During the crisis in the 1990s Russia's CO2 emissions were considerably reduced: for example, the emissions from fossil fuel decreased by one-third. Still, Russia has a fairly high rate of carbon dioxide emissions (about 12 tons per capita) and it accounts for 17 per cent of the world's carbon dioxide emissions. In 2004 the state Duma ratified the Kyoto Protocol, and thus has committed to stabilising its emissions at the 1990 level. Given the contraction of greenhouse gas emissions during the 1990s, Russia may benefit in the short term from a surplus estimated at between 330 and 800 Mte CO2.36 The Kyoto mechanisms could provide an additional stimulus to enhance national energy efficiency. Indeed, a potential exists for energy savings. For example, in the natural gas sector, methane leaking from the transmission distribution systems accounted for 11.5 bcm in 2004. Upgrading the transmission system through more efficient compressors could save billions of cubic metres of gas alone.
In the oil industry, the flaring of the associated gas amounts to at least 15 bcm per year. Yet, some Russian economists and climate experts have harshly criticised this decision on the grounds that it is politically motivated and would threaten economic growth. Yuri Izrael, the vice-chairman of the UN Intergovernmental Panel on Climate Change (IPCC), wrote: ‘The Kyoto Protocol is economically hazardous to Russia . . . the Kyoto Protocol is scientifically ungrounded and does not indicate the road towards the end set. The economically inefficient Protocol will lead to only an insignificant cutting of the hothouse emissions.' As an industrialised country with a population of 144 million, Russia belongs to the club of the few privileged major energy-consuming countries. Its consumption pattern is largely defined by its northern climate, vast territory and the structure and quality of its industries. Indeed, vast and sparsely populated countries such as Canada or Australia tend to have elevated energy consumption per capita. Northern counties such as Norway or Sweden are also characterised by a high rate of primary energy consumption per inhabitant that provides comfort and high living standards for their populations. The situation in Russia is somewhat different: while the average primary energy consumption per head is comparable to that of other industrialised nations, the welfare of its average inhabitant, measured by GDP per capita, is lagging behind. Russia has notoriously high-energy intensity industries, partly because energy-intensive industries such as the metallurgy and the chemical sectors still represent a significant share of the total industrial output. The deplorable state of outdated equipment is only part of the problem.
For example, the average Russian metallurgical plant needs at least twice more energy to produce one ton of steel than its German counterpart. Former Prime Minister Viktor Zubkov acknowledged that: ‘There [in energy savings] we have a large, unfortunately, unused potential.We are indecently wasteful and energy saving capacity is estimated to amount to 45 per cent of our total energy consumption. One-third of our fuel and energy resources is being lost or used inefficiently.' As the energy demand increases with the strong economic growth since 1999, the capacity of the energy sector to meet the growing needs is questionable. In particular, worries of an impending gas shortage have surfaced, due to the higher than expected growth in electricity demand. A supply gap may occur due to the rapid decline of fields in production and the delay required to put new fields into operation: for instance, the gas production from the Yamal peninsula will not begin before 2011, and that of Chtokman in 2012 at the earliest. This is why Gazprom counts on gas imports from Central Asia. In fact, the power sector drives demand with the increase of gas use and gas-fired plants. These have a relatively low up-front investment cost compared to nuclear generating capacities, which have high initial investment costs.
The share of gas in Russia's primary energy consumption has expanded from 42 per cent to 54 per cent since 1990, while oil and coal decreased their contribution to 19 per cent and 16 per cent respectively. Today about half of the electricity comes from gas-fired power stations. If Russia could reduce its dependence on gas, and develop coal and nuclear sources it would help to re-equilibrate the primary energy consumption and free more gas for exports. The federal agency for nuclear energy (Rosatom) plans to build 40 nuclear reactors over the next 25 years, which would bring the share of nuclear up to 25 per cent (against 16 per cent in 2007). However, the nuclear programme appears to be very ambitious and it is questionable whether Russia has the necessary means and the qualified manpower to reach such targets. In 2006 the Russian government made the decision to implement the gas market reform after a decade of cheap gas: prices for gas are being gradually increased to reach the European levels (transport and taxes deducted).
The high prices should stimulate the adoption of energy-saving technologies in industry and should provide incentives for companies to develop new gas fields. In particular, it will make the development of the Yamal peninsula by Gazprom economically meaningful. Yet higher prices may not necessarily have an impact on the demand side, as the price elasticity remains low. Take the example of district heating. Higher gas bills will not necessarily spur energy savings for households. First, most of the heat losses occur in the old district heating networks. Second, in most of the apartments it is not possible to regulate the room temperature so it is not uncommon for the room temperature to be +25◦C while it is -25◦C outdoors! In fact, the whole infrastructure needs to be updated and renewed, in both the industrial and residential sectors. This is tantamount to energy saving. Besides, raising household energy prices could have dramatic social consequences for the low-income population (one-fifth of the Russian population still lives well below the poverty line). The price policy reforms could have another far-reaching impact for the EU: as the domestic market becomes more profitable, the incentives for exports to Europe will decrease. Overall, the implementation of energy conservation and energy-efficiency policies remains crucial for the country's future. Russia's energy sector is not sustainable without massive investments to improve the country's energy efficiency. So far, private and public investments in this area are insignificant and governmental regulations are virtually non-existent.
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1. Concept of security of energy supplies
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