Russia’s Economic Growth Model Based on Oil is No Longer Sustainable

Russia’s Economic Growth Model Based on Oil is No Longer Sustainable

By the end of March 2020, there were no readily available statistics on Russia’s emissions, though there were some estimates provided by the Moscow city administration. Due to many workers working remotely from home, there was an 11% decrease in private vehicles on the roads of the Russian capital during morning rush hour. However, in the evening hours, there was an increase of cars on the roads as people rushed to stock up in supermarkets. According to authorities, Muscovites have taken fewer taxi rides, while the use of car-sharing services actually increased. It’s difficult to predict if this trend will continue once the pandemic is over, but the experience of crises in 2008 and 2014 shows that fossil fuel consumption traditionally returned to normal quite quickly.

According to an opinion piece (available in Russian) by Greenpeace Russia’s Vladimir Chuprov, COVID-19 has hit Russia’s economy quite badly: 

“The epidemic has hit the global oil market, which is already not sustainable. The decline in oil consumption in China due to quarantine, the reduction in transport fuel consumption, and the global downturn in the business chain have brought down global oil prices. Once again, we are questioning the financial stability of countries whose economies are excessively dependent on oil production and export. Russia is one of them. The situation was aggravated by the onset of the ‘oil war’ between Russia and Saudi Arabia, as the two countries could not agree on a new reduction in oil supplies to world markets. As a result, oil prices fell even lower – to $33 per barrel. The government of our country is trying to adapt to the crisis situation and is counting how many years there will be enough financial reserves to fulfill budget promises. And it’s understandable why – the federal budget is distributed based on oil prices of at least $42 per barrel. According to the Ministry of Finance, the reserve ‘is enough to cover the shortfall in income from falling oil prices to $25-30 per barrel for 6-10 years’”. 

With or without the COVID-19 pandemic, there is almost no climate policy in Russia. Dependence on fossil fuels and the absence of a robust climate policy provoked Russia’s lack of resilience to the virus. At a press conference on March 21, Russia’s Prime Minister Mikhail Mishustin declared that the government approved a priority action plan for sustainable development. Though here he means “sustainable” not from a “green” point of view, but rather an economic one:

“The government together with the Central Bank is trying to solve two interrelated tasks: firstly, to prevent a decrease in lending to the real sector of the economy, and secondly, to support small and medium-sized businesses.”

The economic growth model based on oil production and its value in world markets has exhausted itself, opines Chuprov, and the next crisis only confirms this. According to estimates by the International Energy Agency, the annual revenues of the Russian oil and gas sector may decline from $320 billion to $274 billion by 2040. Therefore, there is no reason to speak of any economic growth or, moreover, doubling of GDP due to oil in the coming decades. Despite the obvious vulnerability of the hydrocarbon market, Russian leadership continues to rely on the discovery of new oil fields and further active development of those already developed. On March 5, 2020, President Putin signed a decree “On the Fundamentals of State Policy of the Russian Federation in the Arctic for the Period until 2035”, according to which oil and gas production in the Arctic latitudes will be systematically developed at the expense of state subsidies and private investments.

This powerful subsidization of fossil energy and the lack of similar low-carbon support is the basis of the country’s oil and gas dependence. This is a strategic mistake that becomes more apparent as COVID-19 spreads. Among the proposals for the development of low-carbon, resource-saving technologies, and practices that would make Russia more resilient to any such pandemics in the future while also helping the planet, experts at Greenpeace Russia suggest the following steps the country’s leadership: 

  • Refuse to issue or revoke the most controversial licenses associated with the development of new deposits (West Irkinsky, Vatlorsky, West Usinsky subsoil areas); 
  • Introduce a ban on the development of new oil and gas fields located within the boundaries of specially protected natural territories and their protected zones, in other valuable and vulnerable natural territories and on the continental shelf of the Russian Federation, including the shelf of the Arctic seas;
  • Introduce a ban on the development of oil fields based on hydraulic fracturing technology;
  • In forestry, Greenpeace suggests amending the current legislation that would allow the forest to legally exist on agricultural lands, and for the owners of such lands to legally grow forests; 
  • In the field of non-energy resource consumption and waste management, Greenpeace proposes to create conditions for the separate collection of food waste and the production of commercial compost or biogas from it.

Activity Rating: *** Short-lived, temporary impact


Take Action

Dear Dmitry Kobylkin (Acting Minister of Natural Resources and Environment of the Russian Federation), 

The COVID-19 pandemic has, once again, shone a spotlight on the long-term unsustainability of Russia’s over-reliance on fossil fuels. Therefore, it is high time to end the heavy government subsidizing of this industry and to instead focus on renewable energy, as well as all of the above-mentioned suggestions of Greenpeace Russia. 

To send the message electronically, please fill in this form (website in Russian, but a simple online translation will suffice): http://www.mnr.gov.ru/open_ministry/reference/ 

Postal address: 

Minister of Natural Resources and Environment of the Russian Federation

4/6 Bolshaya Gruzinskaya street, 

Moscow, Russia

125993

Telephone numbers of the Ministry: 


+7 (499) 254 48 00, +7 (800) 222 48 01


This post was submitted by Climate Scorecard Russia Country Manager Maria Stambler

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