Energy transition scenarios in Russia: effects in macroeconomic general equilibrium model with rational expectations
Andreyev M., Nelyubina A.
Energy transition is a significant shift from ‘brown’ to ‘green’ energy sources in the structure of energy consumption. For fossil fuel-rich countries, there are additional challenges to the energy transition: loss of export earnings as global demand for fossil fuels falls, and the need for inefficient shifts in domestic production structure when adjusting to a net-zero emission economy.
The study shows that, indeed, in any energy transition scenario, the fossil fuel exporter loses wealth. Nevertheless, the macroeconomics of the exporting country allows for the implementation of energy transition scenarios. Calculations based on the general equilibrium model indicate that the scenario of decrease in external price of ‘brown’ energy exports is the least preferable scenario in the sense that, firstly, it leads to the greatest drop in welfare, and secondly, active reorientation of ‘brown’ exports to the domestic market completely hinders the energy transition. The scenario of imposing higher taxes on brown energy leads to a much smaller decrease in public wealth. The paper shows that the scenario of increasing taxes on domestically used brown energy, in which green producers receive subsidies (consistent with the current practices within the Russian Power System), results in a smaller decrease in public wealth and a faster energy transition than in the case of the taxation of all brown energy, including the energy supplied abroad. Finally, the most favourable scenario leading to the smallest drop in public wealth and long-term growth in output and consumption involves the productivity incentives in the green energy sector.
The study also shows that the energy transition process cannot be driven by promises and beliefs about implementation of green policies in the future, although such promises lead to the accumulation of green capital in advance.