Seminarreihe des Arbeitsbereichs Ökonomie am IOS
Zeit: Dienstag, 13.30–15.00 Uhr
Ort: Leibniz-Institut für Ost-und Südosteuropaforschung (IOS); vorerst online via Zoom, Link wird mit den Einladungen verschickt!
Forschungslabor: „Geschichte und Sozialanthropologie Südost‐ und Osteuropas“
Zeit: Donnerstag, 14–16 Uhr (Lehrstuhl) oder 16–18 Uhr (Graduiertenschule und Leibniz-WissenschaftsCampus)
Ort: WiOS, Landshuter Str. 4 (Raum 017)
The economic rationale of new exploration depends on future price developments of oil and gas, which tend to be very erratic and are notoriously wrongly predicted. When production sites are costly to develop und transport routes are costly to build, it might be a rational solution to simply leave proven reserves that are not yet exploited in the ground. Additionally, a policy of diminishing supply would force consumers to apply energy-saving technologies or to switch to other fuels. The decision to produce less might be taken by the government, who are better at taking long-term developments into account than short-sighted producers. For oil, the US economists Gaddy and Ickes (2009) claim, the Russian government has been actively promoting a policy to lower oil production by means of high taxation of oil extraction on the one hand and by averting ownership away from private companies to state-controlled enterprises on the other hand for years - a policy that started with Mikhail Khodorkovsky's expropriation of Yukos company in 2003. Without commenting on the latter fact, the results of such a policy, if deliberately followed at all, disappointingly lead to growing production and slowing discovery in the oil sector. The same is the case in the state-controlled gas sector. Moreover, the Energy Strategy of Russia for the Period up to 2030 foresees a rise of oil production by 13-14% till 2030. While the policy to lower production might be wise and efficient in solving different problems at the same time, it is obviously not followed actively by the Russian government.
With the future availability of cheap oil and gas being limited, a change of the energy mix might be a way out. While technical possibilities for the substitution of energy carriers are limited in the short run, a long-term energy strategy, such as the one adopted in 2009 in Russia, would be an appropriate instrument for pushing changes of the energy mix. For the substitution of oil, the Energy Strategy of Russia has little to offer but the gasification of road transport. For gas, the Energy Strategy of Russia indeed foresees various alternatives of substitution and lists concrete measures devoted to that end. According to these plans the share of gas in final consumption will be reduced from 52% to 46-47%, while the percentage of coal, nuclear and renewable energy is expected to grow.
The greatest potential for substituting gas is in electricity production. According to the Energy Strategy of Russia for the Period up to 2030, new coal-based plants will be set up in the non-European parts of the country. By the end of 2030, the share of coal in electricity production will have risen to 34-36% compared to 26% in 2008, the share of gas will have fallen to 60-62% from 70% in 2008. For thermal production, a similar scenario is envisaged. While coal resources are sufficient, the technological and intellectual base for coal production and utilisation has to be revitalised, and the time span envisaged by the Energy Strategy might be too tight for this. Additionally, a shift towards coal will lead to a rise in CO2 emissions that have to be saved elsewhere if Russia envisages further participation in international climate treaties.
This is clearly not the case for nuclear energy, the second big substitute for gas in the energy mix. The share of nuclear energy in electricity production is planned to rise from 15.7 to 19.7%, with the majority of new capacities installed in the European parts of the country. However, investment needs for nuclear energy are high at all stages of the production cycle. As for input goods, the national production capacities of uranium are not covering demand, and new sites have to be developed to satisfy the needs of a growing sector. Safety standards of nuclear power plants are low compared to European standards, and the problem with final depositing of nuclear wastes is unsolved as in other countries. Internalisation of all costs into the price of nuclear energy in Russia would surely prove the sector loss making. However, strong vested interests and the motivation of the government to keep Russia's role as an international player in nuclear energy that holds 15% of world exports in nuclear technology and a major role worldwide in uranium enrichment grant the sector political support.
Due to the political prices that have been and still are paid for gas and nuclear energy, renewables (with the exception of hydro energy that has a long history in the non-European parts of the country) are not competitive. It is thanks to the electrification and gasification policy from Stalin's time in government that even remote areas that would be a typical case for renewables are connected to gas and electricity grids. In electricity production, renewables count for 16% in 2008, with 17-19% planned for 2030, the main share coming from hydro energy. The role of other renewables like wind and solar energy is and will stay negligible according to the Energy Strategy despite vast technical opportunities and favourable geographical conditions. Neither is the institutional framework with the Ministry of Energy in charge of renewables nor is the regulatory framework with unclear admission of independent producers to transmission lines and subsidised tariffs for conventional energy apt to introduce change in that field.
For gas, imports from other countries constitute a deliberate strategy to cushion supply problems for years. This strategy has been actively followed since 2004, when Russia concluded the 'deal of the century' with Turkmenistan on gas deliveries and also started importing gas from Uzbekistan. Volumes of imported gas are planned to rise from 60 million cbm in recent years to yearly approximately 90 million cbm until 2030. It is not clear, however, whether these volumes can actually be purchased. While Uzbekistan shows an increasing domestic demand that diminishes its export potential, Turkmenistan has an uncertain reserve base and is obviously switching its export destination to China and away from Russia since 2006. The last potential candidate to supply Russia, Azerbaijan, did not yet make a decision whether it will sell its gas to the EU via the Nabucco pipeline or to Russia.
Data on energy intensity of Russia (energy use /GDP) show a declining trend since 1990, with 3.4% per year on average, driven mainly by structural changes of the economy (EBRD Low Carbon Transition). However, this indicator does not necessarily mean that the country improved its technical energy efficiency. When less energy intensive sectors grow, energy intensity declines even if in all other sectors' technology use remains unchanged. Additionally, the effect of the constant rise in oil and gas prices that led to an increased GDP has to be considered. In fact, almost nothing has been achieved regarding energy efficiency so far as the World Bank states in Light out?.
The energy saving potential of Russia is estimated to be in the range of 40-45% of total final energy consumption (Pathways to an Energy and Carbon Efficient Russia, Energy Efficiency in Russia: Untapped Reserves, Energy Strategy of Russia for the Period up to 2030, Energy Saving and Improvement of Energy Efficiency for the Period up to 2020 (in Russian)) - an enormous potential that would nullify the supply problems of the Russian Energy sector over decades and provide the country with the opportunity of switching to a sustainable development path on the long run. With two international in-depth studies and one national Energy Saving and Improvement of Energy Efficiency programme at hands, the picture of Russian energy efficiency can be drawn quite clearly. The detailed McKinsey study on Russia is focused on CO2 abatement cost and potential and follows the methodology and design of other McKinsey studies on the subject; the time frame of the study is the period up until 2030. Because increasing energy efficiency is the largest source of reducing CO2 emissions in Russia, it provides a detailed exploration of the technical feasibility and cost-effectiveness of hundreds of energy saving measures throughout all sectors of the Russian economy. The study of IFC/WB also lists energy saving measures in different sectors, but it has mainly a political message - it is highly beneficial to Russia to follow an energy saving policy, but if politicians want capture these benefits fully, they have to act immediately. Detailed recommendations on institutional settings required for the implementation of energy-saving measures are described. In fact, most of the measures proposed could have been realised already 20 years ago.
The Russian documents take into account the findings of both studies, mostly using them as a blueprint. In the Energy Strategy of Russia for the Period up to 2030, like in McKinsey and IFC/WB reports, the biggest contribution in energy saving can be expected in the housing sector with a share of 18-19% of the overall energy savings potential, followed by industrial production with 13-15% and the service sector, including thermal production, with 9-10%. Additionally, the Energy Strategy assumes a shift in the production structure of the country away from energy-intensive industries, which count for more than half of the industrial production, to a third by 2030 and thus create additional savings. The Energy Strategy lists nearly all accomplishing institutional measures to be taken that are mentioned in the IFC/WB report, albeit with a focus obviously more on state control and programming, than on market stimulation and incentives. Since details and dates on implementation of these measures are not provided and left to further legislation, the listing is not binding and does not comprise a transition to an energy-saving or low-carbon economy per se. Overall, the Energy Strategy like her predecessors stays focused on supply-side problems and is isolated from demand-side and institutional settings.
The programme for Energy Saving and Improvement of Energy Efficiency follows the idea of the McKinsey report and IFC/WB study and lists eight sectoral sub-programmes with concrete measures for each sector and the respective savings potential, provided even on a yearly basis. Resulting CO2 emission reductions are calculated subsequently. Numbers provided are not generally comparable with the McKinsey study because the time horizon of the Russian programme is only up to 2020 and sectoral breakdowns are not comparable. The anchor for measuring success in the Energy Saving and Improvement of Energy Efficiency programme is the energy intensity of Russia, which shall be reduced by 40% with 2007 as a base year; the measures of the programme shall contribute one third (13.5% reduction) to that aim. Since energy intensity can be reached by mere statistical effects, this is not a hard indicator. But in the sub-programmes, the amounts saved are mentioned, and improvements of technical efficiency can be traced for some measures. The fuel consumption of the Russian automobile fleet can serve as an example. It shall be reduced from 7.45 l/100km to 6.54 l/100 km by 2020.
At first glance, the amounts of energy to be saved by measures to be implemented by the programme seem enormous. Broken down to energy carriers and related to future production or actual consumption volumes, numbers are less impressive. For gas, the Energy Saving and Improvement of Energy Efficiency programme plans 330 billion cbm throughout 2011-2020, equalling 5% of the yearly production envisaged in the Energy Strategy. Taking into account the fact that the saving potential arising from future utilisation of associated gas that is till now simply flared is estimated at 4-5% of production (IFC/WB report), this is not very ambitious. For oil products, a mere 17 billion tons can be saved with the help of the programme over 10 years, which constitutes only 0.6 % of the yearly refinery production. The highest savings potential addressed by the programme lies in electricity, where 10% of 2008 consumption shall be saved each year, and in heating, where this number equals about 8%.
The planned measures are elaborated in surprisingly great detail: for example, consumers are expected to substitute exactly 7368.2 thousand old refrigerators by new ones in 2011, supplying companies will invest in 18500 km new heating pipes with a diameter of 200 mm and replace 288823 transformers in the electricity grids. The exchange of refrigerators will be coordinated by federal, regional or local state executive organs, the exchange of heating pipes by the Ministry of Regions, the replacing of power transformers by the Ministry of Energy. Other line Ministries such as the Ministry of Agriculture and the Ministry of Transport are also involved in implementation of measures. The overall responsibility and control of programme execution rests with the Ministry of Energy, and the Russian Energy Agency is in charge of implementation.
Unlike the Energy Strategy, the Energy Saving and Improvement of Energy Efficiency programme addresses financial issues. Out of 9532 billion roubles to be invested until 2020, the central budget will finance 70 billion, which are dedicated to information campaigns, research and state guarantees (10000 billion), the federal budgets will finance 625 billion (no breakdown provided), the bulk of 8837 billion shall be financed from private sources. Similarly to the McKinsey study, the programme calculates that the overall economic payoff of the investments into energy saving and energy efficiency is positive for the economy when amounts of energy saved and CO2 abated are considered and the usual discount rate of 10% is applied. Even in a so-called 'commercial' scenario with a discount rate of 15% and the exception of abatement gains, investments show an internal profitability of 20%. Since the underlying price assumptions for energy are not provided, the validity of these calculations is hard to estimate. Income from additional exports that can be realised due to lowered internal demand is calculated to be 2700 billion roubles (67.5 billion euro) over the period.