VTB Capital estimates cost of decarbonisation for the Russian economy at $1.1 tn

The Russian economy is preparing for record investments of up to 89 trillion rubles ($1.2 tn) over the next 40 years, to reduce net greenhouse gas emissions by 60%, when compared to net emissions in 2019. On the eve of the 13th Investment Forum «RUSSIA CALLING!», VTB Capital analysed the cost of reduction, capital expenditures and the consequential pressure on prices in individual sectors, as well as how emissions can be reduced in the least costly way and, accordingly, where the bulk of these investments can be directed.

The price of decarbonisation will continue to rise. According to VTB Capital, a 25% reduction in emissions will cost Russia 43 trillion rubles ($575.1 bn, or 1.3% of GDP annually). To reduce emissions by 50%, it will come at a cost of 86.6 trillion rubles ($1.1 tn or 2.7% of GDP annually). Reducing emissions by 100% by 2060 would require costs in the amount of 479.8 trillion rubles ($6.41 trn or 15% of Russia’s annual GDP).

The least costly option for decarbonisation per unit of emissions includes waste disposal, methane emissions reduction, decarbonisation of the electric power supply as well as forestry projects. Together, these industries account for 59% of the total emissions in Russia, and their decarbonisation will cost, according to VTB Capital, 102.7 trillion rubles ($1.4 tn). Transport remains the most expensive sector for decarbonisation, followed by the cement industry and the production of iron ore and steel.

Reduction costs can drive up prices. The most significant price increases are expected in the electricity sector (+ 28% to current end-user prices) and the cement industry (+ 40%). Decarbonisation in the oil and gas and mining and metallurgical industries will have minimal pressure on prices.

Complete decarbonisation will require an investment of 5x annual EBITDA for the transport sector, 2-3x for the cement and chemical industry, 1-1.5x for the waste and utilities sector, and for the oil and gas and metals and mining industries, capex will be less than 1x annual EBITDA, which will keep dividends in these sectors at a high level for an economy undergoing an environmental transformation process.

The impact of the climate agenda on the Russian and global economy is one of the topics that will be discussed at the 13th VTB Capital Investment Forum «RUSSIA CALLING!» The forum will be held on November 30 — December 1 in an online format. The broadcasts of the sessions and the forum program can be found on the official website.