Cross-border energy tax may be introduced in the CIS

The CIS countries are considering the harmonization of approaches to green energy, which in the future will make it possible to launch a system of cross-border carbon regulation for imported products. In theory, this will allow Russia to increase the export of electricity to the CIS countries with a large share of thermal power plants, as well as open up new markets for investment in renewable energy. However, launching a carbon tax is “premature and pointless,” analysts say, as no CIS country has set ambitious decarbonization targets.

The CIS Electricity Council has developed a draft roadmap to harmonize green tools for the development of low-carbon energy, the organization told Kommersant. In particular, we are talking about the possible creation of an end-to-end system for trading CO2 emission quotas and green certificates for the generation of renewable energy. It is also proposed to develop a unified taxonomy of green energy sources and create a green investment fund. In the future, this will enable the launch of a system of cross-border carbon regulation, similar to the CBAM tax mechanism (payment for the carbon footprint of products) in the EU.

The creation of a single green space in the CIS has been discussed for many years, but no concrete steps have been taken. The issue was raised again on July 14, 2022 at a council meeting in Astana. The implementation of the road map measures “will create economic incentives for investors and regulators to synchronize promising schemes for the placement of generating facilities and the development of power grids to increase efficiency and jointly enter foreign markets,” the council clarifies.

The CIS countries are very heterogeneous in terms of generation composition. Low-carbon generation makes up more than half of the installed capacity only in Tajikistan, Kyrgyzstan and Armenia, follows from the presentation of Inter RAO, which was shown at a meeting of the CIS Council. In Russia, thermal power plants account for 66% of generation, 12% for nuclear power plants, 21% for hydroelectric power plants, and about 1% for renewable energy. For comparison: in China, the share of thermal power plants is 53%, and renewable energy is 29%. In the EU countries, the share of thermal power plants is 35%, and RES is 39%.

The carbon intensity of the power industry in the CIS countries is also very different from each other. In Russia, the specific emission volume for the production of 1 kWh is 355 g CO2, in Turkmenistan, Kazakhstan, Uzbekistan, Belarus, Moldova and Azerbaijan – 551 g. The volume of specific emissions in the CIS on average is 394 g, which is higher than in 27 EU countries (261 g) and in the G7 countries (338 g). The total amount of emissions in the CIS countries in 2021 amounted to 2.13 billion tons of CO2. For comparison: the total emissions in the 27 EU countries in 2021 is 2.73 billion tons.

In Russia, the program to support the construction of renewable energy is “rather modest” and will be completed by 2035, so the creation of new support mechanisms in neighboring countries will help Russian investors enter new markets, one of Kommersant’s interlocutors in the expert community believes. He also believes that for Inter RAO (an electricity export operator) this is an additional opportunity to increase the export of low-carbon electricity to countries with a large share of thermal power plants in the face of the closure of supplies to the EU. In the CIS countries, plans have already been announced for the development of renewable energy until 2035 in the amount of about 25 GW under existing support mechanisms, remind the Russian Association for the Development of Renewable Energy.

Harmonization of rules and integration of the market of decarbonization instruments in the CIS space is certainly useful and mutually beneficial, according to the Market Council (energy market regulator). First, it will help countries to quickly create the necessary regulation and infrastructure through the exchange of experience; secondly, it will expand the space and efficiency of the exchange of resources for decarbonization (they will become more accessible for deficient regions, and the sales market will expand for surplus regions). In addition, common systems used by several countries always inspire more trust and recognition in both domestic and foreign markets.

Harmonization of national legislation and the adoption of appropriate decisions at the level of intercountry associations will allow us to consider the CIS countries as a common market for green certificates, says Vladislav Berezovsky, development director at Carbon Zero (operator of the voluntary Russian standard for green certificates). In the future, this will make it possible to compensate for the shortage of national certificates in the CIS countries with a low share of RES in the energy balance. In addition, the creation of a common market for certificates and carbon units will increase the chances of recognition of national certificates by stakeholders in Asian and European markets.

Vladimir Lukin from Kept considers the cross-border tax in the CIS to be a “premature measure” that, moreover, has not shown its effectiveness. Neither Russia nor other CIS countries have defined decarbonization goals that require additional funding, the source of which could be a mechanism similar to the European CBAM, he notes: “In this regard, the formation of any fiscal instruments is absolute nonsense.” Theoretically, Russian companies may be able to implement climate projects with the attraction of carbon investments from the CIS countries, continues Vladimir Lukin. But, for example, in Kazakhstan, opportunities for the implementation of climate projects have been identified since 2012, but there is no active trade in carbon units either with Russia or with other countries.

Polina Smertina