Page 54 - bne Magazine Apri20

54 I Eastern Europe bne April 2020
Renewables still only account for 0.1% of Russia's installed power generating capacity, but pressures to go green are mounting fast.
Europe’s plan to introduce a carbon import tax is forcing Russia to go green
Ben Aris in Berlin
Europe wants to be carbon neutral by 2050, and is about to introduce a carbon import duty that is already forcing Russia’s biggest companies to speed up their efforts to go green.
As part of the EU’s Green Deal launched last year, the European Commission (EC) published its European Climate Law on March 4 that includes a “Carbon Border Adjustment Mechanism” – in effect a carbon import tax.
EC President Ursula von der Leyen said: “We are acting today to make the EU the world's first climate neutral continent by 2050. The Climate Law is the legal translation of our political commitment, and sets us irreversibly on the path
to a more sustainable future. It is the heart of the European Green Deal. It offers predictability and transparency for European industry and investors. And it gives direction to our green growth strategy and guarantees that the transition will be gradual and fair.”
With the European Climate Law the Commission proposes a legally binding target of net zero greenhouse gas emissions by 2050. Currently the only
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country in the world that is carbon negative is Bhutan.
The spillover effects of the new law will be significant and Russia’s economy could be hit hard by the changes. Russian goods exported to Europe will have to pay an extra import duty if their factories are not clean and green. This is a serious change for Russia, as the EU accounted for 45% of its trade turnover in 2019, according to Rosstat – even more than Ukraine, which has 41.5% of its trade turnover with the EU, and also could be badly affected.
The clunkily-named carbon border adjustment mechanism is specifically designed to prevent “carbon leakage” where energy intensive EU companies simply dodge strict EU emission laws by moving production to other countries where the rules are not as strict, like Russia. The new rules are currently
in the process of public consultations, but the final version should be adopted next summer.
“We believe this might have a funda- mental effect on the competitiveness of Russian exporters and significant consequences for Russian utilities,
leading in the long run to a premium for green energy producers,” said Vladimir Sklyar, a utilities analyst
at VTB Capital (VTBC), in a note.
What will change is the cost of carbon used to make a widget imported into the EU will be charged as a tax. And the cost of carbon in the EU has more than doubled in the last year alone to €23.65 per tonne. Currently Russian exporters enjoy a competitive advantage thanks to the country’s cheap energy. Adding
a carbon cost to Russian goods could completely destroy that price advantage and seriously impact Russia’s ability to export goods to the EU.
Russia slow to go green
Russia has been slow to start greening
its economy. Russian President Vladimir Putin said in November: “Humanity
will end up in caves if it abandons hydrocarbons.” Russia then fluffed its National Climate Change Plan that sets the emission targets for companies after the limits were watered down thanks to intense lobbying by the biggest corporates.
It only ratified the Paris Accord in 2019, but gave itself easy to reach CO2 emission