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    Klimat: Russia in the age of climate change: book review


Thane Gustafson's new book examines the politics of climate change in Russia and how the government is responding – or not.

by: William Powell

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Klimat: Russia in the age of climate change: book review

In The Bridge, his last book on Russia, the US writer Thane Gustafson looked back almost to the middle of the last century and the phenomenal growth of the Soviet gas export industry.  

This shorter but equally thoroughly researched book looks forward to the middle of this century. It speculates on what might become of Russia's finances as demand for its all-important energy exports falls.

Generous in what he allows is possible, given Russia’s intellectual sophistication and the changing demographic – this week's election showed only tepid support for United Russia – nevertheless Gustafson strikes a pessimistic note. The country’s top-down system of government and its historic failure to develop and capitalise on technological developments suggest the challenge is too great to be met without losses.

In the context of long-term energy development projects, the next 30 years will fly by, he warns. Russia’s oil and gas will lose out to electrification, the circular economy and energy efficiency, particularly in Europe. Metals and agriculture will not fill the void in the treasury and the country will remain a “resource appendage.”

Long-time president Vladimir Putin has pursued a risky strategy by developing export routes and production capacity for its oil and gas to the exclusion of new energy and technology. It has certainly been outstripped by China, which began the century from a much lower base. It is now a major supplier of the goods of tomorrow, a major creditor and indeed a political power with a global presence. It can now afford to be choosy about its energy imports. For Russia, selling gas to China has proved a difficult and slow process and may prove less profitable than it planned. It cannot count on a second Power of Siberia line.

With two decades of his de facto or de jure presidency gone, the question is whether Putin has now left it too late to develop alternatives to oil and gas exports. Whoever succeeds him will face a difficult choice: more of the same or a costly departure into the unknown? 

Living off the past

Gustafson’s tour d’horizon is not a pretty sight: since the trauma that ended the Soviet Union, Russia has failed to ‘skim the cream’ of earlier energy investments and to invest in renewing the economy. Much of the revenues have gone overseas. Beyond high-tech weaponry, metals and raw materials, Russia has few major exports: no volume car making for example or electrical goods of any colour: white, beige or black. While Putin may have come lately to use the phrase ‘peak oil’ he continues to resist its implications, Gustafson says. He also quotes Putin saying that hydrocarbons are Russia’s competitive advantage.

There was a brief flourishing of recognisably Western thinking on anthropogenic climate change (2008-2012), when Dmitry Medvedev was president. Several important policy documents came out that warned of the dangers of unabated emissions. But they were unable to distract government from the diplomatic and financial pressures developing outside Russia, Gustafson says. Then Putin was back in power in 2012 and climate change slipped down the agenda. Wind turbines have been built only where the cost of gasification was too great. And a leading light in the area of renewable energy, Anatoly Chubais, is fading, leaving no obvious line of succession. 

There are also other major problems that Russia has brought on itself: its 2014 annexation of Crimea and the war in eastern Ukraine led to EU and US sanctions; and the latter, which once executive orders, have now become legal acts and almost impossible to undo, he says. Further hostile actions have made it harder to do business and the rouble is also weaker. Sanctions have forced import substitution, benefiting also the military complex. This has jump-started some areas of technology, including most recently gas liquefaction, but at a cost.

The development of the Bazhenov shale basin, the offshore Arctic oil reserves and the timely commissioning of the Nord Stream 2 pipeline have all been hit. Companies such as TotalEnergies and ExxonMobil have abandoned some projects, closing down avenues for fruitful co-operation and exchanges of innovative ideas.

One notable exception is BP, still a minority shareholder in Rosneft and doing well from it. But under CEO Bernard Looney, who has vowed to cut the oil major’s oil and gas business this decade in favour of more, low-carbon business development, this stake is looking more and more incongruous. 

Light gusts of change

With so much power concentrated in one person – and his ally Igor Sechin, the CEO of Rosneft taking a conservative, pro-oil view – there is little scope for major change. Neither is an engineer or an economist. And as Gustafson points out, the Kremlin is isolated from the constant stream of stock-market signals that full-blooded capitalist economies such as the US generate.

Attempting to balance the conflicting interests of the finance, energy, natural resource and other ministries while also backing overseas conflicts in the Middle East, Europe, Africa and elsewhere, the Kremlin can have had little time to draw conclusions from the falling costs of renewables, the developments in battery storage and other useful pointers relevant to investment.

With the surprising exception of the dramatic rise of Novatek, which bought up gas fields on the cheap and seized the initiative in LNG production and export – an industry Gazprom was only half-heartedly pursuing – there have been few examples of Putin backing the private energy sector over the state behemoths.

Novatek has been working theoretically on decarbonisation and if any kind of hydrogen is workable economically, it is generally agreed that blue hydrogen, produced from natural gas, will have to lead the way. But that is decades away from maturity.

Gazprom has reacted positively with proposals for blue hydrogen exports. The company is also a big promoter of natural gas vehicles and shipping, although more in response to falling demand for pipeline gas than decarbonising. So it would be wrong to characterise Russia as impervious to change.

But outside Russia, things are moving very fast, with nearly all the international oil companies and many of the national oil companies enthusiastically talking up the net zero carbon agenda. For many, access to debt markets depends on developing a credible net zero carbon business model, where carbon capture and storage, synthetic fuels and electrification all play major roles. And lurking in the wings is the European Union’s mooted carbon border adjustment mechanism.

Gustafson expects demand for Russia’s most valuable exports, oil and gas, to peak but then to go into decline as export markets develop substitutes, taking prices down. This could be quick or slow but in any case beyond Moscow’s control; while the costs of domestic production and delivery are likely to rise as greenfield developments on and offshore grow more costly than the brownfields. The thawing permafrost will make far north onshore developments more expensive. The ‘hard to recover’ oil resources need a breakeven price of about $75/barrel, three times today’s. Russia is trapped in a pincer movement, in this scenario.

This decline in income, he says, could be the catalyst needed to put climate change on the political agenda, as the internet-fed Generation Z reaches political maturity. 

Adapt, or call their bluff?

There is mounting urgency to change, if one accepts the trends forecast by climate modelling as Gustafson does. On the geographical front, more Russian agriculture in the fertile zones will suffer regular serious droughts.

Forest fires and floods will become commoner and graver over the years, perhaps leading to sustained single-issue opposition and in any case imposing remediation costs on government. The retreating permafrost, which covers a staggering two-thirds of the country but is home to only a tenth of its population, will leave only sandy ‘topsoil’ behind it, meaning no useful trade-off for crops.  

Given this unpromising starting point, Russia’s best hope, economically speaking, might indeed be to keep on as it is and to continue to ignore 'westernist' ideas such as net zero carbon. It could bank instead on the human tendency to want quality of life only to improve and at the lowest possible price.

The furore over gas prices this year – not a spike but a persistent upward trend – has seen even Gazprom’s enemies beg it to flow more gas, even if they are choosy about the route it takes. When push comes to shove and personal sacrifices for the common good are called for, how strongly will western society continue to believe in the modelling?

A review of The Bridge: Natural Gas in a Redivided Europe may be read here.

Klimat will be published November 12 by Harvard University Press (290 pp inc. notes (ISBN 9780674247437 pb)