What Russia risks by ratifying the Paris Climate Agreement

20 july 2016

The Analytical Center discussed a report titled Risks of Paris Climate Change Agreement Implementation for the Economy and National Security of Russia prepared by the specialists of the Institute of Natural Monopolies Research (IPEM). The issues discussed included a natural amenities preservation agenda as a tool in global competition, introduction of carbon duties and an emissions tax, and possible alternative soft measures of preventing climate change.

In December 2015, at a conference of the UN Framework Convention on Climate Change a document was signed that defines the nature of international climate change policy for the years to come, the so-called Paris Agreement that proposes that specific measures to stop climate change be aimed at reducing greenhouse gas emissions. To implement the provisions of the Paris Agreement, the Russian authorities will have to develop measures that would be aligned with their national interests and that would not harm the social or economic development of the country. The report includes a preliminary analysis of the effectiveness of various measures and of the risks to the economy and the country’s population that such measures entail.

Unlike many of the other developed countries, Russia has always performed its international obligations, the authors of the report contend. However, this often was of little benefit for our country, either economically or politically. “The risk is very high that we will have a repeat of the standard situation where Russia makes every effort to preserve the climate on the planet, often to the detriment of its economic interests while our partners either never even get around to doing anything at all on this front, as was the case with the US during the time of the Kyoto Protocol, or ‘fall off the wagon’ when the going gets too hard, without any reputational or economic consequences for them,” believes IPEM CEO Yury Saakyan. Russia needs to assess the consequences of going along with the Paris Agreement, taking into account its economic interests, the capabilities of its industry and making sure this move does not undermine our competitiveness, he believes.

The most widely discussed way to implement the Paris Agreement in Russia is through the introduction of the so-called carbon duty. IPEM’s estimates suggest that if a carbon duty of USD 15 per ton of CO2 equivalent was introduced in Russia, that would translate into monthly payments of USD 42 billion (RUB 2.56 - RUB 3.29 trillion).   That amounts to 3.2 -4.1% of GDP for 2015, or 19-24% of the federal budget revenue in 2016, or 35-45% of the total amount of the Russian Reserve Fund and the National Welfare Fund taken together. If the tax on emissions is USD 35 per ton of CO2 equivalent, payments will reach 7.5-9.6% of GDP.

IPEM’s estimates show that introduction of the tax on emissions in Russia will bring about a number of negative economic and social consequences. The most at risk would be the fuel and energy sector and energy intensive industries as well as industries with high emissions such as metal production, production of nitric fertilizers and cement. Companies operating in these industries will have to incur additional costs of up to 75% of their revenue and up to 615% of EBITDA for previous years, the report notes.

Such tough measures to restrict greenhouse gas emissions are fit for economically developed countries that do not have many energy intensive industrial facilities and are seeking to limit their imports of energy resources, the experts are sure. What is needed for Russia is less strict but more effective and more rational measures such as increasing energy efficiency, development of the forest industry, promotion of domestic methodological approaches to assessing the absorption capacity of Russian forests. Their impact on the socio-economic sphere will not be quite as dramatic.

The authors of the report stress that in the past 2 plus decades, few countries have managed to achieve the same results in terms of cutting greenhouse gas emissions as Russia has done and our country deserves to have its interests in the area of climate change to be taken care of first.

Read the report entitled Risks of the Implementation of the Paris Climate Change Agreement for the Economy and National Security of Russia

Context:

Ъ - Visions of a Climate Apocalypse

TASS - CO2 tax will strengthen developed economies at the expense of developing nations.