International Atomic Energy Agency

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1 International Atomic Energy Agency Research Project Initial analysis of different indicators for sustainable energy development on the basis of existing economic, energy and environmental trends in Russia. Final presentation Sergey Molodtsov Centre for Energy Policy Ministry of Energy of the RF New-York September 2004

2 Contents 1. Current state and prospects of Russia s energy sector 2. Review of the energy statistical data capability 3. Energy priority areas 4. Assessment of current energy policies in priority areas from the standpoint of ISED 5. The main strategies of improvements in Russia s energy policy priority areas 6. Conclusions and recommendations

3 Current state and prospects of economic reforms Economic depression (-26%) 1997 Some economic recovery (+1%) 1998 Economic crisis (-5,4%) Stable economic growth (+20,6%) Prospects: Russia intends to double the gross domestic product in a decade.

4 Forecasting evaluations of the main macroeconomic indicators in accordance with an optimistic and moderate scenario of Russia Energy Strategy to 2020, 1 % Indicator GDP Industrial production Investment GDP per capita Real income of the population Expenditures on energy use per capita Energy intensity of GDP optimistic scenario, 2 moderate scenario

5 Economic and Energy Development If Russia is to meet ambitious goals over the forecasting period, the Russian fuel and energy complex (FEC) will face the challenge of meeting rapidly growing domestic energy demand.

6 Energy resource base Russia owns: 45% of the world s natural gas reserves; 13% of the oil reserves; 23% of the coal reserves; 14% of the uranium reserves.

7 Determination of energy resource base Over 50% of the estimated oil resources and 80% of the natural gas resources are located in remoted areas. The share of hardly recoverable oil and gas reserves is still growing. Annual growth of proven recoverable oil and gas reserves can cover their annual production volume just partly. If urgent measures are not undertaken it would become a serious threat to Russia s energy security.

8 The role of the FEC in Russia s economy 20.2% of GDP; 30% of industrial production; 54.5% of exports; 16.5% of the personnel involved in industrial production; 39% of the tax collected on the budget. The Russian FEC is a bulk of country s production potential and keeps a high standards in provision of the economy with energy and currency resources.

9 Energy production By comparison with the level of 1992 in 2001 primary energy production in Russia had fallen almost 11%, the output of coal about 15%, of oil almost 13% and of natural gas over 9%. For the same period electricity production had decreased by 119 bln kwh, or by 11.8%.

10 The main reasons of energy production decline Decline in the purchasing capacity of the consumers (domestic consumers and consumers from CIS countries) Reduction in the production of GDP Decline in industrial production

11 1- geothermal, solar and wind power are not included because of the low share in primary energy production Primary energy production mix gas 46% nuclear power 3% hydro power 1% CRW 1% coal 13% nuclear power 4% hydro power 2% CRW 1% coal 12% oil 36% gas 46% oil 35%

12 Energy production forecasts Indicator Forecasts for Total primary energy production Electricity production Oil production Natural gas production Coal production New electricity transmission lines over 330 kv New generating capacities optimistic 1.8% per year 2.3% per year +60% +25% +67% km +177 GW moderate 1.2% per year 1.65% per year +39% +16% +45% km +121 GW

13 Russia s energy export Russia accounts for: 11-12% of the world trade in energy resources; 3-3.5% of the trade in liquid fuels; 35% of the trade in natural gas. Domestic economy highly depends on energy export revenue. A change in world oil prices by one dollar is associated with a 0,4-0,6% change in Russia s GDP.

14 Energy net import dependency In the period a share of net export in TPES in Russia had increased from 42.2% to 59.1%, in conventional energy consumption from 43.1% to 59.7%, in oil consumption from 50.5% to 83.5%, in natural gas consumption from 42.9% to 54.4%. The country is planning to increase the volume of energy export during the nearest two decades.

15 Primary energy consumption In the total consumption of primary energy in Russia declined by 20%, coal consumption by 19%, oil by 28%, natural gas by 8%.

16 60 Total primary energy supply mix, % coal 50 oil 40 gas Comb. Renewables & Wastes nuclear 10 hydro electricity trade

17 Some distinctions of energy supply High level of self-sufficiency (1.4 in 1992 and 1.6 in 2001). Per capita primary energy consumption is comparable with the level of OECD countries. Low level of energy supply efficiency. The share of distribution losses in TPES in Russia is in 2.8 times higher than in EU countries. High level of GDP energy intensity (in times higher than in OECD countries).

18 Energy demand forecasts in Russia, mln toe. Natural gas Crude oil and petroleum products Solid fuel Other 1 Total nuclear, hydro and renewables 2 moderate scenario 3 optimistic scenario

19 Final energy mix in Russia, % 100% 90% 80% heat 70% electricity 60% 50% 40% 30% 20% CRW natural gas petroleum products coal 10% 0%

20 Investment in energy Energy Strategy evaluations of investment in energy FEC s branch Needed investment in , bln $ Total Gas industry Oil industry Electricity industry Coal industry 20 Heat supply sector 70 Energy conservation 50-70

21 End-use energy prices, taxation and subsidies Inefficient policy in energy prices, taxes and existing energy subsidies are the main reasons of investment shortage in Russia s FEC.

22 Russia s FEC and the 4 dimensions of Social dimension sustainability Energy disparities take place. Energy affordability is getting a serious problem for the poorest part of Russia s population. Energy accessibility the problem is more or les solved.

23 Russia s FEC and the 4 dimensions of Economic dimension sustainability There are some positive trends in economic situation in Russia s FEC, however a serious and widescale efforts are to be undertaken in order to ensure a real progress in improving energy security of the country.

24 Russia s FEC and the 4 dimensions of sustainability Environmental dimension Some positive trends in environmental situation connected with energy development have been fixed. The main reason is a sharp decline in internal energy demand. Nevertheless environmental problems still exist.

25 Russia s FEC and the 4 dimensions of Institutional dimension sustainability Institutional framework of Russia s energy policy is to be improved in order to implement goals given in Energy Strategy.

26 Statistical data capability The main aspects of the problem: Availability Accessibility Quality

27 Major Energy Priority Areas Ensuring national energy security; Securing stable, uninterrupted and affordable energy supply of the economy and households; Increasing energy efficiency of economy; Developing and improving the energy resource base; Reducing the negative environmental impact of the energy.

28 Energy security: the main problems The shortage of investment; A high level of energy intensity of the economy; The discriminatory actions of foreign countries on international energy market; The dependence of some Russian regions on energy import; Limitations on the transport of energy resources exported by Russia.

29 Energy security: the main opportunities Ensuring the reliable functioning of the energy system and securing graduated energy supplies to consumers; Creating the necessary conditions for the development of the economic and social basis of society; Maintaining the economically justified energy export; Maintaining the technological and environmental safety of the energy facilities; Assisting to strengthen the links that promote internal and external integration.

30 Securing stable, uninterrupted and affordable energy supply of the economy and households The main problems: Long distances for energy transportation; Several Russian regions a heavily dependent on energy import; Cold climate; Technical state of energy supply systems; Inefficient administration and regulation; Limited use of local and renewable energy source.

31 Improving energy efficiency of economy Energy conservation potential mln toe, or 39-47% of the overall primary energy consumption. One-third of this potential is accumulated in the FEC, 35-37% in industry, 25-27% in residential sector. About 50% of forecasting economic growth will be provided without increasing the energy demand.

32 Energy conservation: the main problems Disadvantages of institutional structures; Weakness of legislation; Lack of investment; Inefficient pricing and taxation policy, existing energy subsidy; Deterioration of scientific and research base; Limited and inefficient information support.

33 Developing and improving the energy resource base An essential growth of proven recoverable reserves of hydrocarbons should be achieved by For oil it will account of 7,5 10 bln t, for natural gas bcm. To achieve this targets a serious efforts in institutional, legislative and investment areas should be undertaken.

34 Reducing the negative environmental impact of the energy Because of economic and industrial output decline the main indicators characterizing environmental situation in Russia have been improved for the latest years. Implementing environmental targets will require: Enhancing activity in R&D; Constant monitoring of environmental situation; Improving legislative base; Developing and introducing financial incentives.

35 Energy policy and the list of ISED Priorities State indicators Direct Driving Forces Major Indirect Driving Forces Ensuring energy security 17. Indigenous energy production 18. Net energy import dependence 14. Energy use per unit of GDP 15. Expenditure on energy sector. 2. GDP per capita 1.End-use energy prices with and without tax/subsidy 2. Shares of sectors in GDP value added 12. Energy supply efficiency

36 Energy policy and the list of ISED Priorities State indicators Direct Driving Forces Major Indirect Driving Forces Securing stable, uninterrupted and affordable energy supply of the economy and households 16. Energy consumption per capita 17. Indigenous energy production 22. Fraction of households heavily dependent on noncommercial energy, without electricity 14. Energy use per unit of GDP 15. Expenditure on energy sector 21. Fraction of disposable income/ private consumption per capita spent on fuel and electricity by average population, group of 20% poorest population. 2. GDP per capita. 3. End-use energy prices with and without tax/subsidy. 4.Shares of sectors in GDP value added. 5.Distance traveled per capita 6.Freight transport activity 7.Floor area per capita 8.Manufacturing value added by selected energy intensive industries.

37 Energy policy and the list of ISED Priorities State indicators Direct Driving Forces Major Indirect Driving Forces Increasing energy efficiency 14. Energy use per unit of GDP. 2. GDP per capita. 3. End-use energy prices with and without tax/subsidy. 4.Shares of sectors in GDP value added. 5.Distance traveled per capita. 6.Freight transport activity. 7.Floor area per capita. 8.Manufacturing value added by selected energy intensive industries. 9. Energy intensity: manufacturing, transportation, agriculture, services, residential sector. 10. Final energy intensity of selected energy intensive products. 12. Energy supply efficiency

38 Energy policy and the list of ISED Priorities State indicators Direct Driving Forces Major Indirect Driving Forces Developing the energy resource base. 37. Lifetime of proven recoverable fossil fuels reserves. 39. Lifetime of proven uranium reserves. 35. Fraction of technically exploitable capability of hydropower currently not in use. 15. Expenditure on energy sector. 17. Indigenous energy production.

39 Priorities Declining the negative environment al impact of energy system. Energy policy and the list of ISED State indicators 24. Ambient concentration of pollutants in urban areas. 25. Land area where acidification exceeds critical load. 30. Accumulated quantity of solid wastes to be managed. 32. Accumulated quantity of radioactive wastes awaiting disposal. 33. Area of land taken up by energy facilities and infrastructure. 34. Fatalities due to accidents. Direct Driving Forces 23. Quantities of air pollutant emissions from energy related activities. 27. Radionuclides in atmospheric radioactive discharges. 26. Quantities of greenhouse gas emissions from energy related activities. 28. Discharges into water basin associated with energy activity. 29. Generation of solid wastes. 31. Generation of radioactive wastes from nuclear power cycle chain. Major Indirect Driving Forces 2. GDP per capita. 3. End-use energy prices with and without tax/subsidy. 4.Shares of sectors in GDP value added. 5.Distance traveled per capita. 6.Freight transport activity. 7.Floor area per capita. 8.Manufacturing value added by selected energy intensive industries. 9. Energy intensity: manufacturing, transportation, agriculture, services, residential sector. 10. Final energy intensity of selected energy intensive products. 11. Energy mix. 12. Energy supply efficiency. 13. Status of deployment of pollution abatement technologies.

40 Energy policy priorities, response actions and targeted and positively affected ISED Priorities Ensuring energy security Targeted Indicators 15. Expenditure on energy sector Response Actions Increase expenditure on hydrocarbon exploration and development Positively Affected Indicators as numbered in ISED list. 17, 18, 36, 37 Increase R&D expenditure for energy technology 9, 10, 12-14, 16-18, 21-41

41 Energy policy priorities, response actions and targeted and positively affected ISED Priorities Securing stable, uninterrupted and affordable energy supply of the economy and households Targeted Indicators 11. Energy mix 3: End-use energy prices with and without tax/subsidy Response Actions Diversify energy supply Increase share of renewables in fuel mix Increase share of nuclear in fuel mix Include externalities in full cost of energy Eliminate energy subsidies except for the poor population Provide energy subsidies to the poor population Positively Affected Indicators as numbered in ISED list. 15, 18 15, 18, 20-32, , 28-30, 34, 36, , 9, 10, 13,-16, 18, , 9, 10, 14-18, 23-24, , 40, 41

42 Priorities Increasing energy efficiency Energy policy priorities, response actions and targeted and positively affected ISED Targeted Indicators 3: End-use energy prices with and without tax/subsidy Response Actions Introduce taxes on polluting fuels (other response actions are given above) Positively Affected Indicators as numbered in ISED list. 5-7, 9, 10, 14-16, 18, ,8: Shares of sectors and subsectors in GDP value added Optimize economic levels through reducing shares of energy intensive sectors/manufacturing industries 9, 14-18, 23-24, : Energy intensity of economic sectors and selected energy intensive products 12: Energy supply efficiency Decrease energy intensities through end-use energy efficiency improvement Increase efficiency of energy supply, in particular in electricity generation 14-18, 21-34, , 23-29

43 Energy policy priorities, response actions and targeted and positively affected ISED Priorities Developing the energy resource base Targeted Indicators 11: Energy mix Response Actions Diversify energy supply Positively Affected Indicators as numbered in ISED list. 15, 18 15: Expenditure on energy sector Increase expenditure on hydrocarbon exploration and development 17, 18, 36, 37

44 Priorities Declining the negative environmental impact of energy system. Energy policy priorities, response actions and targeted and positively affected ISED Targeted Indicators 13. Status of deployment of pollution abatement technologies 15. Expenditure on energy sector Response Actions Improve performance of pollution abatement technologies Extend use of pollution abatement technologies Increase expenditure on radioactive waste management. Positively Affected Indicators as numbered in ISED list Generation of solid waste 31: Generation of radioactive waste from nuclear power fuel chain 33. Land area taken up by energy facilities and infrastructure 40. Intensity of use forest resources as fuelwood Increase expenditure on waste management. Increase expenditure on air pollution abatement Decrease amounts of waste through recycling and reuse Decrease amounts of radioactive waste through its recycling, treatment and conditioning Extend protected area as a prevent of total land area Extend managed forest area , , 33, 36, 37 32, 38,39 40, 41 41

45 The main negative trends within the list of ISED available data on GDP per capita exhibit declining trend; end-use energy prices demonstrate a constant growth but not stimulate so far energy conservation and environmental protection activities, energy subsidy still exist; energy intensities both separate sectors of Russia s economy and selected energy intensive products are still high; decline in GDP, primary energy production and consumption (including consumption per capita) has been accompanied by increase in energy use per unit of GDP, therefore Russia s economy has become more energy intensive; sharp lack of investment takes place in the FEC ( it concerns practically all energy industries); payment for energy bill have been getting more and more heavy financial burden for the poorest part of the population; the main environmental indicators reflecting negative influence of energy development on the environment (in particular air pollutant emissions) used to demonstrate some decline, mostly connected with reduction in energy production and consumption (but not with environmental protection policy); low energy supply efficiency takes place (high distribution losses); despite of a large energy resource base, additions to explored domestic proven recoverable fossil fuels reserves were below the production volumes.

46 The main positive trends within the list of ISED services sector growth in GDP value added and simultaneous decline of industry s share; increase of export potential of Russia s energy (share of net export in TPES); high share of CHP in electricity and heat generation. The effectiveness of energy policy needs in serious improvements in order to ensure sustainable energy development in the long-term prospect. These improvements are included in the action plan within Russia s Energy Strategy.

47 Implementing the energy policy priorities. Ensuring energy security modernization and refurbishment of technological base of the FEC, as well as compensation for the loss of productive capacities and correlation between explored domestic proven recoverable reserves of fossil fuels and production volumes.lack of investment will not allow to ensure a large-scale construction of new capacities in the current decade. In this connection the priority will be given to technological modernization of existing capacities, prolongation of their life time; Structural change in energy consumption directed to increasing share of hydro and nuclear power, renewables and coal (based on clear coal technologies), and diversification geography of hydrocarbons production (from West Siberia to East Siberia, Far East, northern regions of European part, Caspian region).

48 Implementing the energy policy priorities Securing stable, uninterrupted and affordable energy supply of the economy and households. compensating end-use energy prices growth through increasing personal income of country s population; creating effective system of social protection of the poorest part of population; ensuring effective use of budget financial means aimed at social protection and technical modernization and development of energy supply systems and strict control for their spending. Strengthening personal responsibility for breaking or interrupting energy supply

49 Implementing the energy policy priorities. Increasing energy efficiency strengthening existing norms and standards defining specific volumes of fuel and energy consumption in various sectors of domestic economy. Introducing these norms and standards for buildings (it concerns first of all heat efficiency standards) and a number of residential electric appliances (in particular for refrigerators, consuming about 50% of total electricity in residential sector) has already given promising results; Improving policy in energy prices and taxes; ensuring control of energy use efficiency in industry (in particular through regular energy audits); organizing information and educational programmes for various categories of the consumers; creating workable and effective financial incentives; enhancing activity in R&D aimed at creating and introducing advanced energy efficient and environmentally sound technologies. introducing advanced financial schemes of energy efficient projects implementation.

50 Implementing the energy policy priorities. Development the energy resource base exploring new oil and gas fields; creating new, efficient and environmentally sound technologies of fossil fuels extraction directed at increasing productivity of fuel production and decreasing fuel cost; improving legislative base, especially in the field of licensing; creating favorable investment climate in the fuel producing sector. Enhancing activity in involving local and renewable energy sources in the fuel and energy balance.

51 Implementing the energy policy priorities. Declining the negative environmental impact of energy system development of scientific R&D into environmentally secure technologies for energy production, transportation, processing, and use; transition from the techniques for pollutant release, disposal, and recovery to the elimination of such pollutants through the introduction of modern technologies, minimization of wastes, and reduction of energy facility land alienation; development of unified, industrywide norms and rules, normative and technical documents and standards, regulating environmental protection and rational nature management; certification and licensing management with regard to innovative domestic and foreign technologies, equipment and materials that meet current environmental requirements.

52 Thank you for your attention!