Fourth energy transition: what awaits Russia and the world

History of transitions and situation around the world

Let’s analyse previous transitions. The first one was from biomass (firewood) to coal, which became the main energy source, thanks to steam engines. We see today’s all industry precisely thanks to coal, it was a driver of industrialisation around the world.

The second transition was from coal to oil, thanks to the appearance of the internal combustion engine and the appearance of fuel made of oil. This transition gave us petrochemistry and, as a consequence, plastic whose role in the modern economy cannot be underestimated.

The third energy transition became possible thanks to the introduction of natural gas in the industry and energy in the form of gas turbines. This by far cheapened the price of energy for manufacturers and helped to propel the culture of consumer society to a new level whose environmental damage threatens with destroying all the planet’s ecosystem in the next few centuries. A mere 150 years ago, humankind made an amazing technological breakthrough and put itself in a vulnerable position where it will have to choose between the future of our descendants and unbridled consumption, without looking back at the harm done to the system. It is pleasant to see that the world’s leading countries realised this moment and take measures, other countries will follow them, they will simply have no choice.

The main distinction of the fourth transition is that instead of one technological revolution like it was before, there is a whole range of technological breakthroughs in energy efficiency and a reduction in carbon dioxide emissions (renewable energy sources, hydrogen, accumulators, carbon fixation). Structural changes of the economy and technological progress allowed breaking away from higher energy consumption to provide production and economic growth as a consequence. Primary energy consumption amounts stabilised in many economies of the world, even in China. However, GDP’s growth pace remained.

The RE100 initiative where the world’s 226 large companies change their requirements for energy supply — a full transition to renewable (IKEA, 3M, Danone, Decathlon, eBay, Coca-Cola, Google and many others) — is interesting.

Programmes designed to reduce greenhouse emissions are adopted and implemented in the EU, Asia, North America — quotes on emissions, carbon taxes, internal combustion engines are banned, there are clear plans for introducing renewable energy sources. There was set a goal of achieving the so-called “climate neutrality” by 2050 — to equalise emissions and carbon dioxide absorption. By 2030, the EU plans to reduce coal consumption by 70% and oil and gas by 30% compared to 2015. China announced its plans to become carbon neutral by 2060. The country has introduced a system of emissions trading since 2021. Japan and South Korea plan to achieve the neautrality by 2050.

What awaits Russia?

According to different forecasts, fossil fuels will prevail in the world’s energy consumption pattern through 2040. After that, the dominance will be lost. All this leads to a logical question — what should Russia do? We are one of the world’s largest hydrocarbon suppliers, and our GDP directly depends on feedstock exports. Weaponry supplies aren’t enough. Tough times are looming for Russia. The country isn’t ready and keeps living under the illusion, the severity of the situation isn’t echoed on the news agenda. It is much easier to discuss the next geopolitical twists and turns, which are worthless on a global scale. While the survival of our descendants remains a matter of their own and the Russian Pension Fund’s conscience. So what are the main problems?

We should note that our economy and administration system isn’t ready for a dramatic decrease in carbon dioxide (the so-called decarbonisation) and the energy transition. An energy strategy through 2035 envisages a rise in exports of oil, gas, coal. Moreover, the strategy doesn’t contain tasks of replacing fossil fuels with green sources in the domestic market. It is no surprise because we have a huge amount of gas turbines in all the sectors, not only in energy. It will be incredibly hard to change the paradigm.

There isn’t a nationwide system of information collection on greenhouse emissions and climate change, there aren’t systems tracking companies and their products’ carbon footprint. The absence of quotes on emissions and fixed prices for them doesn’t give companies any stimulus for changes. It is always easier to follow the old course. If we have a transition, it will happen using the stick approach at the top, by means of draconian fines and regulation.

The main problem and threat of the energy transition are for companies of the Russian Fuel and Energy Companies. A dramatic reduction in global hydrocarbon consumption will bring to smaller production in the sector, which employs a lot of workforce. Moreover, there is an entire network of related areas. As a consequence, the amount of taxes paid to the budget will also go down. The scale of the effect of the fourth energy transition was calculated, and in the most moderate option it envisages a 1,1% fall in the average annual GDP growth pace. While this is already the whole amount of our annual growth for many years. The decline in exports of energy resources in the moderate option will total 16% by 2040.

Despite all this negativity, there are positive things too that can amend the situation. The Russian domestic energy balance isn’t that bad compared to many countries of the world. Nuclear power holds 19%, hydropower has 18% and those renewables account for 1%. So the total share of “clean” energy from renewable sources is 37-38%. The carbon footprint in electrical energy generation is lower than in the EU, USA, China, Australia, India. Of course, mainly thanks to using natural gas and hydropower we have talked about above.

Further accelerated funding for the Fuel and Energy Complex in hydrogen technologies at the expense of yet export revenue could be a solution. A hydrogen energy development programme considering the development of railway transport running on hydrogen, gas turbines using methane and hydrogen fuel, the creation of test sites for low-carbon hydrogen production on top of all was adopted in late 2020.

Given its carbon neutrality, hydrogen is designed to replace coal and oil products. The world has colossal demand for green hydrogen (made thanks to renewable) and low-carbon hydrogen (produced from fossil fuel). If Russia does this on time, we can occupy a good niche in this market, since there are all conditions to produce both types of hydrogen. Huge reserves of resources (gas, coal, water) together with a big stock of generating capacities will give Russia a chance of producing hydrogen with the help of different methods, for instance, steam methane conversion and electrolysis with the energy of nuclear and hydropower plants (clean sources). Our country’s geography also plays into our hands, as the EU and Asia are the main outlets.

Hydrogen production in Russia from 2010 to 2019 tripled and reached 1,95 billion cubic metres. Chemical and petrochemical, oil refining enterprises are the major consumers. The energy strategy through 2035 focuses on developing hydrogen exports and turning into the world’s leader, 2,2bn cubic metres in 2024 and 22,2bn cubic metres in 2035.

Our feedstock moguls are already implementing several projects in this area — Gazprom plans to build a plant to manufacture low-carbon hydrogen from gas at the intersection of two Nord Stream branches. Novatek is modernising a thermal power plant, which is supplying Yamal LNG plant with electrical energy, a gas turbine will be adjusted to use hydrogen as fuel.

In conclusion, I would like to say that despite quite negative forecasts for Russia’s economy in the light of the upcoming energy transition, it is up to us. We have around 7-10 years to catch up with the process both legally inside the country and technologically. I think it is necessary to oblige companies of the Russian Fuel and Energy Complex to invest in “clean” sources and products by motivating them with export. We can avoid a collapse in the budget in 20-30 years only this way. It is becoming a bit fearful for our children — what climate they would live in, if there will be jobs in the country, pensions and so on depends on our actions today. Climate issues for some reason make our public in general giggle. I would advise supporters of such an approach to have a look at this through the prism of the economic future of their children. It won’t be possible to sell gas, oil, coal forever. The world has changed.