SPIEF 2018 was held under the slogan “Building a Trust Economy,” and this year reached new heights, both in terms of scale and results. With its numerous achievements, it would be fair to call it an innovative, technological, and indeed breakthrough event.
“In spite of the sanctions imposed by a number of countries, the St. Petersburg International Economic Forum demonstrated that Russia is a land of opportunity. The 17,000-plus participants arriving from 143 countries is testament to that fact. Over the past few years, SPIEF has developed to become an international platform, with its main achievement being the creation of a space where the spirit of trust prevails. Trust is a key asset in the business world, and discussions at the Forum focused on this crucial aspect,” said Advisor to the President of the Russian Federation and Executive Secretary of the SPIEF Organizing Committee Anton Kobyakov at the event’s closing press conference.
Guests from every continent, and representatives from international organizations such as the UN, IMF, OPEC and others spoke ever more profusely on the need to operate in a single economic space and find new areas of common ground in a changing world. President of France Emmanuel Macron was one of the honoured guests at the Forum. He commented that “Russia must have a leading voice in the Council of Europe.” He also expressed the belief that Russia and the EU’s united approach to the inviolability of underlying multilateral agreements in international politics was a key factor for the world today.
Prime Minister of Japan Shinzō Abe commented, “The slogan of our Forum this year is ‘Building a Trust Economy.’ It is my belief that we can deem Japan and Russia as together engaged in building this economy of trust… We now stand at a historical turning point; the path we should take and efforts we should make are all entirely clear. It is working for future generations in Japan and Russia. It is Japan and Russia becoming a major force for safeguarding and fostering regional and global prosperity for the Japanese and Russian peoples, further deepening their relationship, mutual trust, concluding the peace treaty and building up lasting peace and stability between our two nations.”
Speaking at the Forum plenary session, Christine Lagarde, Managing Director of the International Monetary Fund, noted that “Russia has put in place an admirable macroeconomic framework – saving for a rainy day, letting the exchange rate float, introducing inflation targeting, and shoring up the banking system.”
“This year, the Forum has come to resemble a crossroads of civilizations. Only at SPIEF has everything been put in place to ensure that discussions are open, as opposed to politically charged. It is where participants from various countries and growing economies discuss economic issues. There is no place in the world other than SPIEF that provides such an opportunity, which is why we have seen the numbers of participants grow from year to year,” said Anton Kobyakov.
During this year’s St. Petersburg International Economic Forum, over 3,000 flights arrived at and departed from Pulkovo Airport, including over 800 private flights. By way of comparison, SPIEF 2017 saw over 2,500 flights, including over 700 private flights.
The main programme incorporated over 150 business events across the Forum’s numerous venues. These events were split into four distinct themes: “Technology for Leadership,” “Harnessing Russia’s Growth Potential,” “Human Capital in the Digital Economy,” and “The Global Economy in an Era of Change.”
The Forum’s central event was the plenary session, featuring President of the Russian Federation Vladimir Putin. He commented: “Today what we need are not trade wars, or even temporary trade armistices, but rather a fully-fledged trading world. The slogan of this year’s Forum in St. Petersburg is ‘Building a Trust Economy’. I am convinced – and experience bears this out – that the role of trust as a factor affecting development will grow further.”
Events Held On the Eve of SPIEF
In the run-up to the FIFA World Cup, SPIEF held a special event entitled “From the First to the Twenty-First” for officials and business figures from Latin America and the Caribbean. In a ceremony broadcast live on Russia 24, television presenter Sergey Brilev handed a capsule of earth from the Estadio Centenario to the government of St. Petersburg. The Estadio Centenario in Montevideo (Uruguay) has a special place in global football history as the stadium that hosted the first World Cup in 1930.
23 May also saw the “Australia–Russia Business Re-connection: How and Why?” business breakfast take place for the first time. The event was organized by the Roscongress Foundation’s partners in Australia: the Australia–Russia Dialogue Forum and the ADC Forum. Later on, a business lunch took place entitled “Development of Trade and Economic Cooperation between the EAEU and ASEAN. Russia’s Role in the Process.” The event was attended by business representatives from EAEU and ASEAN.
The discussion platforms Russian Small and Medium-sized Enterprises Forum (SME Forum) organized by the Roscongress Foundation together with All-Russian Non-Governmental Organization of Small and Medium Business OPORA ROSSII and the SME Forum partner Russian Small and Medium Business Corporation saw lively debates on business practices, some of which were held in a new, interactive format. The topic of small and medium enterprise continued as part of the main SPIEF 2018 business programme.
This was the third year that issues related to women in business also took centre stage on the eve of SPIEF 2018. An international forum entitled “Increasing the Contribution of Women to Economic Growth and Prosperity: Creating an Enabling Environment” brought together around 200 female participants representing the Russian regions.
Elsewhere, the Chamber of Commerce and Industry of Leningrad Region’s “Women as Leaders” conference saw animated discussions on the involvement of women in a changing economy.
The initial discussions on these topics will continue in just a few months’ time, with St. Petersburg hosting the Second Eurasian Women’s Forum on 21–22 September.
Officical SPIEF Programme
The official opening ceremony took place on the first day of the Forum – 24 May. Welcoming addresses were given by Governor of St. Petersburg Georgy Poltavchenko, and Under-Secretary-General of the United Nations Achim Steiner. Poltavchenko made assurances to Forum participants that Russia has been and will always remain a reliable partner.
In total, 68 business events took place that day in various formats. Topics under discussion included digitalization, the future of the labour market, energy, and a breakthrough in the Far East. Participants at the Valdai Discussion Club session focused on the effect the crisis in international relations is having on the global economy, and possible ways to resolve the standoff between Russia and the West. The first day ended with a discussion on smart cities.
Issues concerning international cooperation came under focus on the second day, which also saw a number of business dialogues between countries take place. Participants identified new opportunities for implementing joint projects, modern mechanisms by which to promote exports on overseas markets, and ways to cooperate on removing administrative barriers. The business programme for 25 May included 51 events. The highlight was the plenary session, featuring President of the Russian Federation Vladimir Putin, President of the French Republic Emmanuel Macron, Prime Minister of Japan Shinzō Abe, Vice President of the People’s Republic of China Wang Qishan, and Managing Director of the International Monetary Fund Christine Lagarde. Furthermore, country’s leaders conversed again during Russia–France and Russia–Japan bilateral dialogues. Additionally, Vladimir Putin met with the heads of world’s information agencies and a held a meeting with the leaders of international companies.
Events took place as panel sessions, roundtables, and business dialogues. They provided platforms by which leading specialists, experts, and politicians could discuss topics such as the resources and economy of the Global Ocean, the potential of the Arctic, and the in-demand technologies of the future.
The closing day of the Forum saw 41 events take place, including 22 events held as part of the International Youth Economic Forum – a permanent SPIEF fixture for the younger generation. The day began with a business breakfast for representatives of the IT industry. According to those present, as much as 20% of global GDP today is tied to digital transformation, making it perilous to underestimate its impact. On the same day, American Chamber of Commerce in Russia and EY unveiled the results of a joint study on trade and economic ties between Russia and the USA.
The B20 Regional Consultation Forum was a special event at SPIEF 2018, and saw participants discuss recommendations for G20 leaders for the forthcoming summit in Buenos Aires, which will take place this year from 30 November to 1 December.
In what has now become tradition, SPIEF hosted the presentation of the results of the Russian Regional Investment Climate Index for the fourth time. Tyumen Region climbed five places to convincingly take first position. Completing the top five were Moscow, Tatarstan, Leningrad Region, and Tula Region.
The Roscongress Foundation is a socially oriented non-financial development institution that puts a special emphasis on the health care in the Russian Federation, including improving the quality of life (creating the system of long-term care for senior citizens, developing palliative care in Russia, promoting healthy life style, etc.).
SPIEF 2018 held a number of sessions and interviews on increasing life expectancy that brought in representatives of the Government of the Russian Federation, as well as Russian and foreign experts.
Investing special effort in this area, the Roscongress Foundation strives to become the leading single platform for discussing national goals, objectives and priorities to improve the quality of life in Russia (in accordance with Executive Order of the President of the Russian Federation “On National Goals and Strategic Objectives for Development of the Russian Federation through to 2024” dated 7 May 2018).
The global character of SPIEF was made even more apparent – and the communication platform even more attractive for talks – by the number of major projects and agreements that took shape. As of 30 May, 593 agreements had been signed at SPIEF, worth a total of RUB 2.625 trillion (counting agreements where the figures were not classified as commercial secrets).
The biggest of these were the following:
- A strategic cooperation agreement between Rosneft, Vnesheconombank and VEB Leasing worth up to RUB 400 billion for financing projects and providing leasing services.
- An agreement of intent between the Eurasian Development Bank and Belkomur Interregional Company to form a syndicated loan of up to RUB 278 billion to fund the construction of the Belkomur railway line.
- Several long-term contracts with a total value of USD 2.1 billion between Rosneft and 12 importing companies based in Mongolia for the supply of petrol and diesel fuel.
- An agreement worth USD 1.5 billion to construct a natural gas processing plant in the town of Ust-Luga (Leningrad Region), signed by the Russian Direct Investment Fund, the Japanese company Marubeni Corporation, the Baltic Gas Chemical Company, and Invasta Capital. The plant, which will convert natural gas to methanol, will have a capacity of 1.7 million tonnes per year.
- An agreement between Nizhnekamskneftekhim and Deutsche Bank (Germany) to open a credit line of EUR 807 million, to be provided by a consortium of five European banks.
In addition, the Roscongress Foundation signed cooperation agreements with the Association of Lawyers of Russia and 21 Russian federal subjects: the Leningrad, Kaliningrad, Kirov, Murmansk, Novgorod, Penza, Pskov, Rostov, Ryazan, Samara, Saratov, Sverdlovsk, Tver, Tomsk, and Chelyabinsk Regions, and the Republics of Adygea, Altai, Buryatia, Karachaevo-Cherkess, Crimea, and Khakassia. The aim of the agreements is to build collaboration between the parties on raising the investment attractiveness and export potential of the regions.
The Roscongress Foundation’s international partner network is continuing to increase. SPIEF 2018 saw the signing of agreements with the Association of European Businesses; the Federation Of Pakistan Chambers Of Commerce & Industry; the Union of Chinese Entrepreneurs in Russia; the ASEAN Business Club, the Norwegian-Russian Chamber of Commerce; the Mexican Business Council for Foreign Trade, Investment and Technology (COMCE); the General Confederation of Entrepreneurs of Argentina; the Croatian Chamber of Economy; the Israeli Russian Business Council; the Polish Investment and Trade Agency; the Ladies in the Frontline business association, MEDEF International; the Boao Forum for Asia; the Moscow Centre for International Cooperation; and the Centre for the Development of Women’s Entrepreneurship.
A number of agreements with charity and socially oriented organizations has been signed as part of a plan to develop the social platform launched by the Roscongress Foundation.
The agreements cover cooperation within the social development sphere.
Additionally, agreements have been signed with sports organizations, such as the Russian Golf Association and the Golf Estate Management Company. This cooperation will focus on running sporting programmes for economic forums, including golf tournaments held at Peterhof Golf Club under the aegis of the St. Petersburg International Economic Forum to promote sport, both in the corporate sphere and among the general public.
Other organizations to sign cooperation agreements with Roscongress were the Central Union of Consumer Societies of the Russian Federation; the Boris Yeltsin Presidential Library; Rosconcert; Rostelecom; VSK; MZS and Partners; the Deposit Insurance Agency; the Water Supply and Treatment Cluster Management Company in St. Petersburg; SVEKO FSUE; and Electrificatciya PJC.
In 2019 under the auspices of the United Nations Organization Russia will host the Global Manufacturing and Industrialization Summit (GMIS). The event will take place at the INNOPROM venue in Yekaterinburg. The appropriate agreement has been signed during SPIEF 2018.
Importantly, an agreement was signed between the management of the Made in Russia national brand and Novgorod Region to work together on promoting the Novgorod Rus regional brand. An agreement with Zenden Group will result in the establishment of Made in Russia’s first regional office, also in Novgorod Region.
International Youth Economic Forum (IYEF)
Following the decree of the President of the Russian Federation on establishing an on-going youth platform during SPIEF, the Forum hosted the International Youth Economic Forum (IYEF) organized by the Roscongress Foundation and the Federal Agency on Youth Affairs (Rosmolodezh). During the event young leaders of local and international business discussed contemporary challenges and awarded the winners of the All-Russia competition My Country – My Russia.
IYEF brought together graduate and post-graduate students from more than 15 Russian universities, including St. Petersburg State University, Moscow State Institute of International Relations, Higher School of Economics, National University of Science and Technology MISIS, Russian Social University, People’s Friendship University of Russia, St. Petersburg State University of Economics, etc.
The youth platform created by the Roscongress Foundation together with partners allows future managers to take part in the forum with no participation fee. They get a chance to network with big business representatives and hear their success stories. Direct communication between different generations helps raise future entrepreneurs, foster international relations, and get acquainted with potential employers. Within the next five to ten years the entrepreneurs return to the Forum as new participants ready to share their experience, eager to represent their company on the international level, and take part in the international global processes.
A great example of SPIEF 2018 of the latter is presence of opinion leaders from academic, business and media environments from G20, BRICS and EEU invited by the Russian Centre for Promotion of Internal Initiatives supported by the Roscongress Foundation and the Government of St. Petersburg. Among them were the participants of the meeting of President of the Russian Federation Vladimir Putin with youth G20 leaders at SPIEF 2013. During this brief period they managed to find their way in politics and business and now they head various youth, research and civic organizations. Five years later young leaders meet in St. Petersburg again.
Youth agenda at SPIEF 2018 included meetings with officials, representatives of international companies, members of business communities, and experts. Young leaders of G20 and EEU held a series of brainstorms about the place Russian economy occupies in the global world, and about the future of digital economy. Additionally, they discussed creating a youth entrepreneurial network that would help develop horizontal interaction of G20 and EEU young leaders, as well promote business projects among the SME participants.
Biden’s shift from neo-liberal economic model
Mercantilism; which was the ‘Hall of Fame’ from 15th-18th Century had emerged from the decaying of feudal economic system in Europe. It was initially started from the Mediterranean trade in bullion on the cities like Venice, Genoa and Pisa. In the course of history, this idea was challenged by the writings of John Lock’s Second Treatise of Government and A Letter Concerning Toleration with larger than life of Adam Smith’s, The Wealth of Nations of 1776—gave rise to Classical Liberalism. This idea also even started shaking during the 1930s followed by the Great Depression. The Keynesian economic model came to escape the consequences of this Great economic shortfall till 1970s. Afterwards, Neo-liberalism was the ‘lifeline of the global economy’. Soon, this also diminished from the rapid financialization and globalization process of 1990s. The financialization, which was the ‘Heart of the Town’ till 2008; devastated by the 2008 financial crisis. The US government rescued this crisis via Dodd-Frank Act and greater stimulus package to economy. And, lastly current COVID-19 pandemic crisis is much more powerful than that of 1930’s Great Depression or any other crisis in observable history. To cope of with this crisis, Biden administration is rescuing the economy with comprehensive stimulus package by challenging the internationally accepted fundamental economic model.
Today, Keynesian economic model is taking shape in the US. The central theme of Keynesian theory —measured as the sum of the spending by households, business, and the government; which Biden is doing so by $640 billion housing plans over 10 years to provide affordable, safe housing for all individuals, by increasing tax for corporations and high-income filers by $3.3 trillion. In addition to this, he is creating massive government spending ($2trillion) on infrastructure for job creation, spending on public goods( health care, education, job, security, child care), and less interested in fiscal deficits and his more critical view on an unregulated market controlled by big corporations. These steps of Biden correlated with that of the Keynesian economic model (the model which remained ‘talk of the town’ from WWII to the 1970s). Following this, new Washington Consensus is born against the low levels of government spending, minimizing fiscal deficits, nonintervention, and deregulation in the market, and liberations of trade and foreign investment. All these ‘values’ are undermined by the current Biden administration.
The world economy is in the same historical place as that of WWII followed by the great depression comparing today of the COVID-19 pandemic. So, whenever there is an unprecedented shock on capitalism; it has always transformed itself within. From the Mercantilism(16th-18th Century), Classical liberalism, Keynesian/ neoliberalism, and financialization–capitalism has survived astonishingly. This new ‘Bidenomics’ will behave as an influential replica in the other parts of the world as the land, labor, capital, and productivity is impacted immensely by the COVID-19 pandemic. This succeeding market intervention by the US government could replicate in other international liberalism followers nations of the world. The era of government-led intervention in the market started.
Covid-19 and Liberal World Order
The liberal international order (sometimes referred to as the rules-based international order or the US-led liberal international order) involves international cooperation through multilateral institutions like the UN and World Trade Organization (WTO), and is constituted by human equality (freedom, human rights and rule of law), open markets, security cooperation and promotion of liberal democracy. The US military and economic might was the custodian of the liberal world order, a network of alliances across Europe and Asia and nuclear weapons, which helped to deter the aggression of the illiberal states like the Union of Soviet Socialist Republic (USSR).
The liberal international order is the product of centuries and unrelenting innovations. It is highly integrated, developed, organized, institutionalized and deeply rooted in the societies and economies of both western and non-western countries. It is the product of two phases of history: (1) the Westphalian project dating back to 1648, (2) the construction of liberal order led by the United Kingdom and later by the United States. The Westphalian system enunciated the principles of state sovereignty and norms of great-power conduct. While the construction of liberal-order-building project has been possible only, just after the relations of the great powers became stabilized.
After the Second World War, the United Nations (UN) along with the bipolar system were the defining features of the world order. At the end of the Cold War with the disintegration of (USSR), the U.S. was the indispensable power in the global order.
All mainstream theories of International Relations (IR) concur that the age of the liberal world order is over, a rare moment of consensus in the field of IR. Though liberal world order was already in decay, Covid-19 accelerates the process and profoundly reshapes the geoeconomics and geopolitical configuration of the world.
The Liberal world order is in a state of disrepair. There appear several reasons why this is happening. Since the global financial crisis of 2008, talk of order has given way to talk of disruption: the end of unipolar world; rising nationalism in the heart of the West; lack of proper handling of Syrian crisis among P5in the UN Security Council, rising protectionism, depleting credibility of democracy and fragmented response of UN bodies like WHO in the Covid-19 crisis.
America’s reluctance to abide by the liberal rules it has nurtured in the global system for more than seven decades thus marks a turning point. The present transition to the new world order has some differentiating characteristics compared to the liberal world order. One of the most important factors is the attitude of the US. Under President Donald Trump, the US backtracked against joining the Trans Pacific Partnership (TPP) and to withdraw from the Paris Climate Agreement. The US also quitted the Iran nuclear deal signed by the major powers and threatened to leave the North America Free Trade Agreement (NAFTA). It has unilaterally introduced the trade tariffs repugnant to the liberal economic system and introduced the policy of “America First” incompatible to the liberal world ideals.
The rise of China will certainly be the greatest phenomenon of the twenty -first century. China’s extraordinary economic expansion and vigorous diplomacy are transforming the dynamics of the international politics. Propelled by the rapid economic growth, China is extending its political influence as well as military capabilities and reach. Despite its engagement with the liberal world order, China is concerned about this order’s ability to protect its national interests.
But what are the long-term impacts of Covid-19 on liberal world order? The emerging world order, in the context of decaying liberal order, looks very different. First, a more fragmented world order in which “great power competition” will be intense and pervasive. Escalating tensions between the United States and China are the hallmark of this emerging world order.
Second, the emergence of new geopolitical environment indicates that there will be multi poles in the international politics. No single country can dictate the world in the direction of its will. Third, the economic effects of Covid-19 will certainly reduce the defense budgets, more spending on health care, infrastructure development and people-oriented government spending. Fourth, the credibility of the world governance system is strongly depleting in the context of very weak response to the Covid-19 crisis. Five, China’s successful response to Covid-19 raises the questions on the credibility and efficiency of the democratic system of government.
With the shifting economic power from west to east, the liberal world order faces multiple challenges. Already in the process of decay, Covid-19 has also some special meanings for the liberal world order. In the words of Dr Kissinger, “the coronavirus pandemic will forever alter the world order”. With the passage of time after Covid-19 pandemic, the emerging geopolitical and geoeconomics realities of the world are testimony to this changing world order.
The European Green Deal: Risks and Opportunities for the EU and Russia
The European Green Deal approved by the EU in 2019 is an economic development strategy for decoupling and for carbon neutrality by 2050 . The plan is to reduce greenhouse gas emissions by at least 55% by 2030. In pursuit of this policy, the EU is setting the goals of increasing resource use efficiency and of advancing toward a circular economy, restoring biodiversity and curbing pollution.
While obviously having an impact on the EU economy, the implementation of the Deal will also concern the economies and foreign commerce of its trading partners through the anticipated re-structuring of energy markets and reduced carbon-intensive imports. In the next decade, the European Green Deal will mostly affect coal imports, possibly followed by oil and gas imports after 2030. By 2030, coal imports are expected to reduce by 71–77% of the 2015 level, coupled with a 23–25% decrease for oil imports and a 13–19% decrease for imports natural gas. Post-2030 plans envision a virtually complete abandonment of coal and significant reductions in the EU’s oil and gas imports—by 78–79% and 58–67% of the 2015 level, respectively.
The border carbon tax (BCT) is one of the mechanisms envisioned by the European Green Deal with a view to covering the expenses of European manufacturers in their commitment to reduce emissions. The tax will be based on the carbon-intensity of a particular product and its foreign trade share in EU market sales.
Why does the EU want The European Green Deal?
The EU and Russia offer quite different reasoning for the European Green Deal and the ВСT.
European regulators believe the European Green Deal and the ВСТ will help “force” the nations (primarily the EU’s partners) trying not hard enough to reduce their emissions and to mount a stronger climate policy. The EU has declared its historical responsibility for the accumulation of greenhouse gases in the atmosphere, while believing that it will not be able to resolve the issue of global climate changes on its own.
Along with enhancing supply security by making the EU less dependent on imports of a vast number of raw materials from one single country, other arguments suggest boosting the efficiency of resource use and curbing pollution. The EU is largely dependent on the deliveries of several natural resources, since it imports 87% of the oil it consumes and 74% of the natural gas. Proponents also note greater dependence on deliveries from a limited number of countries, including Russia. In 2019 and the first half of 2020, Russia’s share in the value of natural gas supplies to the EU was 44.7% and 39.3%, respectively. Norway, the second biggest supplier, had a share of some 20%, or about half of Russia’s. In reality, the degree of dependence is even greater, since long-term contracts are commonplace in this field and no allowances for delivery route flexibility are made as shipments are transported by pipeline. In 2019 and the first half of 2020, dependence on oil imports from Russia was less pronounced and amounted to 28% and 26.4%, while still being way higher than the share of the second biggest supplier, the U.S. (9.2%).
COVID-19 and the subsequent 6.2% contraction of the EU’s economy were additional factors weighing with the European Green Deal. Economic recovery has come to be considered in connection with achieving carbon neutrality. The 2020 global economic meltdown has become a driver for stepping up the environmental—and climate, in particular—ingredient in the aid packages offered by many developed and a number of developing countries.
From Russia’s perspective, the new deal is intended primarily for preemptively boosting competitiveness on global markets through advancing new technological sectors, which is mainly justified as a solution to the climate problem. Moreover, Russia believes that the deal is driven by political considerations that, among other things, have to do with reducing the EU’s dependence on imported raw materials. The environmental sector in the EU economy is already a global leader. According to Eurostat, the environmental goods and services sector grew by 2.3% already in 2017, while its gross added value amounted to $287bn, or 2.2% of the EU-27’s GDP.
Another proof that the task of making Europe-made goods more competitive is high on the agenda lies in the fact that the ВСТ will be based on the foreign trade share of carbon-intensive products, which will help stimulate sales of Europe-made goods. At the same time, European officials acknowledge that no significant carbon leakages have so far occurred; however, they cannot be ruled out in the future. Russia believes that exporters from other countries will hardly be able to compete once the tax is introduced.
Like the EU, Russia presumes that the BCT is an additional source of revenue for the European treasury amid the crisis brought about by the pandemic as well as a way to cover the significant expenses involved in implementing the new deal.
From Russia’s standpoint, one of the “unfair” aspects of levying such a tax is the fact that the EU’s policy-makers are playing up the advantage of the Union’s higher level of economic and technological development, making particular use of the historically broad resource base and the accumulated volume of greenhouse gas emissions. The EU-28’s Accumulated Emissions for 1751–2017 were estimated at 22% of global emissions, which makes the EU the next to largest emitter after the US (25%), while Russia accounts for only 6%.
Both parties concur that the main goal of the European Green Deal is to maintain the EU’s competitiveness amid the radical restructuring of the global economy. It is claimed that the ВСТ could prompt a shift of manufacturing into the countries with less stringent carbon emission standards (“carbon leakage”) due to the fact that outlays on de-carbonizing businesses in several carbon-intensive sectors will significantly increase.
For the EU and Russia, the European Green Deal carries both risks and rewards
The main risks for the EU lie in the high costs of making the European Green Deal a reality as well as in the fact that some manufacturers being tipped into unfavorable conditions, all of which is coupled with a price hike for consumers, retaliatory measures to be undertaken by other countries and energy security risks. Apart from some technological difficulties in introducing the BCT, other challenges include the tax’s ineffectiveness in resolving the climate change problem, since the BCT is non-existent in other countries.
The European Commission estimates the additional annual investment required to achieve these goals by 2030 at €260bn. Yet the unprecedented funding envisioned by the new deal for the purpose is not enough to achieve these goals. The roadmap entails allocating at least €1 trillion for “sustainable” investment. Besides, the Next Generation EU fund, established to boost the recovery of the European economy after COVID-19, earmarks another €750bn for this purpose. A staggering €600bn shall be provided for climate action funding alone, as stipulated by the Green Deal and the pertinent part of the recovery plan. Additional investment is expected to come from companies, households and national governments.
Ultimately, the ВСТ will have a negative impact on the competitive edge of all European manufacturers, concerning, above all, those sectors where imported raw materials with a high carbon footprint account for a significant chunk of the costs.
Transitioning to new power sources will require higher carbon prices, which might ultimately result in a hike in consumer prices and a drop in the quality of life across the EU.
The European Green Deal might result in new threats to the EU’s energy security, since a significant import expansion of metals and minerals—used in manufacturing solar panels, wind turbines, ion-lithium batteries, fuel cells and electric cars—is needed for a large-scale de-carbonization of the economy. As of now, no substitutes for these raw materials are to be found.
Should the ВСТ be introduced, the EU’s trade partners may well, contingent on specific policies, initiate trade disputes. The European Commission has to ensure that the BCT is compliant with the WTO’s rules, which, however, does not eliminate the risk of retaliation on the part of other countries, which may take the shape of their mounting resistance to the adoption of the tax. In 2012, the plans to introduce the ВСТ for foreign air transport companies encountered particular pushback from other states, such as the US, China, India, Japan or Russia, which forced the EU to abandon the idea.
Several experts point out that this tax is ineffective in resolving the global climate change issue, since it does not exist in other countries.
There are also technical difficulties in introducing the tax. These have to do, in particular, with calculating the carbon component in imported goods in consideration of greenhouse gas emissions along the entire value chain of the product.
At the same time, the European Green Deal could benefit the European companies that bear the high costs in de-carbonizing their manufacturing. The tax will allow production to be expanded in energy-intensive sectors as well as in sectors with high-intensity trade, as about 20% of the drop in manufacturing will be offset by payments for CO2 emissions.
Russia, in turn, may face the dire prospect of losing its energy and carbon-intensive markets as well as encounter challenged posed by the BCT. Most of the profound consequences will stem from a gradual loss of oil and gas markets following a drop in demand and prices, which may additionally be exacerbated by the carbon tax. Oil and gas revenues play a key role in the Russian budget, with their share being in the ballpark of a third and a half of it. In 2018 and 2019, the figures stood at 46% and 39% respectively. In 2020, they fell to 28% owing to the slumping demand and prices amid the pandemic and OPEC agreements.
No significant drop in oil and gas imports is expected before 2030. However, in the longer run, the EU aspires to significantly reduce its supplies from Russia. In the meantime, 45% of Russia’s fossil fuel exports go to the EU. Russia might lose a significant chunk of the EU market to European manufacturers or foreign competitors whose oil production has a smaller carbon footprint: take Saudi Arabia, for instance.
The ВСТ will be conducive to the EU’s demand for Russia’s finished products falling as well, primarily when it comes to a number of steels manufactured with carbon-intensive technologies. The BCG company estimates Russian exporters’ losses, once the tax is introduced, to be some $3–5 bn annually; KPMG’s estimates are somewhat higher.
De-carbonization practices in other countries will also inform the demand for Russian fuels and carbons. Many countries have set the goal of radically reducing greenhouse gas emissions. Some countries plan to introduce a ВСТ, while the US, China and the EU are now discussing possible cooperation in this field. It is worth noting that the global pace of de-carbonization and ВСТ introduction is hard to predict, but this should not justify a setback in Russia pursuing a more active climate policy.
At the same time, Russia could stand to benefit from the European Green Deal. Before 2030, a significant reduction of emissions will demand that the use of coal be rapidly phased out, which will result in an increased demand for natural gas, as the latter is seen as a “transition fuel” on the way to a low-carbon economy. This will allow Russia to expand its short-term and medium-term gas exports.
Technological restructuring of the economy and export diversification might emerge as the main potentially positive outcomes for Russia. The point at issue has ultimately to do with transforming the energy industry towards greater use of renewable energy sources (RES), whose cost tends to gradually decrease, as well as towards enhanced reliance on the new types of energy, such as hydrogen, which may, at the very least, partially replace fossil fuels and be exported to foreign markets.
Timely introduction of climate regulations will allow Russia to avoid having the ВСТ applied to its products. It remains unclear what kind of regulations could help resolve this matter, though.
Russian companies, now transitioning to low- and zero-carbon technologies, will be able to benefit from the price to be put on carbon and avoid paying the special tax, much as able to engage in trading quotas, depending on the instrument to be potentially used at the state level. They will likely be required to monitor greenhouse gas emissions along the entire product value chain.
The European Green Deal and the pertinent part of the EU’s economic post-pandemic recovery plan earmark about 10% of the climate action funding for “internationalizing” the Deal, which effectively means providing aid to trade partners in the form of grants, loans and guarantees for transitioning to “sustainable” energy industries and restructuring their economies and exports. Therefore, there is a theoretical possibility that some of the investment will be channeled into joint “green” projects.
The ‘green’ avenues for fostering EU–Russia bilateral relations
The European Green Deal affords opportunities for the parties to cooperate. This should not be limited to climate issues alone, although restructuring the energy sector remains a priority. Such cooperation should also include addressing the whole set of measures needed to transition to a “green economy”, with circular economy being one of its ingredients. The latter’s share in the global economy is estimated at some 9%.
Investment cooperation might become a key area, primarily encompassing investment in research, manufacturing and infrastructure, since restructuring the economy means taking it to a new technological level. Amid falling oil and gas revenues, Russia needs to explore new areas. Legally, there are no sanctions-related restrictions in climate matters.
The world already possesses a large number of the technologies to facilitate transitioning to a zero-carbon development track. Above all, these are the RES, “green” hydrogen and state-of-the-art bioenergy. Combining these sources will help implement this development track. Additional academic assessments are required to identify the efficiency and environmental acceptability of specific technologies to be used in joint projects, while taking the entire value chain into account.
Investment in hydrogen energy might become an important cooperation avenue, since its global market share is pegged at $2.28 trillion already by 2027. The International Renewable Energy Agency (IRENA) predicts that hydrogen will account for 12% of global energy consumption by 2050. Other experts put hydrogen’s share in global final energy consumption at 18%.
Hydrogen energy is seen as an important element in achieving the EU’s carbon neutrality, as the hydrogen’s share in Europe’s energy balance might reach 14% by 2050. Gazprom estimates Europe’s hydrogen market at $153bn as of 2050, while the Ministry of Energy suggests it will amount to $32–164bn. The Hydrogen Strategy approved by the European Commission in 2020 as part of the European Green Deal encourages the development of hydrogen energy. In Russia, it may be driven by the Strategy for Hydrogen Energy Development, which is currently being drafted. This strategy provides for collaboration with other states, including the EU. Plans for 2021 include presenting incentive measures for hydrogen exporters and consumers.
Supplies of “blue” and “turquoise” hydrogen could be a promising cooperation area. This hydrogen is produced from natural gas and it might be a particularly viable option, since this is generally perceived as being profitable economically and having the smallest negative environmental impact. Another prospective area is to encourage “green” hydrogen projects . Hydrogen cooperation is of interest to both Russian and European companies, including Gazprom, Rosatom and NOVATEK. Rosnano and Enel Russia plan to jointly produce “green” hydrogen at the Enel Russia wind power plant, which is currently under construction in the Murmansk Region, and subsequently export the hydrogen of some $55m worth to the EU. Besides, NOVATEK signals its intentions to commence production of “blue” and “green” hydrogen together with Germany’s Uniper.
Another potentially conducive to cooperation factor is that, as far as the EU is concerned, Russia has a competitive edge in its geographical proximity, large gas deposits, production facilities and robust infrastructure. Small-scale pilot projects may become the first step to determine their benefits and costs for both parties. Building business partnerships may be another prospective path.
Cooperation is also promising in the areas of increasing energy efficiency, reducing methane leaks, supplying electricity, adapting to climate change, preserving biodiversity as well as in the fields of waste management, sustainable agriculture and forestry, electric car manufacturing, introduction of trading quotas, etc. The big take-off of digital technologies makes it possible to create databases in order to transparently select the most promising projects, boost their efficiency and achieve positive outcomes, and improve management systems.
Predicted development of EU-Russia economic and political relations amid Europe’s increasingly stringent environmental standards
The BCT tax will clearly have a negative impact on the bilateral relations and, most importantly, serve to breed deeper distrust between the parties, triggering a further re-orientation toward enhancing economic links with Asian nations, primarily China, for whom Russia, along with Saudi Arabia, is one of the biggest suppliers of oil and where Russia is stepping up its natural gas exports.
To avoid a deterioration in relations, it would be preferable for the parties to engage in constructive cooperation in their mutual interests, especially since the framework for this is already in place. In 2021, Russia intends to adopt its own Climate Strategy as well as a number of environmental laws in other areas. In order to facilitate Sakhalin’s path to carbon neutrality, there has been proposed a bill introducing a mechanism for selling greenhouse gases emission quotas on the island. Russia’s leading energy companies have already embarked on climate-related plans, with some companies devising climate strategies of their own.
In fact, the European Green Deal is an issue where Russia and the EU have common approaches as much as differences of opinion. At the same time, divergent opinions are no crucial obstacle to environmental cooperation between the parties.
The implementation of the European Green Deal is fraught with major risks for both parties, the principal ones for the EU being the high costs of the strategy and retaliatory steps to be undertaken by other countries. Russia faces the dire prospect of losing markets and lagging behind in re-structuring the energy industry, its key economic sector. At the same time, new opportunities are opening up, such as bolstering the parties’ global competitiveness by entering new markets.
Environmental cooperation between the two parties could be mutually beneficial to become one of the principal areas for negotiation and implementation. In order to fulfil this potential, dialogue—based on an open and balanced approach to assessing areas for collaboration and possible rapprochement—is needed. As a first step, the EU and Russia could develop a roadmap outlining every step of such cooperation and the parties’ commitments as well as specifying the market segments where projects could be carried out.
- Breaking down the proportionate relations between development and resource consumption.
- Produced by using RES to power water electrolysis.
From our partner RIAC
Why the West Want to Stop Iran Becoming a Nuclear Power?
Iran is a regional powerhouse in the Middle East only rivals Saudi Arabia, Egypt and Turkey. The rivalry between Saudi...
Debunking Magical realism through Marquez’s “A Very Old Man with Enormous Wings”
There are few names in the Latin American literature, which it comes to famous novels and short stories, Columbian writer...
Why Congress should be rough on Chris Miller at his testimony on Wednesday
FBI director Chris Wray’s weak congressional testimony in March left most of the Capitol attack questions unanswered and most of...
Nigeria- Ghana Trade War: Where to from here
Several months after a series of bilateral talks between the Nigerian government and authorities in Ghana aimed toward addressing the...
Biden’s shift from neo-liberal economic model
Mercantilism; which was the ‘Hall of Fame’ from 15th-18th Century had emerged from the decaying of feudal economic system in...
The billion-dollars closer to disaster: China’s influence in Montenegro
Montenegro is building its first-ever motorway. Due to a huge loan scandal, it’s now become the country’s highway to hell....
Afghanistan: the US and NATO withdrawal and future prospects
On April 14, the United States of America announced that it would withdraw all its troops stationed in Afghanistan from...
Defense3 days ago
5th Generation Warfare: A reality or Controversy?
Economy3 days ago
Eastern Balkans Economic update: Romania’s and North Macedonia’s new data for 2020
South Asia3 days ago
Political Lessons from Kerala: People’s Response to the Communist Welfare System
Eastern Europe2 days ago
Russia-Ukraine War Alert: What’s Behind It and What Lies Ahead?
Economy2 days ago
The European Green Deal: Risks and Opportunities for the EU and Russia
Africa2 days ago
H.E. President John Mahama Appointed As AU High Representative for Somalia
Russia2 days ago
Steering Russia-US Relations Away from Diplomatic Expulsion Rocks
South Asia2 days ago
Pakistani Fanatics and their Foreign Policy Overtures