VTB Capital presented decarbonization cost estimates for Russian economy and industries

The Russian economy is preparing for record RUB 89 trillion in investments over the next 40 years, which are expected to result in net reduction of total greenhouse gas emission volumes by 60% versus 2019. Ahead of the 13-th “RUSSIA CALLING!” Investment Forum, VTB Capital has performed a detailed analysis of costs to combat emissions, capital investments and pressure on prices in some sectors, and also presented its view on which way to reduce emissions is less costly for the economy, and where most of these investments could be used, correspondingly.

The price of decarbonization will continue to grow. According to estimates by VTB Capital analysts, a 25% emission reduction will cost Russia RUB 43 trillion (or 1,3% of GDP per annum). A 50% reduction will require spending of RUB 86,6 trillion (2,7% of GDP per annum). A 100% emission reduction by 2060 would require expenses of RUB 479,8 trillion, which is equivalent to 15% of GDP YoY.

The less costly decarbonization activities estimated per emission unit include waste disposal, methane emission reductions, power industry decarbonization and forestry projects. These industries would account for the total amount of 59% of the total emissions in Russia, and their decarbonization would, according to VTB Capital estimates, cost RUB 102,7 trillion. The most cost-intensive sector for decarbonization is transportation, followed by cement industry and iron ore and metal production.

Costs to combat emissions may lead to growing prices. The most significant increase in prices, related to expenses to combat CO2 emission, is expected in the power industry (+28% to current end-user prices) and in the cement industry (+40%). Decarbonization in oil and gas and mining industries will have only minimal pressure on prices.

Complete decarbonization will require capital investments in the amount of 5x annual EBITDA for the transportation sector, 2–3x for the cement and chemical industries, 1–1,5x for the waste management sector and the power industry, and capital expenses for the oil and gas and mining industries will amount to below 1x annual EBITDA, allowing to keep high dividend levels in these industries for the economy, undergoing green transformation.

For more information on decarbonization costs for the Russian economy, see VTB Capital report (attached key takeaways file in Russia; complete report in English is available to VTB Capital subscribers).

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 online on November 30 — December 1. Online broadcasts of the sessions and the forum program are available at the official website of the forum.