The high stakes of Russia’s energy policy

renewable energies, nuclear, fossil fuels, energy efficiency, KPMG, energy transition, RussiaRussia can count on plentiful natural resources to fuel its oil and gas-based economy. On the one hand, it is fully energy independent and can carry out considerable investments; on the other hand, it is faced by challenges specific to countries blessed with abundant resources. In order to protect itself from the high volatility of commodity prices, to avoid energy wastage by consumers and to overcome its loss of competitiveness caused by an overpriced currency, Russia must adjust its energy strategy. Here is an overview of the options at hand which could enable the country to take advantage of its oil and gas bonanza while charting the path for sustainable development.

Strategy launched by the Soviet regime

Investments in research and development and industrial policy must secure Russia’s energy independence. As of today, identified fossil fuel reserves represent several decades of future exploitation, according to a report by BP (Statistical Review World Energy 2012). However, energy transition is a long-term policy which requires a massive investment of financial and human capital. A 2009 report on Russia’s energy policy commissioned by the committee on economic affairs of the French Senate reminds that “the Soviet Union was leading the way on wind power” and that the state-owned consortium Rosatom-Atomenergoprom controls the whole of the nuclear energy sector. Nevertheless, World Bank estimates of R&D figures published that same year show that in spite of government commitment to enter the “knowledge-based economy”, Russia ranks below the OECD average (2.4% of GDP) with only 1.3%.

Russia’s commitment to renewable energy sources is reflected in the KPMG Global Energy Competitiveness Index, which points out “increasing efforts with regard to renewables”. This notwithstanding, the study also stresses “poor performance in terms of environmental compatibility” due to CO2-related pollution. Finally, the French audit firm mentions Russia’s competitive advantages and acknowledges its “growing influence on the international stage”. Admittedly, World Bank figures reflect an upward trend in R&D investments between 1992 and 2009, but it remains to be seen whether this strategy will be pursued in the years to come.

Energy efficiency to foster Franco-Russian relations

Alongside the development of renewables, other instruments can be used to transform Russia’s carbon-intensive economy. For instance, a 2011 OECD study on Russia indicates that “the potential for profitable investment in energy efficiency is tremendous and, as a matter of fact, significant efforts are being made in this field, although it seems that several hurdles and market failures slow down the process” and that “despite the concerns of Russian company managers over energy efficiency issues, the reduction of energy consumption falls short of expectations”.

It is to be noted, however, that France and Russia closely cooperate on the issue, as evidenced by the foundation of the Franco-Russian centre for energy efficiency (CFREE) on December 20th 2012 during the fifteenth intergovernmental seminar held by both countries. According to Thierry Méraud from the French Environment and Energy Management Agency (ADEME), a number of joint projects are underway: “investments such as the Greater Moscow project will be subject to calls for tenders and the CFREE will actively strive to place French companies in a position to win contracts”. Besides, the French agency stresses that both countries have complementary fields of expertise: “We encourage various kinds of cooperation, for instance in technical and scientific fields”.

Overall, in spite of existing strategies on renewables and energy efficiency, Russia will keep tapping into its reserves to remain a major oil and gas producer and exporter. However, there are a number of reasons why it should diversify its energy-supply range. First, its energy-intensive economy represents significant potential energy savings; second, climate change is a clear incentive to put an emphasis on less polluting energy sources.

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