The World Bank has developed 4 scenarios of Russia’s losses from the “green transition”. In one of them, welfare falls by 9% by 2050

The World Bank in the next report on the Russian Economy, published on December 1, analyzed various scenarios of the impact of the global green transition on Russia. One of them involves a decline in welfare by almost 10%, and GDP – by almost 5%.

The scenarios are divided into basic inertial (countries are limited to the basic national contributions to the reduction of greenhouse emissions stipulated by the Paris Agreement), cooperative (all countries, including Russia, introduce a universal “carbon price”) and two non-cooperative inertial (only countries introduce a “carbon price”) – net importers of fuel, but in one case they limit themselves to this, and in the other they also introduce border correcting carbon taxes on carbon-intensive products from countries such as Russia).

“Our analysis shows that the negative impact on Russia’s GDP and its income will be doubly stronger in the absence of action than if Russia actively adapts to change,” – said RBC Director and Resident Representative of the World Bank in Russia Renault Seligmann.

In all scenarios, global demand for hydrocarbons will fall significantly, so Russia’s GDP and welfare will decline by 2050 relative to the baseline scenario. The most advantageous for the Russian Federation is the inertial non-cooperative scenario, in which the country’s welfare level will decrease by 3%, and the GDP – only by 0.9%.

In the non-cooperative scenario with borderline carbon taxes, Russia’s wealth falls by 9.2% by 2050 relative to the baseline scenario, and its GDP falls by 4.6%. “Consequently, participation in joint actions to combat climate change is a more effective strategy for Russia,” the World Bank experts emphasize.

The European Commission announced plans to introduce a Cross-Border Carbon Mechanism (CBAM) in July 2021. This mechanism is the world’s first indirect tax on greenhouse emissions generated during the production of a product. The Russian authorities are concerned about these plans, although the current version of CBAM will not cover oil and oil products, gas, and coal.

The World Bank analysis shows that the isolated EU plans to introduce an import carbon tax will hardly affect the Russian economy. The simulation results showed that the reduction in exports to the EU due to CBAM will be partially offset by an increase in exports to other countries that do not impose such a tax. Taking into account all the effects, the decline in Russian exports to the EU by 2035 may amount to only 0.4-1.2%. And GDP will decline by 2035 by only 0.06% relative to the baseline scenario.

Green transformation can also lower the cost of fossil fuel resources. “The International Energy Agency has already predicted that demand for oil, gas and coal will collapse by 2050. What should you do if the value of one of your assets falls? You need to invest in other assets, in human capital, renewable natural capital (forests, oceans, biodiversity) that will benefit your economy in the long term, ”says Renaud Seligmann.