Rhein on Energy and Climate

Finally Russia seems to discover it has to do something about its shocking waste of energy. In a brutally frank speech to the Russian State Council at Archangelsk on July 2nd, President Medvedev has called upon his citizens to radically change their energy consumption habits:

Raising energy efficiency will have to be the no 1 priority for Russia in the coming decades. Until 2020, the ratio between energy consumption and GDP has to be reduced by 40 percent. Even then it will remain twice as high in the EU!

It is urgent for the State DUMA to pass the federal law on energy and conservation, which has passed its first reading, in view of its entry into force in 2010.

The power sector and buildings need to be the priority sectors. Losses of up to 60 percent in the heating supply and the electric transmission lines are intolerable. The systems are absolutely outdated. So are the lighting systems, which also cause immense energy waste.

This waste generates huge damage to municipal and regional budgets and extra costs to the people, to be covered by state-financed social compensations.

In parallel, Russia will have to promote alternative energies, sooner rather than later. Even it is extremely rich in fossil energies it has to think of tomorrow. The government therefore should create the appropriate conditions – financial incentives, standards and regulations – for business and house owners to invest in energy efficiency and renewable energies.

Anti-crisis financial assistance to manufacturing industry should be conditional upon specific programmes for more rational use of energy; and state-owned companies have to set examples.

Coming from the very top and echoing similar messages from PM Putin, this address demonstrates that the Russian leadership has come to realise the extraordinary economic potential to be obtained from a nation-wide push for energy efficiency. But in Russia more than anywhere the gap between good intentions and action is wide. Proper incentives are the key word; and that means bringing energy prices in Russia to world-market level and even beyond, something that has been decided but will be more difficult to pursue in view of the economic crisis.

The EU should help Russia in designing and implementing a coherent policy. This is in the mutual interest. It might contribute substantially to reduce global green house gas emissions, which Russia accounts for about 5 percent.

The EU should step its cooperation with Russia in all relevant areas.

The most urgent task is to get Russia fully on board for the Copenhagen climate conference. Russia has declared its willingness to cut its emissions until 2020 up to 15 percent over 1990. It should be able to make much deeper cuts by eliminating excessive energy waste.

Whatever the outcome of the Copenhagen Conference EU engineering companies have a commercial interest to modernise Russian utilities and transmission systems. Russia disposes of tradable carbon credits, worth some € 1.5 billion, thanks to the conditions of accession to the Kyoto Protocol in 2005, which might help EU utilities to offset their future reduction commitments.

The most effective assistance from the EU would therefore be getting competent EU power and engineering companies join hands with their Russian counterparts and define a comprehensive modernisation programme to be jointly financed by Russia, EIB and EBRD.

At the policy level, the EU Commission should explore with their Russian counterparts the possibilities for adopting EU-like energy and climate programmes, e.g. carbon cap and trade, carbon tax, insulation standards for new buildings, fuel efficiency standards for vehicles, feed-in electricity rates for wind and solar power, pilot schemes for carbon capture and storage etc.

Brussels, 04.09.09 Eberhard Rhein

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