Russia’s Neglected Energy Reserves

Russia not only has some of the world’s largest energy reserves, but also impressive potential for making its economy more energy efficient and competitive. Ending wasteful use of energy resources would bring Russia financial benefits and decrease carbon dioxide emissions into the atmosphere. But simply getting the Russian leadership to realize the importance of rational energy consumption is not enough to successfully carry out an energy conservation policy.   

John Millhone, a visiting scholar at the Carnegie Endowment for International Peace, presented at the Carnegie Moscow Center his report, Russia’s Neglected Energy Reserves, in which he outlined problems and proposed recommendations for making Russia’s economy more energy efficient. Sam Greene moderated the event.   

Energy Saving: Potential Benefits

In Millhone’s assessment, Russia could save up to 45% of the primary source energy it consumes. Cutting energy consumption would save hundreds of billions of cubic meters of gas and electricity kilowatt-hours, millions of tons of coal, crude oil and petroleum products. This would have substantial benefits for the economy:

• Financial. Reduction in consumption will lead to reductions in energy costs that would immediately impact ordinary people, businesses, state bodies, and industry.
   
• Regional. Energy consumption reforms would help to create new jobs, especially in regions and rural areas currently facing high unemployment. Reforms would also make energy supply more reliable. 
   
• Environmental. Cutting greenhouse gas emissions would make it possible to fulfil even the most stringent commitments that are expected to be part of the new agreement drafted to replace the Kyoto Protocol. 
   
• Targeted benefits. The money saved could be used to provide targeted support for the neediest sections of the population.
   
• Exports. The oil and gas saved could be exported, thus boosting Russia’s export revenues.

But carrying out energy conservation policy is not easy and requires constant and consistent effort from state authorities at every level. They will need to untangle the complex knot of political, economic and social problems affecting all aspects of Russian policy that have built up over the years, especially in the regions far from Moscow and St Petersburg.

Recommendations for Raising Energy Efficiency

Based on statistics given in the report, Millhone makes five main recommendations for increasing energy efficiency in Russia.

• Electricity. Hydroelectric power stations could be made more efficient by installing modern turbines. Making needed capital investment in the grid infrastructure would reduce the amount of energy lost during transmission to the final consumers. Reforming the sector would require a considerable increase in electricity rates, which could spark protests among consumers, but energy efficiency programs would help consumers to cut their energy use levels and this would offset the rise in electricity rates.
   
• Heating insulation. President Medvedev called the Russian housing and utilities system a “black hole” gobbling up huge amounts of energy resources. The biggest energy savings could be made in the municipal heating systems that supply Russians with heating and hot water. Energy is wasted at three levels: production, delivery, and poorly insulated buildings. In some cases it would make sense to replace centralized heating supply systems with individual heating equipment for separate buildings. 
   
• Industry. An information campaign should be organized for business managers, who are not always well informed about the different economic options at their disposal. They need to have access to medium-term and long-term capital sources to finance investment in energy conservation.
   
• Buildings and facilities. The energy conservation problem for buildings and facilities can be resolved through working in three main directions: metering, rates, and education of those making decisions. It is important to set mandatory federal standards for equipment and instruments. There is also a need to develop effective schemes for financing investment in energy conservation, including through establishing guaranteed funds for loans to carry out fundamental overhaul and refitting of buildings and mass-scale installation of meters.
   
• Transport. The number of personal cars is increasing each year. Most of them are second-hand gasoline-guzzling imported vehicles. It makes sense to introduce fuel efficiency standards for vehicles.  

Reforms in the five big energy conservation areas could be complemented with measures in other areas such as saving flared gas, research and development work on energy conservation, and training and education for people working in energy industries.

Energy Conservation and Climate Change

A two-week-long battle unfolded during the 15th United Nations Climate Change Conference in Copenhagen in December 2009 over the agreement to replace the Kyoto Protocol. Russia stayed in the background for the most part and showed little activeness. Millhone notes that if the Russian leadership takes real and effective measures to coordinate its energy and climate policies it would have a unique opportunity to achieve success in both areas at once.

Grounds for Optimism and Possible Obstacles

Russia remains one of the biggest energy consumers on the planet despite one of the fastest rates of decline of energy use per unit of GDP. The discussions following Millhone’s presentation produced a number of conclusions suggesting potential for improving the situation. 

• In the view of Igor Bashmakov, executive director of the Center for Energy Efficiency, Russia could lower its energy consumption by 45% by carrying out technical modernization work. Efforts to raise energy efficiency should begin with detailed collection and analysis of information to determine how best to encourage energy conservation in homes, buildings, and especially in public sector facilities. Along with pursuing Russian research and development efforts in this area it is important to make use of foreign technology and equipment that has already been tested with good results in other countries.
   
• The lack of energy conservation incentives for different groups involved in developing an energy-efficient economy could become a serious obstacle. Adnan Vatansever, senior associate in the Carnegie Endowment’s Energy and Climate Program, said that an in-depth study should be made of how best to encourage energy conservation.
   
• In the view of Mikhail Krutikhin, a partner at RusEnergy, there are many obstacles in the way of carrying out energy efficiency programs, the biggest of which will be to identify the group of decision makers interested in implementing such programs.  
   
• In the view of Maxim Titov, program manager of the International Finance Corporation’s Russia Sustainable Energy Finance Program, programs to finance industrial enterprises’ energy conservation efforts pay themselves off within 3-4 years, making them very attractive projects in terms of the financial benefits to be gained. But in Russia there is a big psychological factor to overcome in implementing these kinds of programs because company CEOs have yet to see energy efficiency as a priority area in their work.