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bne April 2020 Eastern Europe I 55
targets. Russia’s companies have been a bit more active and most large corporates have introduced environmental, social and governance (ESG) policies that include policies (and investments) to cut emissions after equity investors started selling shares of companies with bad ESG scores. Norway leads the pack and sparked a mini-revolution after its state-owned pension fund Norges banned investments into companies that were ignoring their environmental responsibilities.
Russia’s top miner Norilsk Nickel saw massive selling of its stock after the ban went into effect in 2018 and since then it has invested $2bn into reducing SO2 emissions (also bad for the environment and one of a bag of gases controlled by the Paris Accord) with plans to invest another $3bn in the coming years.
But part of the problem is that while companies can be punished for a bad ESG score, they are not being rewarded for having a good ESG score – there is no “green alpha”, or premium on the share prices for green companies.
In practical terms the EU’s carbon import tax will be applied to goods produced by companies that get their power from dirty power generators – and in Russia that is most of them.
It is still not clear exactly how the carbon duties will be applied, but analysts are expecting both a general country duty
to be added to all traded goods and
also company-specific duties for energy intensive industries.
And Russian companies are already reacting. For example, Russian major aluminium producer Rusal – the biggest single consumer of power in the country – is already switching from coal-burning power supplies to hydro in an effort
to reduce its carbon footprint, reports VTBC, and is considering completely ditching its coal-fired power plants and coal mines.
The state is supporting the greenification of the economy and plans to lauch
a “green certificate” scheme at the
start of next year as the only legal
way to claim the title of “green energy sourced” products that it hopes will
be compatible with things like the EU legislation. Rusal’s parent company EN+ is way ahead of the state and has already launched the world’s first low- carbon aluminium trademark ALLOW to highlight its move to hydropower, and Phosagro told bne IntelliNews in a recent interview that it was also going to adopt a green certification system.
Power sector already reforming
Since 2015, the total installed capacity of Russian renewable sources has increased to 1,547MW and is expected to almost quadruple in the next four years to 4,792.8MW by 2024, according to Russia’s system operator.
Currently renewables only account for 0.1% of the total generating capacity vs hydro (17.6%), nuclear (19.3%), and the vast majority was still thermal (62.9%) as of the end of 2019, according to the ministry of energy.
Another problem is most of the existing generation capacity was built in Soviet times and it is getting old: but this issue is being addressed by the so-called DPM2 (power supply contracts) programme designed to modernise
the power gene-ration capacity that is already well underway. That has to be set against the high level of wastage as Russia is not an efficient consumer of power. Russia is one of the most energy- intensive large economies in the world, according to VTBC.
As bne IntelliNews reported, the cost of carbon in Russia is high and utilities account for just under half of all
the country’s CO2 emissions. As the investment cycle in the power sector is
Selected large electricity consumers in Russia in 2018*
*2016 for Underground and the overground transport; Source: Company data, Rosstat, VTB Capital Research
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