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The Greening of the Kremlin
By Sergei Guriev,

Russian President Vladimir Putin recently announced that his country aims to become carbon neutral by 2060. This major policy shift reflects the European Union’s increasing commitment to its green agenda, as well as Putin’s desire to reduce Russia’s international isolation.

In a 1970s-era Soviet joke, the Politburo resurrects Stalin and asks him what it should do to combat economic stagnation and widespread disillusion with communist ideals. Stalin proposes a two-part program: first, shoot all the communists, and second, paint the Kremlin green. “Why green?” the shocked Politburo members ask. A smiling Stalin replies: “I was sure there would be no questions about the first part.”

Given the growing state-sanctioned repression and use of torture in today’s Russia, this joke no longer seems quite so far-fetched or dated. In a March 2021 poll, 52% of respondents – by far the highest proportion in Russia’s post-Soviet history – said that they feared a return to tyranny. But what is even more striking is that the Russian government is now following Stalin’s second suggestion and turning the Kremlin green.

Of course, the fifteenth-century castle in downtown Moscow is still painted red. But its masters have suddenly started talking the language of decarbonization. On October 13, President Vladimir Putin announced at the Russian Energy Week forum that Russia aims to become carbon neutral by 2060 – ten years after the United States and the European Union but at the same time as China.

This is a huge change, because Russia has traditionally avoided setting ambitious climate goals. True, Russia promised under the 2015 Paris climate agreement to limit its greenhouse-gas (GHG) emissions to 70-75% of their 1990 level by 2030. But given that its emissions in 2015 were only half of their 1990 level, this pledge actually allowed Russia to increase emissions.

In July 2019, Putin famously defended fossil fuels by claiming that wind energy caused environmental damage that harmed birds and worms. (This was, however, an improvement from a 2010 speech in which he said that wind power hurt not only birds and worms but moles as well.) As recently as December 2019, Putin said that “nobody really knows the causes of climate change.”

Moreover, in June 2020, Russia adopted a 15-year energy strategy that assumed no change in oil production by 2035 and nontrivial growth in coal and gas production. The document barely mentioned solar and wind energy and set no quantitative targets for them. And the government did not even plan to establish an emissions trading system.

So, what has changed since last year? For starters, the EU – Russia’s main trading partner – has clearly become much more serious about its green agenda. In July, the European Commission unveiled its so-called Fit for 55 strategy, comprising policies aimed at reducing the Union’s GHG emissions by 55% from 1990 levels by 2030. In particular, the EU plans to introduce a carbon border adjustment mechanism (CBAM), which will impose a levy on some carbon-intensive imports from outside the bloc.

Because the proposed CBAM does not cover oil and gas, its aggregate economic impact on Russia will likely be quite limited, never exceeding €2 billion ($2.3 billion) per year according to independent estimates, and €1 billion per year on the Russian government’s reckoning. Even the higher estimates are equivalent to less than 0.2% of Russian GDP – a negligible amount compared to the impact of global oil-price volatility on the government’s budget. Nonetheless, the Russian firms that will be hit by the CBAM – exporters of steel, aluminum, and fertilizers – are important political players who have managed to convince the government and the president to take the EU’s policy change seriously.

The other reason for Putin’s apparent decarbonization drive is that the climate-change issue presents Russia with an opportunity to mitigate its international isolation. Given that climate change is a global problem, the Kremlin hopes that tackling it will require the West to engage with Russia and possibly repair some broken ties. For example, Putin’s climate envoy has explicitly called for an end to sanctions on Gazprom and other Russian companies undertaking green projects.

The Kremlin’s green turnaround seems credible. This summer, the government created seven interagency task forces charged with preparing a comprehensive decarbonization strategy. In September, Russia’s parliament enacted the country’s first law to limit GHG emissions by large companies. Next year, Russia will launch its first pilot emissions-trading program on the island of Sakhalin, which aspires to achieve carbon neutrality by 2025.

But for now, these are only statements and plans; the reality on the ground is very different. While Europe is facing the largest spike in natural-gas prices in more than a decade, Putin is blaming this crisis on Europe’s impatience to shift to highly weather-dependent renewables.

Russia denies that it has fueled the gas-price surge, and the EU has acknowledged that Russia is fulfilling its long-term supply contracts. But the EU is concerned that despite sky-high prices, Gazprom is not supplying any additional gas – which may suggest an abuse of monopoly power and lead to an investigation by the European Commission.

Gazprom’s emptying of its European storage facilities has also likely contributed to price growth. To add insult to injury, on October 21 Putin offered to increase supplies of Russian gas to Europe – provided that the Nord Stream 2 pipeline, which will deliver gas directly to Germany and thus bypass Ukraine, is allowed to operate.

The contrast between Russia’s traditional energy policy and its new decarbonization talk could not be more striking. But the current gas crisis is unlikely to persuade Europe to heed Putin and turn away from renewable energy. On the contrary, the EU may now have an additional incentive to accelerate its green transition and become less dependent on Russian gas. Eventually, this will also reduce demand for Russia’s fossil fuels – and force the Kremlin finally to get serious about going green.

Sergei Guriev, a former chief economist of the European Bank for Reconstruction and Development and former rector of the New Economic School in Moscow, is Professor of Economics at Sciences Po.
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