Looking Beyond Oil
- By Toby Gati
- Jul. 02 2008 00:00
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President Dmitry Medvedev has begun to outline what could become a serious Russian initiative to address the environmental impact of profligate energy use and to encourage greater energy efficiency. At a meeting of the Security Council on Jan. 30, he highlighted the need for "environmental innovation" by Russian companies, stressing that the rapid pace of innovation in renewable-energy technologies in the West made it imperative for Russia to "move quickly to gain a foothold" in this area. Later, in a decree signed by the president on June 4, the government was instructed to submit draft legislation to the State Duma by Oct. 1 to provide incentives for introducing environmentally friendly and energy-efficient technologies. The decree also calls for allocating funds in the federal budget for renewable energy and providing subsidies for specific projects.
These steps may indicate that the elements of a broader domestic energy policy extending beyond the oil and gas sectors are now being put in place. All this is occurring at the same time that Russia is making clear its intention to play a larger role in the international effort to address climate change and global warming.
Russia's new policy direction -- and particularly its nascent interest in alternative energy -- is important because the country is the world's largest natural-gas exporter and second-largest oil exporter. It is also the third-largest emitter of CO2 from fossil fuel, behind China and the United States. Medvedev has coupled his complaints about the wastefulness of Russian industry and the lack of environmentally sound technologies with the need to improve the country's international competitiveness and develop technologies key to the success of his "innovation strategy." Over time, a more diversified energy policy could also open up avenues for entrepreneurial businesses in Russia as well as partnerships with some of the fastest growing energy sectors in the United States and Europe.
Russia's huge hydrocarbon resources, low domestic energy prices, weak economic incentives and the lack of a requisite legal structure have slowed the domestic development of a renewable-energy sector. In the West, in contrast, it was high energy prices and a desire to reduce dependence on imported oil that stimulated global innovation in the development of solar, fuel cell, tidal, geothermal, wind and biomass. Other brakes on the development of this sector in Russia have been the almost complete lack of interest on the part of the energy majors and the sense that the political leadership's energy priorities were focused elsewhere -- first and foremost on increasing production and the urgent need to upgrade and expand existing energy infrastructure. In addition, the well-trodden path of innovation in the West -- small startups with technologically advanced ideas that then become mainstream -- has not been easy to transfer to any sector of the Russian economy.
To give some indication of the role various alternative energies could play, consider how the state now meets the energy needs of the some 10 million or so people not connected to the Russian electricity grid who rely on costly delivery of fossil fuels. Technologies for harnessing wind and solar power could augment current energy supplies for some of these isolated populations, while biomass from numerous forests and croplands around the country, watersheds in the eastern part of Russia, tidal sources in the White Sea and the Sea of Okhotsk and geothermal fields in the North Caucasus and Kamchatka could be developed to supplement current energy supplies.
The share of renewable energy in Russia's energy mix is not yet significant, and renewables are certainly no panacea for years of underinvestment or for tackling the huge energy inefficiencies in its economy. But the potential for growth is not inconsequential. Other energy-rich countries -- notably Norway and Australia -- developed a significant renewable-energy sector once the right political and economic signals were put in place.
In general, growth in demand for renewable energy is highest in countries that have made renewables one of the focal points of national energy policy and established quantifiable renewable-energy targets. In Russia, these political signals matter greatly, but so increasingly do economic incentives. In the future, as domestic gas prices increase and the cost of renewable energy technologies falls, the percentage share of renewables should grow. This process can be speeded up once there is a more solid legal framework, as well as subsidies and other incentives for investing in renewable-energy projects. Also, as international companies begin investing in this sector, more innovative Russian companies will likely follow. In fact, Russian companies are already attracting foreign investment for joint renewable-energy projects in order to generate emission-reduction credits for subsequent sale on international markets. And Russia has a golden opportunity right now to significantly "scale up" this valuable foreign investment through the sale of its large carbon surplus to other countries and channel the revenues into "green" renewable and energy efficiency projects.
The next U.S. president is certain to view the development of alternative energy more positively and to assign a higher priority to a wide variety of issues ranging from climate change and energy efficiency to clean technologies and renewables. If the new Russian leadership is headed in the same direction, there should be ample incentive to build on this common interest. How refreshing it would be to propose energy and environmental cooperation with Russia in areas where our scientific and technological resources can overlap and complement each other, and where our most innovative businesses could find their voice as part of a renewed, much broader bilateral discussion on energy security.
Toby Gati, former special assistant to President Bill Clinton for Russia and the Eurasian states and assistant secretary of state for intelligence and research, is senior international adviser at Akin Gump Strauss Hauer & Feld LLP in Washington.