By David Wishard
For several years now, Alexander Bedritsky, scientist and Putin’s appointed Presidential Delegate to the International Panel on Climate Change (IPCC), has been voicing concern over Russia’s melting permafrost and the threat it poses to the global climate balance. He could not have asked for a better rallying event than the sudden spectacular birth of the Yamal crater. This past July, a 100-foot wide section of Siberian taiga burst open on Russia’s Yamal Peninsula. This anomaly was the result of underground pockets of methane fed by years of Siberia’s slowly melting permafrost.
Methane is one of the most potent greenhouse gases regularly emitted by developed nations. According to Nature, one ton of methane prompts 21 times the amount of “climate forcing” over a ten year period as one ton of CO2 in 100 years. Reducing global methane emissions has thus remained a critical priority for international bodies in which Russia and the U.S. are pledged to collaborate: the UNFCCC Secretariat, the Global Methane Initiative (GMI), and the Arctic Council.
The role of Russian oil & gas
World Bank data posit that Russia emits anywhere from 7-10% of the world’s anthropogenic, or human-caused, methane. This places it squarely in the world’s top five methane-emitting countries (China is the first, followed by the U.S. and then India). By Russia’s own governmental figures, two thirds of these emissions come from the oil and gas industry. In the oil industry specifically, dominated by state-owned Rosneft, emissions come in the form of associated petroleum gas (APG), a methane-rich byproduct of the oil extraction process. Without cost-effective means to convert APG into marketable products, or sufficiently strict regulation, oil companies have little incentive not to simply “flare” off the gas.
Still, even perfectly efficient flaring does not erase APG’s threat to the climate. Combusted APG turns into black carbon soot, another agent of climatic warming. Until the diplomatic freeze precipitated by Russia’s invasion of Crimea, black carbon abatement was the subject of a multiyear, joint EPA-Gazprom pilot program in Murmansk.
In 2009, the World Bank revealed that the Russian government’s methods of calculating its flares were not comprehensive, and that Rosneft and Gazprom flared amounts far beyond Russia’s government-mandated 5% threshold. It is unclear if this was due to market reasons or because of selective enforcement, but it is clear that Russia flared a higher proportion of its APG than any country in the world, three times more than it stated in the national emissions calculations it submitted to the IPCC that year.
Fining yourself poses certain incentive problems
Russia was embarrassed by the World Bank’s revelations, and reacted by demanding that all Russian oil producers recycle, or “utilize”, 95% of their APG, or face stiff fines from the Ministry of Economic Development (MED). Within a few years, several smaller oil companies actually achieved 95% utilization. However, Rosneft and Gazprom, by their own figures, only managed recycling rates of 53% and 60%, respectively. The MED increased APG flaring fines in 2012, but recycling rates among the state giants have only marginally improved.
A 2013 joint study by the EPA, the Department of Energy, and Gazprom concluded that market incentives to monitor, let alone recycle, APG are simply lacking. At present, a shortage of technology and capital (dramatically compounded by European and U.S. sanctions) and dispersed ownership of infrastructure assets are key obstacles for any energy company in Russia claiming to take charge of its APG emissions, particularly oil companies. Russia’s erratic gas prices and byzantine emissions fines prevent potential foreign green-energy investors from determining a clear “price of emission” with which to assess the viability of investing in Russian technological innovation.
Of course, there is an equally plausible and more obvious explanation for Russia’s poor flaring record: Russia fines its own state enterprises only when it is convenient to do so.
A market for carbon credits? That’s so last decade.
The years 2009-2012 corresponded to a bygone, “pro-Kyoto” phase in Russian politics when the state wanted to attract foreign energy efficiency investments by selling its ample carbon credits. Russia never had a coherent, sustainable policy to control methane emissions. The fragmentation and complexity of Russia’s environmental fines indexes epitomizes a fragmented regulatory system in perpetual flux. Environmental fines are reactive: the Duma changes existing fines or issues new ones in response to fleeting political and/or market periods when there are incentives to do so. The EPA study suggests that the 95% reutilization law (again, passed in 2009) was a reaction to the World Bank’s satellite revelations, for which Russia lost face at the UN during a critical political period.
Russia has since publically refused further Kyoto commitments, and what new reduction commitments it has made are independent of the Kyoto process and are primarily verbal. Combine this lack of will with more proximate concerns like Western sanctions, the global oil price drop, and the rapidly decreasing ruble-to-dollar value, and it appears that for the foreseeable future Russia’s will to invest in greening itself is dead.
Rosneft and Gazprom’s emissions records: some improvement, but a long way to 95%
Rosneft’s 2012 statistics show that the company utilizes 53% of its APG, one of the lowest ratios of any Russian oil producer. It admits to doubling its total flaring from 3.5 to 7 billion cubic meters from 2006 to 2011. The majority of the growth comes from Rosneft’s buildup of it massive Vankor oil field in Eastern Siberia, slated to become Russian primary oil conduit to China.
Couldn’t Rosneft just use all the surplus gas to produce and sell power? There is some evidence that Rosneft sees value in selling electricity in this fashion. The company recently acquired gas processing infrastructure in Central Siberia from TNK-BP and SIBUR. However, the taxes imposed by selling electricity on the Russian grid will make selling the power unprofitable. In Eastern Siberia, Rosneft does not bother trying to see its APG, it simply uses it to heat and light Vankor’s facilities. However, Vankor also injects its APG into hydraulic fracturing wells, a dubious “solution” to the problem of excess APG that Rosneft may have learned from the US. Add the roadblocks to selling electricity in Russia to the fact of China’s lower than expected buying prices for gas, and what remains are nearly zero, non-regulatory incentives for Rosneft to utilize APG beyond the bare minimum it needs for heat and light.
Gazprom appears to be in a much better position to utilize APG, which is typically shed in transit when processing gas. Gazprom can link its oil and gas franchises more easily, especially in traditional gas extraction areas where it has existing infrastructure. The EPA study lauds Gazprom for large investments to improve its gas pipeline infrastructure, which reduced its methane emissions by at least 35 million cubic meters in 2011 alone. Overall, Gazprom claims a 60% utilization rate as of 2012. The company has also been working with SIBUR in Khanty-Mansi and Yamalo-Nenets, where it intends to bring its overall percentages up to the golden 95% by 2016. Gazprom’s oil subsidiary, Gazprom Neft, launched an APG initiative in 2010, and brought its APG utilization rate up from 55% to 80% within three years.
The few surviving NGOs are applying slow, steady pressure
One of the sole sources of legitimate pressure to curb methane emissions is the effort of NGOs, particularly WWF-Russia, to convince the government that utilizing APG is profitable. WWF tirelessly compiles annual reports on major Russian energy industry development, and has made it a point to sell the monetary benefits of APG utilization to its highly-placed audiences. APG can be converted not just into electricity, but into marketable commodities like synthetic natural gas, PVC, and glass (according to WWF, Russia produces approximately 10 times fewer recycled APG than the US). At present, WWF and Creon, a Russian consulting firm specializing in chemical reprocessing, are preparing a statistical analysis of state energy firms’ APG-efficiency records. Such efforts may go far to convince industry (or in Russia’s case, the state) of the monetary value of recycling and/or reselling their APG.
In the near- to medium-term, Russia is unlikely to concern itself with state- companies’ methane emissions. From the activist perspective, the fight against greenhouse gas emissions lacks the luxury of direct, observable public health threats that would shock the system into reform. Viable paths for using APG to bolster Rosneft’s bottom line seems a distant dream, and foreign investment is not going to come anytime soon, either.
Russia’s withdrawal from the Kyoto process, in spite of Putin’s stated desire to reduce Russia’s greenhouse gas emissions beyond Kyoto’s demands, has dealt a perhaps fatal blow to the Russian carbon-credit-based foreign direct investment. This is doubly true now for sanctions-affected industries, oil and gas being primary among them. The country’s complete dependence upon raw syr’yo means that any reform of the country’s methane record is going to have to come at someone else’s expense.
David Wishard is a graduate student in the Ellison Center for Russian, East European and Central Asian Studies (REECAS) and the Evans School of Public Affairs. His research focuses on Russian environmental policy and international collaboration in the Arctic. He recently completed an internship at the U.S. Embassy in Moscow, and has traveled in Russia several times. He lives in Seattle and is currently completing his thesis.