Energy transition may hit Russia in the pocketbook, warns finance minister

(Bloomberg) --Russian Finance Minister Anton Siluanov warned the Kremlin needs to brace for falling revenues after a stress test showed the global clean energy push could lead to a significant decline in demand for fossil fuel exports.

Modeling done by his ministry showed carbon pricing and the rise of renewable energy could cause “radical changes in the global energy balance,” Siluanov said in an interview before he travels to a Group of 20 financial summit this week in Venice.

“A big share of our budget revenues come from exporting commodities, so we need to understand how we’ll replace falling revenues if these forecasts prove accurate,” Siluanov said.

His comments come amid a shift in Russian rhetoric about global warming and as the European Union is preparing to introduce a new carbon tax on its border. President Vladimir Putin has evolved from a skeptic to acknowledging this year climate change is caused by human activity.

However, cutting Russia’s carbon addiction will not be easy. Russia is the world’s biggest energy exporter and the oil and gas industry is expected to contribute over 40% of government revenue this year.

The Bank of Russia estimates that an impending EU carbon border tax could cost Russia as much as 8.2 billion euros ($9.7 million) a year. The country’s Energy Ministry said domestic oil and gas firms could lose $4 billion a year from the measures, which will be phased in starting from 2023.

Russia continues investing heavily in its energy industry, including state-owned Rosneft PJSC’s massive new Vostok Oil project in the Arctic that will target Asian markets. Government projections foresee keeping oil production for the next decade near a record high reached before the pandemic.

The Finance Ministry is discussing a package of tax and tariff measures that should help the Russian economy and budget adapt “as painlessly as possible” to the tightening rules of carbon regulation, according to Siluanov.