The “shutdown” of coal

A decrease in the share of coal in the energy balance is a global trend in recent years. It seems that Russian energy companies also began to recognize the importance of this process: Irkutskenergo got engaged in assessing the prospects for the sale of its coal assets.

Experts call 2016 the turning point in the history of coal power industry. After the adoption of the Paris Agreement, about a hundred of the largest banks that own a tenth of the world’s capital, appealed to businesses to abandon investment in coal.

Energy and utilities around the world are gradually shifting to green energy. Experts  alert: coal industry facilities are turning into “dead assets” and the time has come to get rid of them. In the next 10 years, France, the Netherlands, Great Britain and Canada intend to completely abandon coal energy. In the Eurelectric association, representing the interests of 3,500 European energy supply companies with euro 200 bln-worth assets, this decision is seen as essential and strategic.

Representatives of Irkutskenergo so far refrain from direct comments on the reasons for the possible abandonment of its coal assets. However, the statements by the International Financial Reporting Standards (IFRS) indicate that “the company is analyzing the possible options for the strategy on coal and energy assets in the Irkutsk region” as part of its commitment to minimize carbon dioxide emissions.

Irkutskenergo is not the only company to seek for reduction of fossil fuel generation. Similar trends have been observed at the Fortum Energy Concern. Enel Russia also announced its intention to close the deal for the sale of coal-fired Reftinskaya TPP by the end of 2020. “Thus, the company is also gradually clearing its portfolio in the RF, abandoning coal generation and simultaneously increasing green generation volumes,” Kommersant notes.

Abandoning fossil sources, especially coal, is central to determining the development vector of not only Russian power production. “The BRICS governments (Brazil, Russia, India, China, South Africa) need to start preparing their budgets for avoiding the consumption of fossil fuels,” the authors of the study “Beyond Fossil Fuels: a Fiscal Transition in BRICS” prepared by the International Institute for Sustainable Development (IISD) came to this conclusion. 

Based on a review of the BRICS fossil fuel revenues and subsidies, the report considers the prospects for moving to a budget outside of fossil fuels. The authors of the study cite data: Russia provided $ 6 billion in fossil fuel subsidies in 2017. At the same time, taxes and other kinds of revenues from the production and consumption of fossil fuels amounted to 23.6% of the total state revenue of Russia. 

According to experts, it’s time to stop subsidies, and BRICS countries should use their revenues from the fossil fuels to help strategically diversify the economy and cover the social costs of the transition period, including for vulnerable groups of consumers, workers and communities that are currently dependent on fossil fuels. “Governments whose budgets depend on fossil fuels may face an unexpected deficit if they do not begin to use fiscal policies to switch to renewable energy and reduce social risks,” experts say. “The technological revolution and the shift of world priorities towards low-carbon development are already producing a serious impact on the socio-economic development of hydrocarbon exporting countries, and may lead to internal political changes in them, as well as to an increasing geopolitical confrontation.” 

At the 2010 G20 summit, the RF promised to reduce inefficient energy subsidies, but the whole thing never got further than discussions: subsidies still make a significant share of the budget. “Representatives of the coal, oil and gas industries are increasingly putting pressure on the authorities to receive subsidies,” explains Kyel Kühne, co-author of the IISD study.

 “The level of awareness of the risks of international climate regulation in Russia is still quite low,” says a study by economists at the Higher School of Economics (HSE) and the Massachusetts Institute of Technology. “In order to adapt to the new energy landscape, the country needs a gradual change in the model of economic growth, diversification of the economy and the development of a comprehensive development strategy that defines its new position in the global economy.”

Representatives of Russian non-governmental organizations believe that the time has come for “switching” from fossil sources to renewable sources. As follows from the Statement  of Russian non-governmental organizations for the Conference of the Parties (KS-25), the RF needs to adopt a “national low-carbon development strategy until 2050, which should correspond to the global environmental transition to carbon-free energy by the middle of the 21st century, and provide for an early abandonment of the use of coal and in the long term, a decrease in dependence on all types of fossil fuels. The strategy should be focused on the development of renewable energy sources, but include no increase in the share of nuclear power plants and large dam hydroelectric power plants in the country’s energy balance.”