May 18, 2009
No other country on earth wastes more energy than Russia. According to Russian estimates, the country could save about 40 percent of its energy consumption if its energy sector functioned according to Western standards. The losses due to poor heat isolation of buildings, outdated equipment in industry and power generation and transmission are colossal. It would be easy to reduce them by a massive investment programme in energy efficiency.
But as long as domestic energy prices are only some 25 percent of the European price level the system lacks the incentives to undertake the necessary investments.
The government is in principle committed to raising energy prices to the international level. But it has deferred the implementation, fearing this might foment social unrest in the deep crisis that has hit the Russian economy and caused unemployment to rise to 10 percent of the labour force.
But it will come under increasing pressure from its energy industry and the international community to finally address the intertwined issues of energy prices and efficiency. It needs a profitable oil and gas sector able to invest in production and pipeline systems, in order to respect its export targets.
It cannot forever waste the equivalent of its nuclear power generation by abysmally low energy efficiency. After Kazakhstan and Turkmenistan Russia has the highest energy input per GDP, twice as high as the global average. Even if this is partly due to the predominance of heavy industry, energy waste is a main contributor to this anomaly.
So what should the Russian government do to repair this untenable situation?
First, progressively align domestic energy prices to the European level. Quadrupling energy prices will require time. But it should be possible to complete the process within 10 years, say by 2020. Business and private citizens should follow an identical path of alignment. There is no need to give industry a longer transition period; it has the means to offset higher prices by improvements of energy efficiency.
The impact on consumers it should be neutralised by lower income and consumption taxation.
Second, launch a multi-billion investment programme for reducing energy waste in public and private buildings, transport, energy generation/transmission and industry. The private sector should be able to finance these investments, provided the government and international finance institutions offered credit facilities and other incentives.
In parallel the government will have to impose stricter energy efficiency standards.
Third, attract foreign expertise and investment to support its energy efficiency programme. EU and US companies would be happy getting involved if they could offset these investments under the future international climate rules against their national commitments reduction commitments and if Russia offered a safe investment climate.
Russia also disposes of an impressive potential for renewable energies, in particular hydro-power (9 percent of global resources) and wind (175 GW compared to more than 300 GW the USA and 100 GW globally installed capacity). But investing in renewable energy should not be the top priority for Russia. It is much more economical to fully exploit the potential for saving energy.
At Copenhagen, Russia will find itself in a comfortable position. It has been able to reduce its C02 emissions by 20 percent between 1990 and 2006, thanks to increased energy efficiency.
It has been exempted from any reduction commitments when joining the Kyoto Protocol. Until 2020, it could easily reduce its emissions by 30 percent over 1990, as suggested by the EU for all advanced countries. Its informal 2050 target is to halve emissions by 2050, which is inadequate compared to more ambitious targets by other developed countries (80 percent reduction).
But it may want to “bargain” any target. Hopefully the major emitter countries will call upon Russia to take commitments comparable to those the international community expects from advanced industrialised countries.
The EU has a crucial role to play in persuading Russia to take a constructive role on the international scene. Why not propose a joint programme of raising energy efficiency as an essential component of their strategic partnership?
Brussels, 15.05.09 Eberhard RheinAuthor : Eberhard Rhein