Global Corporations and Economy
The European Green Deal and Future Prospects for EU-Russia Energy Cooperation

The European Union has launched a Green Deal to promote the energy transition and a climate-friendly economic recovery after the Covid-19 pandemic. The Green Deal poses a challenge to Russia, which is a key exporter of fossil fuels and energy intensive products to the EU. On the other hand, Russia has enormous potential in areas such as renewable energy and hydrogen production. By investing and cooperating in the development of these sectors, the EU and Russia can progressively reorient their energy relationship toward a more sustainable model.  

In December 2019, the European Commission launched the European Green Deal, a comprehensive roadmap for policies that should promote the energy transition and lead the EU to climate neutrality (zero net greenhouse gas emissions) by the year 2050. The implementation of the Green Deal entails a drastic reduction in the EU’s consumption of fossil fuels, which will take place progressively over the next three decades.

The EU has pursued a climate agenda since the 1990s. By 2020, it succeeded in cutting its greenhouse gas emissions by 20% compared to 1990 levels, while simultaneously increasing renewable energy production and energy efficiency. Following the launch of the Green Deal, the EU ramped up its targets. The climate neutrality goal by 2050 was codified in the European Climate Law. For the year 2030, the plan is to reduce emissions by at least 55% (compared to 1990 levels).

While negotiations on both the Climate Law and the 2030 target are still ongoing, there is little doubt that they will be adopted.

The Covid-19 pandemic has not delayed EU plans concerning the energy transition. In July 2020, the EU increased its financial allocation for the climate agenda. It agreed that an overall climate target of 30% will apply to the total amount of expenditure from both the Multiannual Financial Framework – the EU’s budget for the period 2021-2027, worth nearly €1.1 trillion  – and Next Generation EU – the EU’s post-pandemic recovery instrument, with an allocation of €750 million.

Why has the EU made the energy transition and the Green Deal such a priority? Eurobarometer surveys show that climate change has become a top concern for European citizens. In many member states, it featured prominently in the campaign for the 2019 European elections. Most importantly, it became the flagship topic of a whole young generation that took to the streets all over the continent in the Fridays for Future movement. The growing visibility and mediatisation of climate change – as highlighted by record high summer and winter temperatures, forest fires in Sweden, Brazil and Siberia, melting glaciers and polar ice – acted as a constant reminder that irreversible damage is only a few years away.

To an extent, concerns about climate change are shared in Russia. According to Levada and VTsIOM surveys, a majority of Russians believes that climate change is caused by human activities and has major negative effects on the country. The catastrophic Siberian forest fires of summer 2019 appear to have heightened these concerns. In its extensive annual reports on the state of the environment, the Russian Ministry of Natural Resources and the Environment highlighted that Russia is warming twice as fast as the global average and that climate change will bring droughts, epidemics and mass hunger to the country if left unaddressed.

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Against this background, Russia and the EU face the task of progressively transforming their energy relationship – which currently revolves almost entirely around hydrocarbons – along more sustainable models. In the current context of political tensions, energy trade is one of the last major fields of cooperation between the EU and Russia, therefore the topic is very delicate.

The European Green Deal will have two main challenging implications for Russia. The first one concerns Russia’s energy exports. European demand for Russian fossil fuels will decrease. As Makarov et al. have noted, this will initially affect coal demand, then oil and, after 2030, gas. While Russia is now increasing exports to Asia, Europe remains the largest purchasers of Russian oil, coal and gas. Moreover, Asian countries are also embarking on the energy transition – Korea and Japan aim to achieve climate neutrality by 2050, China by 2060. Hence, Asia’s demand for fossil fuels will also decline in the mid- and long-term.

The second (likely) main implication of the European Green Deal concerns Russia’s energy intensive exports to Europe (i.e. metals, chemicals, fertilisers). The EU is planning to introduce a carbon border adjustment mechanism, namely a tax related to the volume of emissions caused by the production of the imported goods. With the tax, the EU aims to both prevent the transfer of carbon-intensive production to countries with weaker environmental standards and induce other countries to adopt similar standards. This can impact significantly on the price of Russia’s metallurgical and chemical exports to Europe.

The EU’s plan to introduce a carbon border tax has aroused criticism in Russia and in other trade partners of the EU, where many see the tax as “green protectionism”. Some Russian actors mentioned that the issue could be taken to the World Trade Organisation. However, it is likely that other major international players will adopt similar mechanisms as part of their climate policies.

A more forward-looking response, as voiced by Russian President’s advisor on climate issues Ruslan Edelgeriyev, would be the introduction of a domestic carbon pricing mechanism, which would ensure that carbon fees are collected in Russia, rather than by the EU.

For Russia, investing in the energy transition entails important benefits. By developing a specialization in clean energy technologies, Russia would be able to compete for a share of a growing and promising global market. Hydrogen production – especially from renewables – can pave the way for a new type of partnership with European countries, relying on the already existing network of gas pipelines for transportation. As James Henderson and Tatiana Mitrova have noted, Russia has enormous potential to produce hydrogen and export it on a global scale.

The large export portfolio acquired by Rosatom in the field of nuclear energy shows that investments in complex energy technologies can have benefits and help profile Russia as a leading energy provider also outside the realm of fossil fuels. Compared to nuclear power plants, developing clean energy infrastructure would be cheaper and less risky.

Natural endowments are on Russia’s side: the country has huge potential for developing renewable energy. Moreover, renewable energy – for instance wind power – can be tapped and used locally to satisfy the demand of relatively small urban centres in the vast Russian North and East. This would be more cost efficient than linking them to a centralized power grid over hundreds of kilometres.

While the energy transition requires a rethinking and progressive transformation of EU-Russia energy cooperation, this would not need to start from scratch.

Some European companies have already invested in the renewables sector in Russia. The Italian ENEL is a case in point: it is building wind farms in the Murmansk, Stavropol and Azov regions. Other European companies that have long been involved in the Russian fossil fuel sector are now greening their portfolios too and could use their operational expertise in Russia to make new, greener investments.

Furthermore, commitment to the energy transition has wider, political significance. As explained above, climate change is a top concern in the European Union, especially for the younger generation. Shared commitment and joint EU-Russia initiatives to tackle climate change and foster the energy transition could be a significant step toward rebuilding a relationship that has been marred by numerous crises in recent years. 

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.