Rosneft, Gazprom And Russia’s Failure To Adopt Green Policies – Analysis

The Russian Federation is on a collision course with climate change. In 2019, it ranked fourth in annual carbon emissions, and the country’s largest gas producer, Gazprom, was the world’s third largest emitter of industrial greenhouse gases between 1988-2015, behind Saudi Aramco and Chinese coal. Meanwhile, roads, pipelines, and railways in Russia’s Arctic cities are facing an increased risk of failure due to the warming climate. It is important to critically examine both the commitments and implementation of climate-conscious policies in Russia’s oil and gas industries, which are set to increase production levels.

The Paris Climate Agreement represents an important benchmark for governments and companies to acknowledge the global effects of climate change. Although there is no binding enforcement, each signatory to the 2015 agreement submitted a Nationally Determined Contribution (NDC) document outlining commitments to cutting greenhouse gas (GHG) emissions. Countries are encouraged to report on their progress and set increasingly ambitious climate goals in an effort to limit the global temperature rise to under 2°C. The Russian government—after years of inaction and at times, tacit denial—finally agreed to ratify the Paris Agreement in 2019. In a November 2020 presidential decree, Russian President Vladimir Putin followed the ratification by ordering the Russian government to work towards meeting Paris Climate Agreement goals. Despite this, Russia’s energy giants are neither cutting production nor decreasing their GHG emissions to be in line with the Paris Agreement.

Russian companies, along with the government, continue to emit dangerous levels of GHGs. As a result, the Transition Pathway Initiative (TPI), a tool used by investors to assess companies’ preparation for the transition to a low-carbon economy, ranked the country “critically insufficient” in the fight to limit the global temperature rise. Considering that Gazprom and Rosneft, Russia’s largest oil producer, reported a combined $200 billion in revenue in 2019, these companies certainly have the capacity to implement meaningful change.[1] Despite this, Russia’s energy companies show no signs of slowing production. Natural resources alone in Russia constitute 60% of the country’s gross domestic product (GDP), and, prior to the onset of the COVID-19 pandemic, Russian oil and gas production had reached record levels.

Despite this recent decree, the Russian government’s climate change policies remain woefully inadequate according to many environmental policy groups. For example, Russia’s Paris Agreement commitments are based on 1990s emission levels, one year prior to the fall of the Soviet Union and the resulting unprecedented economic contraction. Therefore, the country has technically already met its commitments, and the country can, in fact, allow emissions to continue to rise and still remain below 1990s levels. The Climate Action Tracker (CAT), an organization which measures government climate action against Paris Agreement standards, characterizes Russian energy policy as focusing on expanding domestic production, greater consumption of fossil fuels, and an increase of natural gas exports. Conversely, the CAT characterizes renewable energy investments in Russia as continuing to “fall short” and “not on track to meet its modest near-term targets.”

Reflecting the Russian government’s paltry attempt to meet the Paris Agreement standards, state-owned companies Gazprom and Rosneft are making little-to-no effort to limit the global temperature rise to under 2°C. As Russia’s largest energy company, Gazprom holds a substantial share in total global and Russian gas reserves, 16% and 71%, respectively. Recently, Gazprom implemented large-scale gas development projects in the Arctic to ultimately meet Russia and Europe’s demand for natural gas. For example, Gazprom administers the controversial Nord Stream 2 Pipeline, which aims to provide Russian natural gas directly to the European Union through Germany. A late 2020 report outlines Gazprom’s promise to increase liquefied natural gas (LNG) production to penetrate new markets despite a global slowdown caused by the COVID-19 pandemic.

According to the TPI, Gazprom’s carbon performance is not aligned with the Paris Agreement. In addition to assessing carbon performance, the TPI quantifies a company’s integration of climate policy into its operational decision making. In this regard, Gazprom ranks a 3 out of 4, which indicates that it does integrate climate change into decision making. However, Gazprom is lacking important benchmarks of corporate recognition of climate change, such as not disclosing an internal price of carbon and not reporting Scope 3 emissions, the category of indirect emissions that often constitutes the majority of an organization’s total GHG emissions. Without Russian government investment in renewable energy, there is no motivation for Gazprom to take action regarding the Paris Agreement.

Rosneft, headed by Putin confidant Igor Sechin, ranked first in revenue for all Russian companies in 2020. According to the company’s 2019 annual report, Rosneft has developed promising oil and gas projects not only in Russia, but also in Egypt, Brazil, Iraq, Vietnam, and Mozambique. With such a global reach, it is paramount that Rosneft adhere to Paris Agreement standards and set an example for state-owned oil companies in their pursuit of green policies.

As of August 2020, Rosneft has failed to implement Paris-compliant policies. TPI ranks Rosneft similarly to Gazprom as the company does not incorporate nearly any strategic assessment of climate change into its company policy. Rosneft’s existing environmental pledges focus on decreasing emissions from current oil and gas extraction instead of decreasing overall production. While local regulations abroad may require fewer GHG emissions than in Russia, Rosneft’s policy of increasing production will not result in compliance with Paris.

While Rosneft’s planned $5 billion investment in “green” causes over the next five years is a positive step, it is small compared to the company’s commitment to developing Arctic oil and gas. This decision has even hampered BP’s (BP owns almost 20% of Rosneft) ability to attract green, environmentally conscious investors. Specifically, Rosneft’s Vostok Oil Project has been attacked by environmentalists who have urged the Kremlin to cease granting licenses related to the exploitation of Arctic resource deposits. The Vostok project will cost, in total, upwards of $111 billion and include two airports and 15 “industry towns.” At its peak production levels, Vostok Oil will contribute 100 million tons of oil per year to the Russian market. Without specific cuts to oil production, Rosneft’s climate policies will fail to make meaningful contributions to global GHG emission reductions.

As a major GHG emitter and as one of the world’s largest economies, Russia has an obligation to adopt Paris-compatible policies to bring renewable energy and a “green transition” to Russia. A warming climate, for example, will release previously trapped GHG’s into the atmosphere, greatly affecting Siberia as well as the Arctic regions of Russia. Yet, the negligence of Russia’s energy firms and government regarding climate change suggest that they simply do not care about the inevitable increase in frequency and intensity of climatic events. For example, a recent devastating oil spill in Norilsk, located north of the Arctic Circle, has been linked to melting permafrost, and consecutive prolonged and extensive fire seasons in Siberia aided by record setting-temperatures have released inordinate amounts of CO2 and methane into the atmosphere.

The decisions of the Russian energy sector have global significance. In 2018, 40% of the EU’s total gas import and 30% of crude oil imports came from Russia. Nord Stream 2 seeks to expand Russia’s role as an energy supplier. With no clear incentives for a green transition and a lack of government support and investment in alternative energy sources, Russian oil and gas giants like Rosneft and Gazprom are unlikely to adopt Paris-conscious policies. This current climate trajectory is not only destructive for Russia, but also for the rest of world.

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