MAGAZINE
2022
was a welcome opportunity in this regard and Moscow happily jumped at the occasion . 11 Re-reading the Energy Strategy to 2035 since the war in Ukraine sheds a different light on Moscow ’ s prioritisation of the development of hydrocarbons . It is clear that the new context ( sanctions , Europe looking to
Figure 1 : Russian infrastructure at risk from permafrost degradation . ( Credit : S & P Global )
alternative suppliers etc .) in which Russia finds itself due to its decision to invade Ukraine will greatly undermine these goals . Critically , sustaining export revenues , whilst maintaining social stability through reigning in domestic prices should now also be assumed to be in peril in the long term .
The economic and political cost of climate change for Russia Today , Russia still is the leading oil and gas supplier to the European Union ( EU ) and the largest oil exporter to China . 12 Whereas Russia has shown scepticism to climate change mitigation efforts , 13 the EU and China - Russia ’ s two largest energy customers - have commited to achieving carbon neutrality by 2050,14 and 2060 15 respectively . This commitment to a long term distancing from fossil fuels ( i . e . oil and gas ), greatly accelerated by sanctions and the EU ’ s phase-out of Russian imports by 202716 , represents a major economic and geopolitical risk to Russia . Oil and gas exports make up 60 % of Russia ’ s total exports , and revenues from fossil fuels account for 30 % of its GDP . 17 The COVID-19 pandemic has given the world a prelude of the potential economic repercussions when global oil demand and oil prices collapsed during confinement measures and global lockdowns . Russia ’ s oil export revenues contracted by 41 % between January and November 2020.18 Russia exported approximately $ 73 billion worth of oil in 2020 , compared to $ 160 billion a year earlier . 19 Russia ’ s largest oil company , state owned Rosneft , experienced a 79 % decline in profits in 2020.20 This financially challenging new environment may have been only temporary due to the ongoing COVID-19
III . - The European Green Deal provides an action plan to boost the efficient use of resources by moving to a clean , circular economy and cut pollution . The plan outlines investments needed and financing tools available . The EU aims to be climate neutral in 2050 . Meanwhile , Chinese President Xi Jinping announced in September 2020 China ’ s objective to have a carbon neutral economy by 2060 .
14 pandemic . Indeed , energy prices skyrocketed following the post- COVID-19 economic recovery around the world , further amplified by the effects of the war in Ukraine . This increase in prices certainly provides more income to the Kremlin per unit of energy sold . 21 However , it would be a fallacy to assume that Moscow can thus adequately weather the current geopolitical storm . The almost complete phase-out of Russian oil imports by EU countries will greatly undermine Russia ’ s earnings in its largest market . Moreover , the fact that the EU and UK will also sanction insurance companies that plan to underwrite Russian oil shipments will make it all but impossible for Moscow to ship oil abroad . 22 Russia will struggle to find consumers and if they are willing to take the risk of purchashing oil , they will likely have difficulties finding a party willing to insure the shipment . Both the client , as well as the insurer will price in the risk leading to a demand for enormous discounts on Russian oil exports and sky-high insurance premiums . In the longer term , global efforts to drastically reduce carbon emissions by phasing out fossil fuels will further exacerbate this situation . Most problematic for the Kremlin is that reduced economic revenues may potentially affect Russia ’ s ability to offer cheap utilities to its citizens and thus erode Russia ’ s domestic political stability .
Beyond sanctions and policies aimed at phasing out Russian energy imports , it is important to factor in the EU ’ s long term plans regarding decarbonisation . In December 2020 , the EU unveiled its European Green Deal23 plan to decarbonise its economy by 2050 . Throughout 2020 , China , Japan and South Korea announced similar pledges . 24 Climate change mitigation may alter the EU ’ s and China ’ s relations with carbon intensive exporters such as Russia . For Russia , an EU carbon border tax could be established in 2025 . It is estimated that such a tax could cost Russian exporters over 33 billion euro in tariffs between 2025-2030.25 This may further complicate Russia ’ s already fragile trade relations with the EU . Russia ’ s push towards greater use of hydrocarbons may only lead to further political isolation as the US , EU , China , Japan and South Korea move ahead towards carbon neutrality in the next decades .
Recent environmental disasters also show that climate change could have implications that stretch well beyond the financial and environmental impact on Russia and its long term energy policies . According to scientists , the Arctic region is warming twice as fast compared to the rest of the world and melting permafrost could cost Russia $ 84 billion in infrastructural damage by 2050 . 26 In 2017 , the Arctic Council already highlighted that the region “ will face greater difficulty in the long term in sustaining the infrastructure it holds since the 1980s ." 27 This phenomenon puts Russia ’ s oil and gas infrastructure and industry at risk as demonstrated by the oil spill in Norislk in May 2020.28 The need to overcome lower prices and reduced demand for fossil fuels due to climate change mitigation and the COVID 19 pandemic helped forge new political alliances in energy cooperation in a changing geopolitical landscape . Russia continues to cooperate with rival exporters of the Organization of the Petroleum Exporting Countries ( OPEC ) in the OPEC + 29 format to maintain stability in oil markets . Meanwhile , Russia also
IV . - The European Green Deal is a set of EU policy initiatives introduced in December 2019 for achieving climate neutrality by 2050 .
V . - Japan and South Korea announced in November 2020 its objectives to achieve a carbon neutral economy by 2050 .