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Decarbonisation round-up – Russia moves to position energy sector for the net-zero age

2 2月 2022 Insight Russia

Article

Carbon quotas and storage schemes, increasing hydrogen output and tougher environmental standards all on the agenda

Emissions Reduction

Russia is on the way to introduce law backing trial to cut GHG emissions

On 13 December 2021, the Russian Government introduced a draft law to the state parliament backing a trial to limit greenhouse gas (GHG) emissions in certain regions of the Russian Federation.

As opposed to the initial version of the law, the revised legislation allows the trial beyond the original pilot in the Sakhalin region, with at least four regions expressing willingness to join the trial¹, which introduces a quota regime for GHG emissions.

Some business representatives have criticised the proposed quota system, calling for the regime to be abandoned and the pilot not to be extended to other territories until the Sakhalin pilot demonstrates clear dividends. Russian authorities has so far insisted that the quotas and proposed fee for exceeding limits are key elements of the initiative².

The introduction of quotas is notable in the context of the carbon tax expected to be introduced in the EU – via the controversial proposals dubbed the Carbon Border Adjustment Mechanism (CBAM) – since it may decrease the CBAM burden for Russian exporters.

In other signs of Russia positioning its industry for a post-transition age, the Ministry of Economic Development is currently negotiating mutual recognition and off-setting of carbon units with Japan and Singapore. Cooperation with these countries is primarily driven by their interest in Sakhalin projects³.

Carbon capture projects

Russian companies are considering investment in carbon dioxide capture and storage (CCS) projects, aiming to secure a foothold in what is touted to be a key technology as the global economy moves to decarbonise over the next 20 years.

Gazprom Neft was reported to have announced plans to invest RUB30 billion in a CCS project in the Orenburg region. NOVATEK and Tatneft had also made public announcements on the implementation of similar initiatives⁴. Such moves would be among the first wave of significant CCS projects in Russia, which has yet to draft detailed regulation covering the sphere.

Hydrogen

Low carbon hydrogen energy

According to public sources⁵, the Ministry of Energy has drawn up a low carbon hydrogen energy program for Russia until 2030, to be potentially extended to 2050. The document, which has not been made public, projects hydrogen exports amounting to 12 Million Tonnes Per Annum by 2050. The proposed investment in the program is expected to be US$26 billion, of which US$9 billion constitutes support funds for the creation of related national infrastructure. The program cites risks that may impact the achievement of projected output, such as the fall in hydrogen prices caused by large-scale foreign projects hitting the market.

Exports of Russian hydrogen

NOVATEK has become the first Russian company to enter into an export contract for long-term supplies of low-carbon ammonia in industrial volumes. The deal will supply ammonia from the future Obsky GCC project (Yamal) to German-based Uniper SE, which will convert the compound into hydrogen⁶.

In November 2021, the Russian president Vladimir Putin instructed the national government and state-owned energy giant Gazprom to explore the possibility of exporting hydrogen to Europe in the form of methane-hydrogen mix via existing pipelines⁷.

In December 2021, the European Commission prepared a number of legislative proposals to facilitate and regulate the development of hydrogen power, which is a key plank of many governments' long-term decarbonisation agendas⁸. The low carbon gas market will be potentially regulated by the same rules as the gas market, falling under the EU Third Energy Package.

RENEWABLES

Support for renewable power

On 14 December 2021, a meeting of the Public Council of the Russian Ministry of Energy was held to discuss renewable energy development in Russia. It proposes discontinuing additional renewables support after 2035 once the prices for clean power and traditional generation become equal^1.

Environmental protection

Tightening environmental policy

On 14 December 2021, the Russian Government held a meeting to consider a number of significant items on the environmental agenda¹⁰. In particular, the problematic issues of implementing the Clean Air federal project and the transition of enterprises to the best available techniques (BATs) were brought up.

As a result of the meeting, the Russian president agreed to increase liability of company owners for flouting environmental standards and exercise control on updating the BAT reference book on fuel combustion.

Liability for breaching the oil spills adopted

A law imposing liability for breaching the requirements for the prevention and elimination of oil and oil product spills was adopted. А repeated breach may threaten companies with the suspension of their activities for up to three months.

If you would like to learn more on recent developments in Russian ESG sector, please access our ESG update for December.

Key contacts

Roman Churakov

Of Counsel (Russia), London

Olga Polkovnikova

Associate (Russia), London

Legal Notice

The contents of this publication are for reference purposes only and may not be current as at the date of accessing this publication. They do not constitute legal advice and should not be relied upon as such. Specific legal advice about your specific circumstances should always be sought separately before taking any action based on this publication.

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