MIT: Russia needs to pivot to energy transition
As the world’s key fossil fuel exporter, Russia will need to rethink and reshape its economy, consider researchers of Massachusetts Institute of Technology (MIT). Investing tax revenues from oil and gas in other economic sectors and adapting the country’s natural gas infrastructure to hydrogen are among recommended options.
Russia will need to diversify its economy, as export opportunities for natural gas and oil dry up, says pv magazine citing a study of MIT’s Energy Initiative. MIT researchers used the Russian economy as a case study to explore the possible outcomes of falling fossil fuel demand and diversification strategies that could harvest opportunities from the energy transition.
Like other countries with economies built around fossil fuel exports and heavy industries, Russia will need a new strategy, state the researchers. “Regardless of its domestic emissions-reduction efforts, Russia will not be able to sustain its current trajectory of fossil fuel export-based development due to climate policies worldwide,” considers Senior Researcher at MIT’s Energy Initiative and Deputy Director of the MIT Joint Program on the Science and Policy of Global Change Sergey Paltsev.
Many nations have already started to move towards ambitious decarbonisation targets. According to the research, which was published in Climate Policy Journal, Russia’s GDP growth may fall by around 0,5% between 2035 and 2050 due to climate-motivated policy in countries that currently import Russian fossil fuels. Although it may sound like a small number, the decrease affects the economy quite substantially for a long period. Furthermore, Russia may face market barriers for other energy-intensive exports, such as metals, chemicals and fertilisers.
However, falling fossil fuel export income may be mitigated by a diversification and decarbonisation strategy, which envisages distributing revenues from taxing fossil fuel production into other economic sectors, reads the study. The researchers assume that developing Russia’s manufacturing, services, agriculture and food production industries can offset the GDP loss from fossil fuel exports. Moreover, they expect that such a strategy can transform a 0,5% decrease into a 4% growth.
Another option to maintain Russia’s leading role in energy exports is converting its extensive natural gas infrastructure into hydrogen pipelines. “Russia may have an advantage in producing hydrogen from natural gas — with or without carbon capture — and by using nuclear power,” explains Paltsev putting Nord Stream pipeline, which can be used to ship hydrogen from Russia to Germany, as an example.
As Russia is likely to pursue all options to maintain GDP growth, it may start the diversification simultaneously with the pursuit of new export markets for its fossil fuels, particularly in Asia. As for renewables, they aren’t likely to become a priority despite Russia’s enormous renewable energy potential. However, according to the study, lagging in the development of renewable technologies may represent another significant risk to the Russian economy.