Decarbonization and its Influence on the Russian Economy

Malika Yusupova

1 a

and Musa Merzho

2 b

Chechen State University, Grozny named after A.A. Kadyrova, Grozny, Russian Federation

Ingush State University, Magas, Russian Federation

Keywords: Decarbonization green sectors, global transition, global climate change, energy sources consumption, low-

carbon development, morphological features, energy resources.

Abstract: Global decarbonization i.e. The global transition to low-carbon development is a response to global climate

change caused by anthropogenic greenhouse gas (GHG) emissions into the atmosphere. The goal of

decarbonization is to reduce, and ideally eliminate, these emissions, thereby mitigating (slowing down)

climate change and minimizing the damage it causes. The realization of this goal will have a most serious

impact on the economy of the world and Russia. The changes will affect the energy sector, transport,

construction, industry and agriculture. The requirements for land and forest management will become more

stringent. One of the outcomes of the transition to low-carbon development will be a reduction in the demand

for fossil fuels and an increase in the role of renewable and other green energy sources. In the recently adopted

Strategy for Russia's Economic Security, the change in the structure of world demand for energy resources,

the development of energy-saving and green technologies are classified as the main challenges and threats to

the country's economic security. However, these trends are considered in the strategy without linking to global

actions to mitigate climate change and with the achievement of established goals to limit the increase in

average temperature within limits that exclude catastrophic consequences for nature and humans. This creates

the danger of misinterpreting these trends as harmful or even malicious, directed against the interests of Russia,

while in fact they are objective and reflect the desire for the common good.

1 INTRODUCTION

The digitalization of various aspects of the

functioning of the economy and human life entails the

transformation of both nature itself and the volume of

data on socio-economic phenomena. The demand for

statistical data is changing and at the same time new

opportunities are emerging due to the development of

digital communications and the emergence of big data

arrays suitable for statistical processing and analysis.

In addition, there is a need for statistical measurement

of the development of the digital economy, while

international standards in this area have not yet been

established (Global Energy and CO2 Status Report –

2017).

The spread of digital technologies over a long

period determines the trajectories of economic

development and society and more than once led to

cardinal changes in people's lives. The formation of

the digital economy is one of the priority areas for

https://orcid.org/ 0000-0002-8131-2385

https://orcid.org/0000-0003-4502-0737

most countries - economic leaders, including the

United States, Great Britain, Germany, Japan, etc. As

a rule, they are characterized by a long period of

implementation of the "digital development agenda"

and the continuity of priorities - from building a basic

infrastructure to the formation of a coordinated policy

in this area and programs to support the widespread

introduction of digital technologies (Global Energy

and CO2 Status Report – 2017;Global Trends in

Renewable Energy Investment 2018).

In recent years, another wave of transformation of

business and social activity models has been

unfolding, caused by the emergence of new

generation digital technologies, which, due to the

scale and depth of influence, have been called "end-

to-end" - artificial intelligence, robotics, the Internet

of Things, wireless communication technologies and

a number of others. Their implementation is

estimated to be able to increase labor productivity in

companies by 40%. In the near future, it is the

Yusupova, M. and Merzho, M.

Decarbonization and its Inﬂuence on the Russian Economy.

DOI: 10.5220/0011556600003524

In Proceedings of the 1st International Conference on Methods, Models, Technologies for Sustainable Development (MMTGE 2022) - Agroclimatic Projects and Carbon Neutrality, pages

159-164

ISBN: 978-989-758-608-8

 2023 by SCITEPRESS – Science and Technology Publications, Lda. Under CC license (CC BY-NC-ND 4.0)

159

effective use of new digital technologies that will

determine the international competitiveness of both

individual companies and entire countries that form

the infrastructure and legal environment for

digitalization (McKinsey (2017c)).

The Green Agenda was a development of the

instructions that were announced by President Putin

during his State of the Union address, which in turn

are rooted in the growing anxiety of politicians and

the public caused by global climate change, of which

the climate agreement has become an expression. For

ordinary people, the expression of the climate agenda

and the fight against global warming was the

extremely emotional speech of the Swedish

schoolgirl Greta Thunberg with her passage that “we

[people] are all on the verge of extinction (Medium

(2018)).” In Russia, the words of the Swedish

schoolgirl were skeptical, but 6 days before that, the

government - by that time after 3.5 years of waiting -

decided to join the Paris climate agreement.

Nevertheless, neither in 2016, nor in subsequent

years, politicians, regardless of their level, treat the

climate agenda with skepticism, which was expressed

in the words of President Putin that climate change

depends not only on human activities, but also on

global processes, but human influence should be

minimized. By the middle of 2021 (Medium (2018);

Sukhinina, 2013), the discussion about whether

global warming is real and what is the contribution of

mankind to warming the Earth's atmosphere through

carbon emissions is irrelevant: the need to reduce

carbon dioxide emissions has been recognized by the

leading politicians of the countries of the world and

framed in a mass of regulatory legal acts. These acts

are aimed not only at reducing the volume of carbon

dioxide emissions into the Earth's atmosphere, but

also at a radical transformation of the economies of

the leading countries of the world, and can also cause

future trade wars under the guise of fighting for the

environment (Federal Law No. 174-FZ, 1995).

The calculation of the absorptive capacity of

Russian forests for providing data to the UN is carried

out using “Regional Forest Carbon Budget

Estimation System” (ROBUL) based on scientific

research 60–90s last century. For a long time, starting

from the preparatory measures for Russia's accession

to the Paris climate agreement, business fought

against this method, criticizing it for underestimating

the absorption capacity of forests, which turns out to

be many times lower than in the developed countries

of the world. The Ministry of Natural Resources, in

turn, tried not to notice this struggle, and officials did

not pay much attention to the criticism of ROBUL.

The methodology for determining what should be

considered a forest is also of great importance: in

Russia, for example, there are 2.4 times more forests

than in the United States, but their specific absorption

of carbon dioxide is 2.5 times less due to the

peculiarities of the accounting methodology. Critics

of the ROBUL methodology noted that ROBUL

reduces the predicted absorption of carbon by Russian

forests to almost zero over the next 20–25 years,

which makes it impossible for economic growth in

Russia without violating obligations under the Paris

Agreement. According to ROBOUL, the absorbing

capacity of Russian forests from 1990 to 2030 will

increase from 370 million tons to 400-650 million

tons of carbon, depending on the dynamics of

logging. An alternative methodology from the All-

Russian Research Institute of Forestry and Forestry

Mechanization (VNIILM) predicts that carbon

absorption by Russian forests will increase from

1.945 billion tons to 2.4 billion tons in the same

period (Sukhinina, 2013). However, in mid-February

2021, the Ministry of Natural Resources still

adjusted32 ROBUL in order to “clarify the initial data

of calculated indicators to increase the accuracy and

reliability of calculations of the absorptive capacity of

Russian ecosystems (Federal Law No. 174-FZ,

1995).”

2 RESEARCH METHODS

For the first time, the Kyoto Protocol defined

quantitative goals (obligations) to limit and reduce

GHG emissions for industrialized countries and

countries with economies in transition from Annex 1

of the UNFCCC, as well as flexibility mechanisms

that allow these countries to interact with each other

(mechanisms for international emissions trading and

joint implementation of projects) and with developing

countries (Clean Development Mechanism) and

through this achieve reduction of GHG emissions in

the most economically viable way, i.e. reducing

emissions, first of all, in those countries and in such a

way, where and in what way it is cheaper. At the first

stage (2008-2012) (Medium (2018)), the task was to

test the proposed approaches and mechanisms for

reducing GHG emissions in order to gain the

necessary practical experience and then move on to

more decisive actions. Hence the relatively modest

goal of reducing GHG emissions from industrialized

countries and countries with economies in transition

by an average of 5% relative to 1990. However,

already at this stage, difficulties arose. First, it turned

out that UNFCCC Annex countries are no longer the

main source of GHG emissions, as they were in the

MMTGE 2022 - I International Conference "Methods, models, technologies for sustainable development: agroclimatic projects and carbon

neutrality", Kadyrov Chechen State University Chechen Republic, Grozny, st. Sher

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early 1990s (Federal Law No. 174-FZ, 1995). The

bulk of emissions (over 60%) come from developing

countries (Federal Law No. 174-FZ, 1995).

Accordingly, reducing GHG emissions in

developed countries and countries with economies in

transition alone does not solve the problem. Secondly,

in terms of economic development (GDP per capita),

some developing countries, such as, for example,

Saudi Arabia, Singapore, South Korea and a number

of others, surpass many countries with economies in

transition. To demand emission reductions from some

and not demand from others is at least unfair. Finally,

thirdly, by the end of the first period, the flexibility

mechanisms of the Kyoto Protocol stopped working.

There were shortcomings in the methodology for

preparing carbon projects adopted for

implementation under the protocol, weak control over

their assessment, selection, approval and

implementation, as well as insufficiently strong

commitments to reduce GHG emissions established

by a number of countries of Annex 1 of the UNFCCC

(in particular, Russia and Ukraine). With this in mind,

at the Conference of the Parties to the UNFCCC in

Doha (Qatar) in 2012, it was decided to extend the

Kyoto Protocol until the end of 2020 (Kadner, 2021),

and then replace it with a new, better and more

comprehensive agreement. At the same time, in the

second period of the Kyoto Protocol, it was planned

to tighten the targets for reducing GHG emissions for

the countries of the UNFCCC, namely, to set them at

a level not exceeding the average level of GHG

emissions in the respective countries for 2008-2010.

However, the corresponding amendment was ratified

by less than half of the countries participating in the

protocol. At the same time, three countries - New

Zealand, Russia and Japan - chose not to take on any

quantitative obligations to limit and reduce GHG

emissions for the second period of the Kyoto

Protocol, and Canada withdrew from the protocol.

Nevertheless, the Kyoto Protocol as a whole fulfilled

its task. Developed countries have introduced various

GHG emission control schemes and implemented

measures aimed at their reduction, which allowed

these countries to achieve an absolute reduction in

GHG emissions while increasing GDP and thus create

prerequisites for the transition to low-carbon

development (Maliene, 2010).

The largest developing countries - China, India,

Brazil - also assessed the benefits and benefits of

switching to a low-carbon development path and took

a number of measures in this direction, which led, if

not to an absolute reduction in GHG emissions in

these countries, then at least to a significant

slowdown in their growth. Despite the fact that the

United States is not a party to the Kyoto Protocol,

President Barack

Obama held in 2009-2016. climate policy, which

generally met the goals and objectives of the Kyoto

Protocol. In particular, in 2013, The President's

Climate Action Plan was adopted, and in 2015, The

Clean Power Plan. In 2016, GHG emissions in the

United States decreased compared to 2005 by 11%

excluding LULUCF and by 12% with despite the fact

that US GDP grew over the same period by 17.4%.

This was facilitated by the initiatives of individual

states. Thus, since 2009, nine states - Connecticut,

Delaware, Maine, Maryland, Massachusetts, New

Hampshire, New York, Rhode Island and Vermont -

have been operating a single quota and emissions

trading scheme RGGI, which regulates CO2

emissions in the electric power industry

(Shakhgiraev, 2019).

In 2012, a cap-and-trade scheme covering all

sectors of the economy, including energy and out-of-

state products, was launched by the authorities in

California. In Canada, despite the withdrawal from

the Kyoto Protocol, much is also being done to reduce

GHG emissions. The country's current prime

minister, Justin Trudeau, is active on the climate

agenda and has consistently advocated for the

regulation of GHG emissions. This is already

happening in many Canadian provinces. For example,

British Columbia and Alberta levy taxes on GHG

emissions, while Quebec, Ontario and Manitoba have

introduced cap-and-trade schemes.

3 RESULTS AND DISCUSSIONS

In Russia, ensuring the accelerated introduction of

digital technologies in the economy and the social

sphere is one of the national development goals

(Decree of the President of the Russian Federation

dated May 7, 2018 No. 204 "On the national goals and

strategic objectives of the development of the Russian

Federation for the period up to 2024", hereinafter -

Decree No. 204). For this, Decree No. 204 defines the

following tasks (Eurostat, 2021):

− increase in domestic costs for the development

of the digital economy from all sources (in

terms of share in gross domestic product) by at

least 3 times compared to 2017;

− creation of a sustainable and secure

information and telecommunications

infrastructure for high-speed transmission,

processing and storage of large amounts of

data, accessible to all organizations and

households;

Decarbonization and its Inﬂuence on the Russian Economy

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− the use of predominantly domestic software by

state bodies, bodies local government.

Accelerated introduction of digital technologies in

the economy and in the social sphere is an ambitious

goal, which is successfully realized only in a very few

leading countries. It is achievable only if a number of

essential conditions are met. Firstly, business and the

social sphere must be ready for digital transformation,

development strategies must mature and take shape,

involving a fundamental change in the way of

organizing and doing business through the planned

intensive introduction of digital technologies,

demanded by organizations and promising

stakeholders a return on investing their own funds.

Secondly, the country should develop a relatively

mature technology supply sector, which, if not

claiming to be an international leader, is at least

capable of quickly transferring and adapting foreign

technological solutions and rapidly increasing the

scale of its own activities. Thirdly, the demand of the

population for digital technologies should constantly

grow, since it is the needs and capabilities of

consumers that ultimately determine the adequate

demand for digital technologies from organizations,

primarily in the field of B2C (Shakhgiraev, 2019;

Kadner, 2021).

For the successful solution of these tasks,

moderately favorable conditions have developed in

terms of the technological proposal. Thus, the ICT2

sector is one of the most dynamically developing

segments of the Russian economy. For the period

2010–2017 it grew by 17%, almost doubling GDP

growth. The share of the sector in GDP is 2.7% [NRU

HSE, 2018]. However, in most developed countries,

the ICT sector plays a more important role - its share

in the value added of the business sector in OECD

countries is 1.6 times higher than in Russia (5.4 and

3.4%, respectively). According to the HSE ISSEK,

our country is 2-3 times behind the leaders of the

technological proposal - Korea, Sweden, Finland - in

this indicator (Federal Law No. 174-FZ, 1995).

Russian business is extremely alarmed by EU

plans for the introduction of a cross-border tax on

carbon, therefore, it acts in several directions at once:

Actively negotiates with the EU to clarify the details

of the upcoming tax, methods for accounting for

greenhouse gas emissions, on which further actions

of capital will depend. Carries out restructuring to

turn non-environmentally friendly enterprises into

separate structures. Prepares for the implementation

of environmental projects. Modernizes production

and masters the production of new products. Vygon

Consulting estimates direct and indirect emissions, as

well as emissions from the use of products in Russia,

at 3.1 billion tons of CO2 equivalent, of which 54%

is accounted for by exported products. One of the

ways to reduce the losses from the introduction of the

TUE is to launch its own system of trading in quotas,

copying the EU ETS. But, according to Vygon

Consulting, the total burden on the business from the

introduction of such a system will not be comparable

with the savings on TOUR payments. Thus, the total

payment from the fuel and energy sectors will amount

to 14.6-18 billion euros per year, of which 74-90%

will fall on the electric power industry. Based on

export parameters to the EU in 2015-2020 at the level

of 6-13 billion kWh per year, companies can pay 80-

180 million euros per year. In the case of launching

your own system at a price of 40 euros per tonne of

CO2 equivalent, the total payment will increase by

13.3 billion euros, increasing the average electricity

prices for businesses by 30-40% (Sukhinina, 2013).

Moreover, the estimate includes only emissions from

electricity generation in the price zones of the

wholesale market. In case of inclusion in the base of

emissions from the production of electricity outside

the price zones and heat (now in the EU ETS, most of

the heat produced is either excluded from the

perimeter or exempt from payment), payments can

increase by 1.5–2 times (Shakhgiraev, 2019).

Enterprises of the Russian fuel and energy

complex, realizing their own vulnerability in

connection with the desire of the EU to abandon the

use of oil and gas, they resorted to a dual strategy,

which is based on criticism of the rapid energy

transition and preparation for a new, hydrogen,

reality. Since 2019, PJSC TATNEFT has been taking

active steps to reduce emissions; in February of this

year, the company strengthened its positions by

joining the international initiative Science Based

Targetsinitiativ. PJSC TATNEFT plans to achieve

carbon neutrality by 2050 with a gradual reduction in

emissions: by 10% by 2025, by 20% by 2030. PJSC

Gazprom follows sustainability trends by pursuing a

policy of energy saving and energy efficiency within

the framework of the environmental management

system. Domestic fuel and energy complex

represented by the head of Rosneft, Igor Sechin,

criticizes supporters of an aggressive energy

transition, including even the International Energy

Agency, which advocates curtailing all new oil and

gas projects after 2021, emphasizing two points

(Sukhinina, 2013):

1. Obvious economic advantages of fossil fuels,

in particular, its large reserves, well-established

extraction technologies and high calorific value

(Federal Law No. 174-FZ, 1995).

MMTGE 2022 - I International Conference "Methods, models, technologies for sustainable development: agroclimatic projects and carbon

neutrality", Kadyrov Chechen State University Chechen Republic, Grozny, st. Sher

162

2. Environmental friendliness of hydrocarbons in

comparison with coals (black and brown) and

even shale oil production through hydraulic

fracturing. In addition, due to the lack of

technologies for the mass production of

hydrogen, companies note the threat of

underinvestment in the oil and gas industry. In

particular, this is exactly what the head of

Rosneft, Igor Sechin, spoke about when he

warned during SPIEF-21 about a possible

shortage of energy resources.

4 CONCLUSIONS

In the coming years, TUR will become as much a

reality as global warming. It is already too late to talk

about what humanity's contribution to warming is,

and it is useless to protest against TUR. TOUR will

become as much a part of economic activity as

tagging and traceability systems. What is more in the

desire of the European bureaucracy - the struggle for

the environment or pragmatic calculation to increase

competitiveness and reduce dependence on

hydrocarbon fuel supplies, is also no longer

important. Other aspects are important for Russia,

among which it is worth highlighting both negative

and positive ones. Negative (Shakhgiraev, 2019;

Kadner, 2021):

1. The losses of each individual industry subject

to the TIP, as well as the costs that will be

incurred by the business to adapt to the new

reality with strict regulation, and the reduction

in the volume of dividends.

2. State losses due to reduced exports and lower

taxes collected, as well as increased costs

associated with the threat of deterioration of the

socio-economic situation in single-industry

towns.

3. The transition to a "green" economy will

spur60 global inflation - as a result, the final

consumer of industrial products will pay for the

modernization of enterprises.

Positive (Federal Law No. 174-FZ, 1995):

1. The implementation of climate and

environmental projects by businesses will

increase the attractiveness of domestic forests:

And allow completion of forest inventory work

by pushing the bureaucracy to perceive the

forest not as a source of problems due to forest

fires, but as an economic asset; And also

increase the area of forest plantations due to the

implementation of climate change by business

projects (Shakhgiraev, 2019; Kadner, 2021).

2. Together with the tightening environmental

responsibility for environmental crimes,

TOUR will launch a cycle of industrial

infrastructure modernization across Russia,

which will have a positive impact both on

reducing the overall accident rate and on the

environmental situation in single-industry

towns (Mednogorsk, Norilsk) and million-plus

cities (Krasnoyarsk, Omsk, etc.). as well as in

entire regions61 (Kemerovo Oblast and the

Komi Republic), which will contribute to an

increase in the life expectancy of Russians.

3. R&D will reduce dependence on foreign

equipment and (possibly) make scientific

discoveries and technological breakthroughs

(inert anode).

Also, the positive factors include a high margin of

financial strength, which allows both to carry out the

modernization of production, and to compensate for

the shortfall in income due to TOUR. It is worth

noting that domestic business, together with the state,

managed to avoid a number of unpleasant excesses of

the “green” agenda that European companies go

through, in particular lawsuits obliging businesses to

reduce CO2 emissions at any cost. The key risk of the

TOUR - drawing the Russian Federation and other

countries into a trade war with the EU - has not yet

been removed. It is worth considering that Russia, as

a major exporter of mineral raw materials, low-

processed goods and energy carriers, will not be able

to get out of this confrontation without losses, so the

state and business have chosen a line to minimize

potential losses, as well as adapt to new realities.

Nevertheless, trade confrontations will not be

avoided, as evidenced by the history of the adoption

in the EU of the aviation emissions directive

2008/101 / EC, aimed at extending the European

emissions trading system to foreign airlines flying to

/ from the EU through the introduction of TOURs in

the civil sector. Aviation (Maliene, 2010; Eurostat,

2021). Practice has shown that through the collective

efforts of 23 countries, it was possible to postpone the

implementation of the European environmental

initiative for an indefinite period. Approximately the

same thing happened with the TOUR - its final

version turned out to be much softer than expected.

Nevertheless, the European bureaucracy does not stop

trying to force the airlines to "greening", the proof of

which are the plans to introduce a tax on jet fuel.

Consequently, trade disputes caused by

disagreements in environmental and climate

regulation will be inevitable, which (together with the

slide of the great powers into the state of Cold War

2.0) makes it extremely necessary, in addition to

Decarbonization and its Inﬂuence on the Russian Economy

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climate regulation, to develop the domestic market

(gasification program at the expense of Gazprom is

just such an example). A separate risk is the growth

in requests from eco-activists and the falling under

the TUR of new sectors of the economy, for example,

telecom operators that already emit 64 CO2 twice as

many airlines. Compared to other developing

countries (not to mention the developed countries that

initiated tougher environmental regulation), Russia

has lagged behind in the creation of a regulatory

framework and the creation of a national system for

accounting for CO2 emissions. At the same time, this

lag is not critical, as it allows not to run ahead of the

European steam locomotive (Kadner, 2021).

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neutrality", Kadyrov Chechen State University Chechen Republic, Grozny, st. Sher

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