the general public what is arguably the most ambitious climate change strategy in the world. According to the plans of Brussels, in the coming years, a dramatic reduction in greenhouse emissions is expected - by more than 50% by 2030 in comparison with the level of 1990. As a result, by 2050 Europe should become the world's first climate-neutral region.

The green transformation will affect absolutely all sectors of the EU economy. Moreover, in order to thwart attempts to circumvent the new legislation by importing products with a high carbon footprint, i.e. anyway harmful to the environment, the EU has introduced a system of special certificates. Companies intending to import carbon-intensive products into the Union will have to buy and exchange them for the right to import carbon-intensive products. Thus, in essence, the European tax on CO2 emissions will be levied, and there is only one way to get around it - reducing the carbon footprint of products.

Russian exports to the EU and new costs

In the structure of Russia's foreign trade for the period from January to December 2020, the EU countries accounted for 38,5% of Russian trade turnover. In the first four months of 2021, Russia became the third largest (after China and the United States) export partner of the EU, supplying products worth 42,5 billion euros, which is 12,5 percent more than in the same period of 2020.

Given this state of affairs, the EU carbon tax will have an extremely negative impact on the costs of Russian companies selling their products to the EU.

The respected Boston Consulting Group (BCG) estimates that the new cross-border carbon levy introduced by Brussels will cost importers of Russian products to the EU about $ 5 billion a year.

The calculations of another world-renowned company, the auditor KPMG, demonstrate that the optimistic scenario provides for an increase in total costs in the period from 2026 to 2035. worth between $ 18,4 and $ 40,5 billion. That is, even in the best case, the additional costs will amount to at least two to four billion euros annually.

According to the Ministry of Economic Development and Trade, the increase in costs will primarily affect the supply from the Russian Federation of metal (aluminum and steel), electricity, cement, fertilizers and pipes.

The situation for the majority of Russian manufacturers is not just difficult - it is catastrophic. It will be simply impossible for them to justify such a high one-step increase in the cost of importing products to the EU on their own, without fundamental infrastructural changes in the Russian economy.

Atom "as a presentiment"

The most effective infrastructure solution that will allow Russian companies to reduce costs may be a radical reduction in the carbon footprint in the electricity sector. The lower the greenhouse emissions from electricity generation, the lower the total carbon footprint of the products, especially in energy-intensive industries such as metallurgy.

Considering the tight deadline (the tax will begin to be levied in less than five years), and the fact that Russia is one of the world leaders in the field of nuclear energy, a way out suggests itself.

The maximum increase in the share of much greener in terms of CO2 emissions from nuclear power in the Russian energy market will sharply reduce the carbon footprint of domestic products and, as a result, reduce the costs of Russian companies. Apparently, the structures of the economic ministries of the Russian Federation understand this very clearly.

As a result, the list of 42 new initiatives for the country's socio-economic development, approved by the Government of Russia in July, included "New Nuclear Energy". And already in mid-August, Kommersant became aware of the plans of the Cabinet of Ministers to allocate about 80 billion rubles to finance the program for the development of nuclear power plants, carried out by the state corporation Rosatom. The first low-power NPPs will be built in Russia, and in the future, Rosatom plans to occupy about 1/5 of the world market. Other countries will also have to adjust to EU norms, so the demand for carbon-neutral nuclear energy will only grow.

"Yesterday was early and tomorrow it will be late"

Quote V.I. Lenina describes the situation with the energy revolution in Russia at the most opportune way. Undoubtedly, the main impetus for its implementation in Russia was the actions of the EU. Of course, they can be politicized, because Brussels cannot fail to know that two of its three largest export partners, Russia and China, will be the first to suffer from the new tax.

Nonetheless, Russia is still showing an unusually quick response, having in less than two months developed measures aimed at implementing an energy transition. Large infrastructure projects, in particular the planned construction of new nuclear power plants, will not only reduce costs for Russian companies exporting to the EU, but also ensure sustainable development and an organic "green" transition in our country.