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COP26: Russia’s bid to reach carbon neutrality by 2060


COP26: Russia’s bid to reach carbon neutrality by 2060

Russia's aim to be carbon neutral by 2060, announced by President Putin in the run-up to the COP26 climate meeting, will require the restructuring of its economy, which is currently heavily dependent on oil and gas revenues - S&P Global

Major changes to energy strategy are expected, with the focus likely to be on increased nuclear and renewables power, implementing more carbon capture and storage, and developing significant hydrogen production and export projects.

Russian oil and gas producers, mainstays of the country's economy, have signalled their willingness to change to some extent, with significantly increased cleaner energy targets. These include Rosneft's plan to cut upstream emissions intensity by 30% by 2035, as well as Lukoil's target of reducing greenhouse gas emissions by 20% by 2030, compared to 2017 levels.

However, there is a sense that it is climate legislation in Russia's key European market, and Western majors' adoption of climate targets, that are spurring the changes in Russia's development, with many voices in the country warning that prioritizing energy transition to the point of underinvesting in traditional fossil fuels raises the risk of greater market volatility.

Analysts expect that key features of the country’s plan will centre around increasing Russian forests' CO2 absorption capacity, increasing efficiency, and carbon capture and storage.

Vladimir Drebentsov, chief advisor to the director general of the Russian Energy Agency (RosEnergo) said that EU approval of the Green Deal and CBAM has raised a lot of concerns on the Russian government.

Russian officials continue to warn that underinvestment in traditional fuels, and the unpredictability of renewables, increase the risk of market volatility, seeing these as key factors underpinning the current European energy crisis.

Rosneft CEO Igor Sechin noted that the global deficit in investment needed to meet oil demand may total $135 billion in 2021-2025.

Only a reasonable balance between traditional and renewable energy can ensure sustainable long-term growth of the global economy

Igor Sechin, CEO of Rosneft

One way that Russia is planning to protect against the economic impact of the declining use of fossil fuels is to develop a significant hydrogen industry, targeting 20% of global market share by 2030, according to a government roadmap. The country plans to invest over Rb9 billion, equivalent to around $127 million, on hydrogen projects over the next three years, and export plans include shipments of 2 million mt/year by 2035, and 15-50 million mt/year by 2050.

Hydrogen will be produced from nuclear and renewable sources, but analysts expect natural gas to play the biggest role in production, due to Russia's vast gas reserves. Russia is targeting Europe and Asia as key export markets. It plans to create at least three hydrogen clusters -- in the northwest for European exports, the east for Asian supplies, and the Arctic for domestic consumption and potential exports.

Platts Analytics forecasts that Russian hydrogen production will amount to 3.4 million mt in ammonia and 2.7 million mt in refining in 2021. It expects these volumes to increase to 3.8 million mt and 3.1 million mt respectively in 2025.

To mitigate this risk of the EU not accepting the environmental credentials of Russian blue hydrogen, the country is investing in ways to reduce the carbon impact of blue hydrogen, including the use of pyrolysis in production, as well as shipping gas for lower-carbon hydrogen production to facilities with good access to power generated from renewables.

The Russian energy ministry argues that with carbon capture, up to 90% of emissions from gas-based hydrogen can be eliminated.

The country is currently in talks with foreign partners on hydrogen cooperation, including companies in Asia, Western Europe, the Middle East, and Australia. In recent months Russian officials have held talks with their counterparts from the UAE and Saudi Arabia on joint projects.

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