Member of the Management Board of “Inter RAO”, Head of the Supervisory Board of the Association “Council of Electricity Producers and Strategic Investors of the Electric Power Industry”
The situation with the global pandemic and its impact on global economic development briefly shifted the focus of attention to the problems of health care and social support, however, already at the beginning of 2021, the topic of climate change and, as a result, ESG management of companies in the fuel and energy complex, including the development of requirements on a sharp decrease in the carbon footprint, including from the production of electricity using traditional fuels, again came to the fore. This can be explained by the fact that despite the short-term decrease in greenhouse gas emissions (hereinafter – GHG) caused by the COVID-19 epidemic, in this century the world, pursuant to expert estimates, is still moving towards an increase in temperature, which is higher than the goals set by the Paris Agreement to limit global warming to (1.5-2 °C).
The announced energy transition of the European Union (hereinafter referred to as “EU”) to a climate neutral level due to the achievement of zero CO2 emissions by 2050 and the implementation of cross-border carbon regulation in the EU, carry significant risks for Russian companies focused on the export of products, in connection with which, the tightening of the global environmental and the climate agenda is of particular importance for our country.
Herewith, the electric power sector both in foreign countries and in Russia, after the explosive growth of innovations and technological discoveries, found itself in a completely new situation for itself.
Advanced technologies such as artificial intelligence and big data, blockchain and RES generation are forcing traditional generation to redefine established production and market business models.
All this is forcing the Russian power industry to develop in an extremely dynamic environment. In this context, energy companies, first of all, resort to operational enhancement of their production activities, secondly, to carbon compensation through certification of their products, and thirdly, to readiness to change the balance of production towards RES. The planned implementation of low-carbon certificates in Russia in the near future, that is, the recognition of nuclear stations and hydroelectric power plants as low-carbon energy sources, in a situation of tightening environmental requirements, will allow our country to maintain its leadership at the international level. To do this, it is necessary to use the competitive advantage of the Russian energy system, in which the share of “clean” electricity generated by existing NPPs and HPPs is high.
Climate agenda in the world
Most countries in the world have so far set out their climate targets and commitments to reduce greenhouse gas emissions internationally: in nationally determined contributions under the Paris Agreement. Some countries go further by claiming to become carbon neutral, that is, to achieve zero net carbon dioxide emissions.
The Paris Agreement stipulated that developed countries “shall continue to take the lead by setting targets for absolute emission reductions across the economy”, but the commitments of developing countries are very diverse.
Of the 190 parties to the Paris Agreement, the majority (74 countries) have formulated their commitments to reduce greenhouse gas emissions in relation to a business-as-usual scenario (scenario targets); 61 countries, including Russia and the EU, have fixed absolute targets (as a percentage of the base year) and another 8 have indicated the target level of GHG emissions they are striving for; 25 countries declared only actions aimed at reducing emissions, and another 13 – indirect goals not directly linked to greenhouse gas emissions; 9 countries focus on relative GHG emission reductions, usually per unit of GDP (relative targets). Moreover, many countries, along with unconditional ones, have conditional goals that can be achieved by providing them with financial assistance.
According to a 2020 UNEP report, the gap between observed greenhouse gas emissions and greenhouse gas emissions consistent with Paris Agreement targets continued to widen despite the expected decline. The expert community notes that the current 2030 targets under the Paris Agreement will lead to a 3.2 °C increase in global temperature by the end of the 21st century. According to the Climate Action Tracker, with the implementation of all the declared national measures, warming by the end of the century will be 2.9 °C (against 3.6 °C in 2015).
According to the World Bank, as of November 2020, there were 64 carbon pricing initiatives around the world, of which 33 could be attributed to carbon taxes and 31 to greenhouse gas emissions trading systems (ETCs).
These initiatives cover 46 countries (including EU countries) and 35 subnational jurisdictions (individual US states, provinces in Canada, regions in China, etc.).
Current or planned carbon pricing initiatives in the world cover about 12 billion tons of СО2-eq. (about 22% of global GHG emissions).
In terms of European countries, the European Parliament approved the goal of total zero greenhouse gas emissions by 2050 in a resolution of March 14, 2019 on climate change.
In March 2020, the European Commission presented a draft climate law that shall make the EU climate neutral by 2050. In November 2020, the European Commission presented the EU’s Marine Renewable Energy Strategy, which stipulates an increase in the installed capacity of offshore wind turbines in Europe from the current level of 12 GW to 60 GW by 2030 and to 300 GW by 2050.
The implementation of mandatory carbon pricing systems is one of the most drastic measures in terms of achieving GHG emission reduction targets.
In 2020, the EU has formed plans to introduce cross-border carbon regulation, which brings the issue of carbon pricing to the international level and creates risks for Russian exporters supplying products to the EU.
The form of implementation of carbon regulation, the method of charging and the method of calculating such a “charge” are still unknown. Many Russian and foreign experts see the carbon tax as a way for the EU to finance its own energy transition to RES.
For example, in the USA, which significantly affects both the political and environmental agenda in the world, at the moment there are disagreements regarding the further abandonment of carbon energy in favour of RES after the energy collapse in the country’s largest energy centre – Texas, where in the winter of 2021 electricity prices jumped 300 times to over USD 9000/MWh. Herewith, in the EU, despite the negative impact of the COVID-19 pandemic, which has spread to all sectors of the global economy, quotations of futures for carbon emissions continued to rise throughout 2021, largely due to the consistent EU climate agenda aimed at reducing emissions. For example, СО2 quotas futures in Europe reached a historic high on 05/14/2021, fixing at 56.9 EUR/t and showing an increase of 55% since the beginning of the year.
According to analysts, the closest target for quotas for emissions is 60 EUR/t, and by 2030 СО2 futures may reach 70 EUR/t.
Climate agenda in Russia
Russia has undertaken obligations pursuant to which, in the period from 2013 to 2020, the volume of greenhouse gas emissions will be reduced to a level of no more than 75% of the volume of these emissions in 1990 (Presidential Decree No. 752 dated 30.09.2013).
Russia does not agree with the European assessment, insisting, for example, that when calculating the carbon levy, the forest area in Russia and their contribution to the absorption of carbon dioxide are not considered. Opinions about the kind of energy than can be considered “clean” do not coincide as well.
Thus, in the period from 2021 to 2030, our country plans to ensure a reduction in greenhouse gas emissions by up to 70% compared to the 1990 level, considering the maximum possible absorbing capacity of forests and other ecosystems and subject to sustainable and balanced socio-economic development – in order to implement the Paris agreements (Decree of the President of the Russian Federation dated 04.11.2020 No. 666). The same goal has been set internationally (the first nationally determined contribution under the Paris Agreement).
The current Climate Doctrine was approved by the decree of the President of the Russian Federation No. 861-рп dated 17.12.2009 “On the Climate Doctrine of the Russian Federation”. The climate doctrine has secured the priority of national interests in the development and implementation of climate policy, but the driver of its current development is the international agenda and climate initiatives of Russia’s main trade partners (primarily the EU).
In October 2020, the Environmental Safety Council of the Russian Federation expanded the Climate Doctrine in order to update it. Until 2020, a comprehensive plan for the implementation of the Climate Doctrine of the Russian Federation for the period up to 2020 was in force (order of the Government of the Russian Federation No. 730-р dated 25.04.2011). Currently, it is expected to form a comprehensive plan for the implementation of the Climate Doctrine for the period up to 2030.
- transfer of equipment to combined heat and power generation (CHP);
- recognition of low-carbon certificates of the Russian Federation on the territory of the EU (the draft law is in the Government of the Russian Federation) and the attachment of the main exporters to the producers of such certificates.
All these areas are currently being implemented or will be implemented, including within the framework of the program for the modernisation of generating equipment.
The consequences of climate change are classified as challenges in the Environmental Security Strategy of the Russian Federation for the period up to 2025 (Decree of the President of the Russian Federation No. 176 dated 19.04.2017).
Currently, there are several areas of carbon reduction for the Russian energy sector:
- increasing energy efficiency by replacing steam power equipment with a similar one with an enhancement in production indicators with a decrease in the specific consumption of equivalent fuel by 10 goe/kWh or 3%;
- increasing energy efficiency by transferring equipment from a steam-power cycle to a steam-gas cycle with a decrease in the specific consumption of equivalent fuel by up to 30% (310 ÷ 240 goe/kWh);
According to the reporting data of the Ministry of Economic Development of Russia, GDP at the end of 2019 amounted to 110,046.05 bln RUR (more than 1.6 trln USD at the exchange rate as of 01/2019), while the volume of exports of goods in nominal terms was 419.9 bln USD or 24.7% of GDP (including mineral products, including fuel and energy products 268.8 bln USD or 17% of GDP).
Despite the fact that the basic version of the forecast of the commodity structure of exports in 2021-2023 of the Ministry of Economic Development of Russia was drawn up considering the decrease in the share of fuel and energy products by 9%, mineral products will traditionally remain the basis of Russian exports, there are no tendencies to change the raw material orientation.
Herewith, in the Russian power industry there has historically been a high share of low-carbon generation – HPPs, NPPs and other types of RES (small HPPs, wind farms, solar power plants), which account for about 40% of all electricity generation, which in absolute terms reaches more than 400 mln kWh annually. Thus, considering the share of exports of goods in the country’s GDP (24.7%), it can be stated that the entire volume of commercial products produced in Russia and exported is produced using low-carbon energy, even though by 2035, pursuant to the Energy Strategy of the Russian Federation until 2035, the share of RES will be about 4% and this level is seriously lower than the forecasts of foreign countries – the USA, China, Sweden by 2040 – (33 ÷ 35)%, Germany 68%, France 29 %.
Many international standards and think tanks recommend that consumers purchase exclusively certified clean electricity. To confirm the origin of electricity, there are tools for tracking the origin of electricity. The most common and widely used are Guarantees of Origin (GO) and Renewable Energy Certificates (REC).
The international label for electricity generated from RES is EKOenergy. EKOenergy works with a system of guarantees of origin and with the REC (international standard for the origin of energy) standard. EKOenergy establishes additional criteria to ensure that the production of electricity does not harm the environment.
In the USA, the Green-E marking is available to consumers, which is also an addition to the Tracking Certificate system.
Australia has a government accredited Green Power label.
In order to minimize the risks of reducing the export potential of the Ministry of Energy of Russia, a draft federal law on the implementation in Russia of certificates of origin of electrical energy (low-carbon certificates) has been developed and is at the final stage of approval by the Government of the Russian Federation. On the basis of this law, the Ministry of Energy and the Russian Government will work with the EU authorities to recognize our certificates in Europe.
It is necessary to prove that Russian electricity meets all clean energy standards, has a very low carbon footprint and is not subject to a “carbon tax”. Thus, the current situation creates not only threats, but also opportunities for the Russian economy.
Regarding the implementation of certificates of origin of electrical energy in the domestic market, it shall be noted that they must comply with international standards in order for the certificates of the Russian Federation to be accepted abroad, and, at the same time, do not increase the total cost of exported electricity, since in the current conditions, support for “green” generating facilities (RES, large HPPs) is performed within the framework of payment for capacity in the wholesale market.
Within the framework of the above draft law, it is determined that a low-carbon certificate is an electronic document issued upon the production of electrical energy using nuclear energy and (or) using renewable energy sources at a qualified generating facility (solar, wind and hydroelectric power plants).
Thus, there is an unambiguous state position that the use of nuclear generation in the framework of energy transition and reduction of greenhouse gas emissions is environmentally acceptable and acceptable for use.
Currently, there are supporters of the Russian position on the recognition of nuclear generation as an acceptable source of energy. Thus, in March 2021, 46 non-governmental organisations from 18 countries appealed to the President of the European Commission, Ursula von der Leyen, to include nuclear energy in the EU taxonomy on sustainable energy investments, due to the fact that the exclusion of nuclear energy would contribute to the implementation of a strategy that “clearly inadequate” for the decarbonisation of the EU economy. Already in April 2021, 7 countries (France, Czech Republic, Poland, Romania, Hungary, Slovakia and Slovenia), led by France, which has one of the largest NPP fleets, sent an official letter to the European Commission and opposed the total ban of nuclear power plants with demands equate nuclear energy with low-carbon technologies, as they are concerned that the existing EU policy severely restricts the right of its member states to choose between different sources of energy and determination of their own structure of energy consumption, as well as the intentions to classify nuclear power plants as “dirty” types of energy production, which must be eliminated as soon as possible.
As a result, this position was supported by the experts of the European Commission: a specialized working group of the EC concluded that nuclear energy does not cause significant harm to the environment4. In terms of the overall level of environmental impact, nuclear energy is better or comparable to RES when considering the carbon intensity of the entire industry cycle, and not just energy production. However, the final decision on the recognition of NPPs as permissible environmentally friendly in the EU has not yet been made; earlier, Germany, in particular, opposed this. However, as of now, there is no separate certificate for energy produced in NPPs in the EU, but, in particular, in the Netherlands, the labelling of the corresponding energy is performed using certificates for unsustainable energy (fossil fuels and nuclear energy – labelling certificates for non-sustainable energy for fossil fuel-based and nuclear energy). Moreover, the UK has a non-fossil fuel obligation (NFFO) requiring distribution operators to buy electricity from the nuclear and renewable energy sectors, but in recent years, priority has shifted to prioritizing purchases from RES. In Japan, the Non-Fossil Energy Certificate (NFV) has emerged for nuclear energy certification, one of the newest forms of certification that can be issued to low-carbon energy sources such as renewable energy or nuclear energy and can be traded on the Japan Electricity Exchange (JEPX).
Previously, these certifications were only available for feed-in tariff (FIT) electricity (renewable energy sources).
In economic terms, a low-carbon certificate is a form of presentation and participation in the market turnover of a set (“package”) of rights due to a set of positive environmental, social and other socially significant effects that accompany the production of the amount (volume) of electricity specified in the certificate. The resulting effects are, first of all, in a lower level of negative anthropogenic impact on the environment and human healthcompared to the combustion of fossil fuels, and an increase in the quality of life of the population.
The acquisition of certificates is a right, but not an obligation, of the owners of qualified generating facilities.
The certificate is an object of civil rights: until it expires or expires, it can be freely alienated and transferred from one person to another by any means that civil law allows; certificates will be in free circulation; Low-carbon certificates will be issued on a voluntary basis at the request of the owner of the low-carbon energy source.
Moreover, the certificates will allow their owners to confirm compliance with international requirements for the consumption of low-carbon electricity.
In the future, the possibility of organizing the mutual recognition of certificates for their circulation in foreign markets, including in the EU member states, is being considered.
Following the decline in consumption caused by the COVID-19 pandemic, several governments are calling for environmental recovery with a focus on adding renewable energy capacity and phasing out conventional energy. The climate agenda is no longer perceived by information noise.
Against this background, electricity generation continues to be one of the main sources of greenhouse gas emissions, and those energy companies that have not yet started implementing sustainable development measures are urged to start reducing them as quickly as possible.
Thus, today’s understanding of the energy transition and the climate agenda should not be limited to the technological transformation of individual energy sectors.
This is, first of all, the global transition from a carbon footprint to a low-carbon one, a completely new look at the traditional approach to the management and development of energy systems.
Regulators that form strategic programs for economic development are beginning to revise their priorities and create stimulating signals for the development of a “green” economy with the involvement of the international community to solve climate problems, drawing attention to the fact that global development should not only be “green”, but also sustainable for all without exception countries.
Under the current conditions, Russia has every chance of becoming a noticeable player in the global new energy market.