A. Doguab. The Green Deal is a reality to live in

Anna DOGUAB
Correspondent of the Energy Policy magazine 
e-mail: anna.gorshik@yandex.ru

The article is an overview of the discussion on Europe’s transition to a carbon-free  economy, which took place on the sidelines of the Tyumen Oil and Gas Forum. It contains the  statements of officials and top managers of oil and gas companies, analyzing the risks of such  a transition for the Russian economy.
Keywords: Green Deal, carbon-free economy, carbon dioxide emissions.

In December 2019, the European Union has demonstrated the first plan/presentation on transition to carbonless economy – so-called Green Deal – by 2050. It suggested reduction of greenhouse gas emissions in major energy-intensive sectors of the European economy at the expense of using energy from renewable sources, increasing energy efficiency, developing technologies for use and storage of electrical and heating energy.

Implementation of such a transition requires a faster shift away from greenhouse gas emissions. Ursula von der Leyen, Head of the European Commission, has already announced that the volume of СО2 emissions is to be reduced by 55% against 1999 by 2030 instead of previously planned 40%. According to experts, to implement this plan, a share of RES in the structure of electrical energy now should grow from the current 32% to 65% to reach 38–40% in the overall demand for electrical energy in comparison to the current 33%.  According to data by Reuters, it will require additional investments in the amount of 300 bln euros in 2021–2023.

At the same time, the idea of introducing a carbon tax for goods imported to the European Union from other countries is in the works. Russia is one of the main suppliers of energy resources and metallurgy products to Europe.  As per the expert calculations, introduction of such a tax can cost the Russian economy 3-5 bln dollars every year. Such prospects make Russian companies look for opportunities to optimize production even now and adjust with a view of European plans. Introduction of the carbon tax on imported products has become one of key topics at the Tyumen Oil and Gas Forum.

Pig in a Poke

Russia has been moving toward increasing energy efficiency and reducing the environmental impact for a long time already. The process of enabling companies to turn to the best technologies available started several years ago has played a pivotal role. However, it’s still unknown to what extent they will comply with new initiatives of the European Union.  The problem of compensatory approaches when calculating the volume of greenhouse gas emissions still remains unresolved.

“All companies of the oil and gas sector, heavy equipment industry and other enterprises of Category 1 Environmental Impact face the objective to turn to the best technologies available and get all the necessary environmental clearances by 2024.

The European Commission announced its plans  to accelerate СО2  emissions  reduction by 55% of the volume of  1999 instead of previously expected 40%

All companies should have programs on increasing energy efficiency and reducing greenhouse gas emissions… International legislation is to be made yet. The Green Deal, for example, practically doesn’t provide for compensatory events aimed at reducing the carbon footprint. The existing methods connected with forest restoration, conservation of biodiversity, a possibility of storing СО2  are not covered with the EU’s legislation,” Denis Kharlamov, Deputy Minister of Natural Resources and Environment of the Russian Federation, said. “Nowadays the method takes into account the absorption capacity of controlled forests only, while we have huge uncontrolled forest areas,” he added.

“The biggest risk now is uncertainty of the (taxation) mechanism itself, it’s a true ‘pig in a poke’. We don’t know what to focus on,” Mikhail Ivanov, Deputy Minister of Industry and Trade of the Russian Federation, added.

Giants Put a Stake on Zero

European oil and gas giants such as Shell, BP, Total, Eni and others could have become reference points for preparations to the global carbonless economy. Each of them has already announced its commitment to gradually shift from oil extraction and build up clean energy production based on RES and gas, so that by 2050 carbon emissions would be equal to zero.

ВР has come further than others announcing the end of the oil era. The company intends on investing 5 bln euros annually to increase its RES-based capacities more than 20 times – up to 50 GW. At the same time BP plans to create a comprehensive portfolio of low-carbon technologies, including RES, bioenergy and hydrogen. Oil and gas extraction will decrease by 1 mln barrels of oil equivalent per day against 2019 by that time, and emissions caused by extraction – by 30–40%. BP will not participate in new geological prospecting projects anymore. Total announced that it would invest 2-3 bln euros annually to increase electrical energy production by one third through LNG and energy from renewable sources.

However, for now such statements of European giants pose more questions for their colleagues than aspirations to take note of their methods. “We have studied all public statements of our peer companies from Europe: Shell, Total (SPB: TOT), BP, Eni – they have been made over the last 6–8 months. These are long statements, quite vague for now, without any certain details and any actual content. The companies state that most of them turn to renewable energy sources and development of this area. Corporations split into two: one half is involved in natural resources, hydrocarbons; another half focuses on forest cultivation, as well as renewable, environmentally friendly, ‘green’ or ‘blue’ hydrogen,” Azat Shamsuarov, Dirst Vice President of LUKOIL, said.

“It’s a challenge as well. As we witnessed ourselves, just recently the cost of energy from RES was 3–4 times more expensive than energy from traditional sources. Now these prices are comparable.  We estimate the consequences of carbon initiatives for the company both in Russia and abroad. Obviously, we’d like to take part in protection of the country’s interests and its budget,” he added.

However, the aspiration of European oil and gas giant companies to turn to clean energy can have dirty implications.  According to Alexander Dyukov, Head of Gazprom Neft, they are driven not with a care of the environment, but rather with a struggle for preservation of leading positions in energy markets.

The EU is ready to go for introduction of a tax for СО2 emissions in the framework of combating climate change
Source:  Imaginechina-Tuchong / Depositphotos.com

“Speaking about why it’s primarily about Europe, in my opinion, it’s not because of concerns about the climate, though the climate is important, of course. The matter is, there’s a certain market situation. It’s not a secret that reserves have been dwindling for a long time in Europe. And other countries that possess the resource are not as glad to see European companies in their projects as before. The access to investments is no longer a problem, it’s become much easier to get investments now. In terms of technologies, service companies are ready to build a well and conduct other service works without participation in the project. This market situation drives European countries out to new sectors of energetics: RES, projects of ‘green’ hydrogen, biofuel,” he said.

“European governments discuss new goals for reduction of greenhouse gases by 55% against 1990, introduction of the carbon tax and other measures. These are protectionist measures in an effort to protect domestic energy sector while recognizing that it’s extremely difficult for them now to compete in a traditional sector. They have chosen the path of building a new branch of the climate energetics where European companies will prevail,” Dyukov emphasized.

“First of all, this all is about Europe. Let’s take the Unites States – they have an entirely different opinion about the issue (building carbonless economy). There are no loud statements. And one of the reasons is that they have what to work with in terms of reserves. That’s why the largest oil and gas companies of the USA don’t follow the example of their European colleagues, though they experience massive pressure of public opinion as well,” Head of Gazprom Neft added.

Global Injustice

The fact that plans on carbon footprint exclusion by 2050 suggested by European regulators were immediately caught up by European oil and gas companies provided reasons to think that the energy policy of the EU is based on protectionism.

“A carbon fee should bee seen as a certain element of protectionist policy pursued by the EU. Essentially, it’s an attempt to make opportunities of the European companies with manufacturing sites in the EU where they have to pay to emissions match opportunities of the global companies that import their products to Europe. Based on estimated carbon fees that amount to 3–5 bln dollars per year, it’s almost 3% of our export. We’ll face the situation when competitiveness of our products will be endangered with a carbon fee,” M. Ivanov said.

“When we start looking at how the European Green Deal is arranged, when we start looking at the approach of European regulators and European policy makers we start feeling that they might be interested not only and not so much in СО2 emissions as such, since the situation seemingly turns into protectionism. For example, when talks about hydrogen start, the Europeans claim that they are interested in ‘green’ hydrogen only. ‘Blue’ hydrogen disposal is anathema for Europe,” Sergey Vakulenko, Head of Strategy and Innovations Department, Gazprom Neft, added.

European oil and gas giants such as Shell, BP, Total and Eni have announced that they would build up production of clean energy and reduce carbon emissions up to zero by 2050.

Such an approach is painful for energy supply partner companies of the European Union. It’s not a business reasoning, but moral and ethical that starts playing center stage.

“The topic of carbon, CO2 emissions started expanding faster than massive regulation and attitude to companies in other aspects. A question of justice arises: who needs to change something?  The European Union is one of leaders in field of clean energy that enables itself and others to turn to carbonless energetics. Here are countries that have been accumulating its economic potential for many years developing industry and emitting СО2. Now they have achieved a high standard of living and wish to live comfortably in a carbonless world. However, there are many countries that have not made this way yet, though they want to live in better conditions. This way is easier and cheaper to make at the expense of hydrocarbons. Is it fare that those who have already made this way to start living better and now strive for carbonless economy make others follow the example at the expense of high costs and possible damage for industry and standards of living of citizens?” Dmitry Konov, Chairman of Board, SIBUR Holding, asked.

As in his turn Pavel Sorokin, Deputy Minister of Energy, noted, such policy of the EU is based on favorable credit climate. The European Union has sponsored renewable energy projects for many years.

“Unfortunately, when you hear about the ‘climate agenda’ the first thing that comes to mind, as we’ve seen today, is cynicism and hypocrisy.  It’s so easy to reflect, so easy to dictate conditions when you are actually an emitter of free money, so you can prolong any project, no matter how unreasonable it is from the economic point of view, for as long as you like,” he said. Besides, the European Union actively imposes the policy of taking brownfields outside Europe, to less developed countries. If a brownfield is taken from the EU to China, it doesn’t mean the EU stopped being an emitter, just the center of emissions has been relocated to another place.  The same applies to the hydrogen agenda we actively discuss: if you look at the strategy of the European Union, you’ll see ho ‘blue’ hydrogen is shifted beyond the borders of the EU, i.e. the emission center is shifted. So, officially, the European Union will remain clean and ‘green’,” the official added.

According to him, such an approach puts population of these countries in a position which is not even in comparison with the Europeans. “Many countries want to develop as well. Not only people in the United States of America, the European Union and Japan want to live well, but also 1.5 billion people in China, as well as India Africa and Latin America. And we also want to become people with a prospect of development,” P. Sorokin said.

Carbonless Reality

However, despite all the injustice of the EU’s policy, its outlines are getting more and more real. The Green Deal have been enshrined in two strategic documents already – the EU Strategy for Energy System Integration and the EU Hydrogen Strategy for a Climate-Neutral Europe. In the middle of the next year a roadmap of measures for a transition to the carbonless economy should be prepared. So Europe’s refusal to use oil and gas is getting more and more real.

“We are operating in more than thirty countries of the world, and it’s already the reality to live in for us. We used to set a strategic goal of 95% recovery of associated petroleum gas, while today we have achieved 97.6%. Today we speak about zero emissions for 2030 already, while before it was suggested for 2050,” A. Shamsuarov said. “A special committee will be created in the Board of Directors of the Company, organizational and structural changes will take place within the company in order to study and formulate pointedly our own development strategy (in this area – IF). I hope, during the spring session in LUKOIL we will consider the vision of the company’s further development with clear references for investment flows, corporate development in Russia and beyond,” he added.

“We accept the challenge and hope to overcome it without any significant losses,” LUKOIL top manager emphasized.

According to Segey Vakulenko, Russia must insist on follow-on revision of the Green Deal regarding introduction of compensatory measures, for example, from absorption capacities of forests to the use of systems for СО2 recovery and storage.

Qatar is one of LNG suppliers to Europe
Source: Courrierinternational.com

“СО2 recovery and storage could be a way out for Russia,” he said. “The biggest problem for application of carbon dioxide recovery technologies however is that СО2 is not expensive. Economy of these processes is limited. As soon as СО2 recovery gets a positive price, the economy of projects will be completely different,” Vakulenko noted.

However, Russia must strive for adjustments to the Green Deal together with partners from other oil-producing countries.

“It would be a right thing to start a serious and sincere conversation with the European Union. And to attract OPEC, USA China and others to our side, so that the fight against СО2 reduction in the atmosphere would be fare and based on principles of technological neutrality. Then the could appear more room to work for Russian companies,” S. Vakulenko emphasized.

Until the moment when the Green Deal starts functioning, Russia needs to make as much effort as possible to optimize and increase efficiency of hydrocarbon production and processing.

“It should be understood that hydrocarbons don’t have much time left, while they are still profitable, only about 30–40 years. We must do our best not to leave these resources underground, to extract them and use in favor of economy. We must be very careful; one the one hand, recognizing that climate regulation is unavoidable all across the world, we need to deal with it somehow; on the other hand, we must make the most of our industry,” P. Sorokin noted.