Russia in the age of the energy transition: an impetus for the transformation of the Russian energy sector

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NATIONAL RESEASRCH UNIVERSITY - HIGHER SCHOOL OF ECONOMICS

UNIVERSITY COLLEGE LONDON

Master Dissertation by

Russia in the age of the energy transition: an impetus for the transformation of the Russian energy sector?

Phillip Lugmayr

Moscow, Russia 2020

Declaration

I, Phillip Lugmayr, declare that the work in this dissertation is my own. Where information has been derived from other sources, I confirm that this has been indicated. No part of this dissertation was previously presented for another degree at this or any other institution.

To my aunt Wioletta

Acknowledgments

I wish to express my sincere gratitude to my dissertation supervisor, Dr Alexander Kurdin, on whose reliable support I could always count and who helped me not only with his insightful suggestions and constructive advice, but also with his belief in my work.

I would also like to take this opportunity to express my immense gratitude to the invaluable support that I have always received from my family throughout my life. I cannot begin to express my thanks to my parents, Monika and Thomas, whose love and guidance have always been with me. Many thanks should also go to my grandparents, Hilda, Erich and Jуzefa, who never wavered in their spiritual and financial support. I am also extremely grateful to my cousin, Pamela, who was the most patient proof-reader and a role model. Your profound belief in my abilities has encouraged me to go out into the big wide world. Thank you.

Finally, I would like to emphasise that most parts of this dissertation have been written in self-isolation near Moscow during the COVID-19 crisis, which is why I would like to recognise those who helped me in finding a calm atmosphere while the world seemed to go down. Galya and Davide, I could not have wished for better companions. Sasha, thank you for sharing your place with us.

Abstract

This dissertation explores the impact of the energy transition on Russia in two steps. First, it uses a qualitative meta-analysis to explain the energy transition's relevance to the country's energy sector. Second, it discusses how the energy transition functions as an impetus for the transformation of Russia's energy sector. Concerning a potential transformation, it considers the hydrogen economy as an exemplary response strategy to the energy transition and explores the drivers and obstacles for its development in Russia.

For this purpose, the dissertation presents a distinct conceptual framework and applies a Political, Economic, Social and Technological (PEST) analysis. As the dissertation shows, Russia views the energy transition as a challenge to its energy sector and has begun to consider response strategies, including the hydrogen economy.

Keywords: energy transition; Russia's energy sector; carbon lock-in; stranded assets; hydrogen economy

Эта диссертация исследует влияние энергетического поворота на Россию в два этапа. Во-первых, она использует качественный мета-анализ, чтобы объяснить значимость энергетического поворота для энергетического сектора страны. Во-вторых, обсуждается, как энергетический поворот служит стимулом для трансформации российского энергетического сектора.

Что касается потенциальной трансформации, данная диссертация рассматривает водородную экономику как пример стратегии реагирования на энергетический поворот и исследует движущие силы и препятствия для ее развития в России. Для этой цели в диссертации представлена четкая концептуальная основа и применяется политический, экономический, социальный и технологический (PEST) анализ. Как показывает диссертация, Россия рассматривает энергетический поворот как вызов для своего энергетического сектора и уже начала обдумывать стратегии реагирования, включая водородную экономику.

Ключевые слова: энергетический поворот; Российский энергетический сектор; карбоновый блок; обесцененные активы; водородная экономика

Table of contents

Preface

List of abbreviations

Introduction

1. Literature review

2. Research design

2.1 Conceptual framework

2.2 Methodology and operationalisation

2.3 Data

3. Russia and the energy transition

3.1 Definition: Energiewende, low-carbon transition, and the fourth energy transition

3.2 Pace and scale: slow versus fast transition

3.3 Relevance: challenges and opportunities for Russia's energy sector

4. An impetus for a transformation

4.1 Carbon lock-in

4.2 Stranded assets

4.3 Carbon unlock

Conclusion

Bibliography

Preface

“Russia in the Age of the Energy Transition” could not be more topical. As the title indicates, we have entered a new age. While the impact of the advancing climate change is increasingly noticeable, debates about its mitigation have become omnipresent. Energy is central in such debates. Fossil fuels are a key driver of climate change, which is why the transition to a low-carbon system is only a matter of time. This means that certain countries can become losers, as the demand for their fossil fuels will eventually decline. Russia can become such a loser. Thus, it is essential to consider response strategies. Today, this is even more the case. The ongoing COVID-19 crisis has forced large parts of the world into confinement and created a historic shock to economies and energy sectors. We can call this crisis therefore without hesitation a watershed. The key question here is: how will we rebuild our economies? If the recovery will be based on fossil fuels, we will lock in our high-carbon pathway and most likely face an even greater crisis, the climate crisis. If, however, our recovery will be linked to low-carbon technologies, we can call the year 2020 a historical caesura. The former would make the dissertation irrelevant, the latter underlines its significance.

List of abbreviations

Introduction

Russia is among the world's largest hydrocarbon resource holders, producers and exporters. The country's richness in fossil fuels has ensured economic growth and stable revenues. At the same time, it has also led to a resource curse and a strong dependence on the oil, gas and coal sectors. Up until recently, the advantages outweighed the disadvantages. The age of the energy transition, however, can change this and constitutes therefore a serious challenge to Russia and her energy sector. The EU's energy transition makes this challenge particularly clear, as it is the main export destination for Russia's fossil fuels (Eurostat, 2019a). Although fossil fuels will continue to play an important role in countries such as China and India (IEA, 2019f), most energy outlooks agree that the progress of the energy transition on a global scale is only a matter of time (ERI RAS and Skolkovo, 2019). This means that countries such as Russia can potentially become the losers of the energy transition (Vakulchuk, Overland and Scholten, 2020).

To use the dissertation's main title, it is therefore essential to explore “Russia in the Age of the Energy Transition”. To do so, the dissertation answers a set of research questions. The first set focuses on the energy transition and its relevance for Russia. It consists of three inter-related research questions: (1) What is the energy transition, (2) what is its pace and scale, and (3) why is it relevant for Russia and her energy sector? The second set of research questions turns then to the dissertation's sub-title: (4) how can the energy transition function as an impetus for the transformation of Russia's energy sector? The dissertation looks also at a potential option for the sector's transformation and analyses the hydrogen economy on the basis of the final research question: (5) what drives and impedes the development of a hydrogen economy in Russia?

The dissertation consists of six chapters. Following the introduction, the second chapter presents a literature review on the energy transition in general and in the context of Russia. Building on key concepts from the literature, the third chapter outlines the dissertation's research design, including the conceptual framework, the methodology and operationalisation, and the data. The fourth chapter defines the energy transition, presents the debate about the pace and scale of it, and discusses its relevance for Russia and her energy sector. The fifth chapter analyses Russia's dependence on its fossil fuels, explains how the energy transition can undermine the predominant position of fossil fuels industries, and explores the drivers and obstacles of the development of a hydrogen economy in Russia. The sixth chapter summarises and concludes the dissertation.

1. Literature review

This chapter reviews the relevant literature. First, it presents an overview of contributions on the issue of the energy transition. This includes publications from different disciplines and on various aspects. Second, the chapter summarises a recently published first review of a burgeoning field within the broader literature on the energy transition. As the chapter shows, this strand of the literature is of particular relevance to the dissertation. Third and fourth, the chapter outlines the literature on two key concepts, namely `stranded assets' and `carbon lock-in'. It reviews briefly the concepts, their intellectual roots and the current scholarly work. Fifth, the chapter explores contributions on the energy transition in the context of Russia. Finally, it summarises the dissertation's position within the literature and explains its contributions to it.

The literature on the energy transition is extensive, diverse and often dispersed. Contributions to the field come from a range of disciplines and take therefore various angles. This includes, among others, studies on political (Hermwille, 2016; Strunz, 2014), economic (Mori, 2018; Sgouridis et al., 2016), and social issues (Sovacool and Dworkin, 2015; Jenkins, McCauley, Heffron, Stephan and Rehner, 2016), but also research on historical (Fouquet and Pearson, 2012; Smil, 2010, 2017), technological (Gebreegziabher, Mekonnen, Kassie and Ko?hlin 2012; Hoggett, 2014), and geographic questions (Bridge, Bouzarovski, Bradshaw and Eyre, 2013; Huber, 2015). Considerable work has also been done with regards to the different levels affected by the energy transition. Scholars look at the international arena (Simelane and Abdel-Rahman, 2011; Kander, Malanima, Warde, 2013), individual states (Schurr and Netschert, 1960; Schiffer and Trьby, 2018), and urban spaces (Droege, 2008; Rutherford and Jaglin, 2015). What is more, many academics connect energy issues with the wider debate on climate change. Within the literature on security issues, for example, some claim that certain countries connect `climate security' with `energy security' in order to promote both the decarbonisation of energy systems and the reduction of their hydrocarbon import dependency (Vogler, 2013). Other scholars, however, remain more sceptical about the relationship between the two security issues and debate the drivers behind climate agendas and decarbonisation goals (Luft, Korin and Gupta, 2010; Toke and Vezirgiannidou, 2013). This broad body of literature stretches therefore over several disciplines and is linked to a variety of debates. Recently, it has been enriched by yet another group of scholars who study the geopolitical implications of the energy transition. As the following paragraphs show, this strand of the literature is of particular relevance to the dissertation.

Vakulchuk, Overland and Scholten (2020) present a first review of this burgeoning field. The scholars outline the existing literature according to five core themes. First, they emphasise security implications as a main divide within the literature and show how a “renewed conflict” camp claims that the energy transition is not likely to reduce energy-related conflicts (Capellбn-Pйrez, de Castro and Arto, 2017; Raman, 2013), whereas a “reduced conflict” camp argues the converse (Mansson, 2015; Kostiuk, Makarov and Mitrova, 2012). The second theme of the literature concerns the assumed emergence of new winners and losers following a geopolitical reshuffle caused by the energy transition (Mecklin, 2016; Overland, Bazilian, Uulu, Vakulchuk and Westphal, 2019). The next paragraphs cover this strand in more depth. The third theme deals with international relations in a broader sense and includes issues such as democratisation (Burke and Stephens, 2018), multipolarity (de Ridder, 2013), and regionalism (Guler, Celebi and Nathwani, 2018). The fourth theme relates to the geopolitical implications of critical materials required for renewable energy technologies (Bazilian, 2018; Overland, 2019), while the fifth theme focuses on cybersecurity issues related to the infrastructure of renewable energy (Barichella, 2018; Overland, 2019). Despite these valuable contributions to the debate, the novelty of the literature is still evident and blank sports remain, as Vakulchuk, Overland and Scholten (2020) show in their literature review. They highlight, among others, the scarce use of systematic empirical data, the absence of theorisation, and the fact that most scholars disregard potential response strategies of the so-called losers of the energy transition. Considering the limited scope available, this dissertation cannot fill all of these gaps. However, its analysis of how Russia's energy sector could adapt to the energy transition explores an exemplary response strategy of a potential loser. Moreover, the use of a solid conceptual framework serves as another step forward in the ongoing discussion.

Since the dissertation explores the impact of the energy transition on Russia's energy sector, it comes close to the second core theme of the literature on the geopolitical implications of the energy transition. Scholars from this field use `stranded assets' as a key concept to discuss why some states might become losers of the energy transition. Russia is considered as a potential loser, as the country depends to a large extent on its hydrocarbon export earnings. Thus, the stranded assets concept is of value to this dissertation. The next two paragraphs review briefly the concept, its intellectual roots and the current scholarly work in the field.

The literature on the geopolitical implications of the energy transition foresees some countries to become winners and losers of the energy transition. With regards to the former, scholars anticipate that countries can become direct or indirect beneficiaries of the energy transition. Countries can win indirectly if, for example, they reduce their hydrocarbon import dependency through an increase of energy efficiency and the expansion of renewables in their energy mix (Gцkgцz and Gьvercin, 2018), but also directly if they achieve leadership in green industries and related technologies and patents (Bonnet, Hache, Seck, Simoen and Carcanague, 2019; Verdolini and Bosetti, 2017). To understand the negative effects of the energy transition on countries, the literature proposes the concept of stranded assets. In brief, stranded assets are those assets that lose their economic value before the end of their anticipated lifetime due to changes caused by the energy transition (cf. sub-chapter 3.1. for the dissertation's definition of stranded assets; cf. Table 1 for a summary of definitions that are frequently applied by organisations working in the areas of energy and climate). Stranded assets can therefore not only weaken economies, but also undermine the geopolitical power of countries if that power is financed by such assets.

The concept of stranded assets has its intellectual roots in the 1980s when scholars began to recognise the possibility that environmental policy could impair the value of fossil fuel companies (Krause, Bach and Koomey, 1989). Despite these intellectual roots, however, the literature on stranded assets is still in its infancy and has taken off only in the past ten years. Two publications provide overviews of the most recent contributions to the discussion. First, the International Renewable Energy Agency (IRENA) presents a literature review of twenty-nine significant studies that attempt to quantify the extent to which fossil fuel assets will be stranding in different geographical and sectoral areas (IRENA, 2017b). The majority of the reviewed studies have a global coverage (Caldecott et al., 2016), while some focus on specific countries, such as Australia (Caldecott, Tilbury and Ma, 2013; Caldecott, Dericks an Mitchell, 2015), Japan (Caldecott, Dericks, Tulloch, Kruitwagen and Kok, 2016), and the United States (Griffin, Jaffe, Lont and Dominguez-Faus, 2015). What is more, the studies can be grouped according to the sectors which they analyse. Most explore upstream fossil fuel production, while only some address power generation and other sectors like agriculture. IRENA (2017b) is the only study that analyses asset stranding also in the building and industry sectors. In addition, it extends its research to include a discussion on the implications of stranded assets on different stakeholders, including companies, financial investors, governments and workers. The dissertation builds upon this approach and adds a methodological framework to it, namely the Political, Economic, Social and Technological (PEST) analysis methodology (cf. sub-chapter 3.2. for the dissertation's methodology). Caldecott (2017) provides a second overview of the current debate and introduces some of the papers that were presented at the 1st Global Conference on Stranded Assets and the Environment, which was held at Oxford University in September 2015. The papers explore, among others, how game theory could help investors to persuade fossil fuel companies to avoid asset stranding (Kruitwagen, Madani, Caldecott and Workman, 2017), why investors ignore the risk of stranded assets (Silver, 2017), and why financial models and economic agents may miscalculate the risks related to the energy transition (Thomд and Chenet, 2017). In addition to these debates, one can observe that the stranded assets concept resonates increasingly beyond the academic community, where it finds both acclaim and resistance among policymakers (Gurria, 2013), institutions (Bank of England, 2015; World Bank, 2013), and companies (Mufson, 2014).

`Carbon lock-in' is another key concept used in the literature on the geopolitical implications of the energy transition. Scholars argue that countries which face a carbon lock-in condition might not be receptive to ongoing developments or be reluctant to consider current changes that can negatively affect the demand for their hydrocarbon products and thus lead to stranded assets. In view of the strong position of hydrocarbon industries in Russia, it is therefore of value to explore the literature on the carbon lock-in concept.

In his seminal article titled “Understanding Carbon Lock-In”, Unruh (2000) coined the term and argues that “industrial economies have been locked into fossil fuel-based energy systems through a process of technological and institutional co-evolution driven by path-dependent increasing returns to scale” (p. 817). The scholar calls this condition carbon lock-in and claims that it “creates persistent market and policy failures that can inhibit the diffusion of carbon-saving technologies despite their apparent environmental and economic advantages” (p. 817; cf. sub-chapter 3.1. for the dissertation's definition of carbon lock-in). Unruh (2000) builds his concept on previous contributions on more general lock-in mechanisms. More specifically, he refers to studies on path dependency and positive feedbacks. The latter includes four different classes of increasing returns, namely scale economies (Mansfield, 1988), learning economies (Arrow, 1962), adaptive expectations (Arthur, 1991), and network economies (Arthur, 1994). In a later article titled “Globalising Carbon Lock-In”, Unruh and Carrillo-Hermosilla (2006) extend the main argument of the carbon lock-in concept to countries currently undergoing industrialisation and claim that such countries cannot leapfrog a carbon intensive development. Several other scholars have joined the debate and expanded it theoretically. Brown, Chandler, Lapsa and Sovacool (2007) define cost-effectiveness, financial and legal policies, and intellectual property issues as the main barriers to deploying climate change mitigation technologies, whereas Seto et al. (2016) emphasise three main types of carbon lock-in, namely infrastructural and technological lock-in, institutional lock-in, and behavioural lock-in. Furthermore, scholars have refined the concept also in terms of methodology. Erickson, Karth, Lazarus and Tempest (2015), for example, developed “a straight-forward approach to assess the speed, strength, and scale of carbon lock-in for major energy consuming assets in the power, building, industry, and transport sectors” (p. 1). Moreover, the literature is also rich in empirical contributions. Studies assess how fossil fuels-based energy systems `lock-out' technological alternatives (Bento, 2010; del Rio and Unruh, 2007), discuss different questions on a city level, such as Gothenburg's waste incineration (Corvellec, Zapata-Campos and Zapata, 2012), or Rotterdam's port (Bosman, Loorbach, Rotmans and van Raak, 2018), and explore several carbon lock-in conditions in various countries, including Canada's oil sands (Erickson, 2018; Haley, 2011), China's thermal coal power plants (Karlsson, 2012), the U.K.'s aviation policy (Wood, Bows and Anderson, 2012), Malaysia's building sector (Zaid, Myeda, Mahyuddin and Sulaiman, 2015), Russia's Arctic oil development (Sidortsov, 2012), and the U.S. electricity market (Carley, 2011). In addition to these contributions, other scholars have also analysed pathways of how to exit a carbon lock-in condition. Unruh (2002), for example, describes three policy options that range from minor modifications to overall replacements of technological systems, while Kemp-Benedict (2014) offers the “brown-green capital” model. This dissertation builds upon these approaches and introduces the notion of `carbon unlock' (cf. sub-chapter 3.1. for the dissertation's definition of carbon unlock). In short, scholars have refined the carbon lock-in concept theoretically, methodologically and empirically since its introduction into the literature and began offering policy options of how to exit a carbon lock-in condition.

Having presented the literature on the geopolitical implications of the energy transition, including the two key concepts of stranded assets and carbon lock-in, this chapter now turns to contributions on the energy transition in the context of Russia. As explained before, some scholars connect energy issues with the broader debate on climate change, which is the case here, too. This includes, among others, publications with arguments similar to those advanced in the literature on stranded assets. Some, for example, argue that the costs of climate change to Russia's economy could make expenditures on mitigation acceptable and therefore facilitate not only the establishment of ambitious greenhouse gas emissions targets (Kokorin and Korppo, 2014), but also convince elites to support the development of a domestic renewable energy industry in order to avert the “green menace” (Smeets, 2018). Furthermore, scholars calculate carbon budgets for Russia (Sharmina, Bows-Larkin and Anderson, 2015), which serve as a basis for the formulation of low-carbon pathways with which the country could meet the 2°C goal (Sharmina, 2017), as agreed in the 2015 Paris Agreement. With regards to low-carbon pathways, many scholars examine renewable energy in the context of Russia, including its potential and the current status of it. Some contributions explore prospects for exports and development (Boute and Willems, 2012; Nazarova, Sopilko, Rimma, and Shcherbakova, 2017), while others focus on legal issues such as Russia's capacity mechanism-based approach to support renewable energy (Boute, 2012, 2013; Kozlova and Collan, 2016; Lanshina, Laitner, Potashnikov and Barinova, 2018; Smeets, 2017; Vasileva, Viljainen, Sulamaa and Kuleshov, 2015). Moreover, scholars look also at renewable energy in the context of off-grid inhabited areas in Russia's Far North and East (Berdin, Kokorin, Yulkin and Yulkin, 2017; Boute, 2016; Lombardi, Sokolnikova, Suslov, Voropai and Styczynski, 2016; Marchenko and Solomin, 2014).

Apart from renewable energy, some scholars turn also to other aspects of the energy transition, such as the hydrogen economy (cf. sub-chapter 3.1. for the dissertation's definition of the hydrogen economy). In comparison with the literature on Russia's renewable energy, however, this strand of the literature is fairly thin and has only taken off recently (EnergyNet, 2019; Mitrova, Melnikov and Chugunov, 2019). On the one hand, this literature gap is understandable, as the hydrogen economy is far from realisation and in most cases only somewhere between hypothetical considerations and pilot projects. On the other hand, however, it should be noted that the hydrogen economy “is enjoying unprecedented momentum around the world”, as stated by Fatih Birol, Executive Director of the International Energy Agency (IEA, 2019d, p. 3). Thus, it is of significance to explore the current status of the hydrogen economy, including its drivers and obstacles. This is all the more relevant in the context of Russia, as one can observe that the endorsement for the hydrogen economy has grown in the country's political and economic circles in the recent past (cf. sub-chapter 5.3.). Hence, the dissertation seeks to address the literature gap and to analyse the current state of play of the hydrogen economy in Russia.

To conclude, the chapter summarises the dissertation's position within the literature and explains its contributions to it. The literature on the geopolitical implications of the energy transition is of particular relevance to the dissertation. More specifically, one of the literature's core themes, namely the debate about potential winners and losers, provides the two key concepts of stranded assets and carbon lock-in. Building upon these concepts, the dissertation provides a solid conceptual framework and a methodology to explore an exemplary response strategy of a potential loser, i.e. Russia and her energy sector. Here, the dissertation introduces the notion of carbon unlock and focuses on the drivers and obstacles for the potential development of a hydrogen economy in Russia.

Table 1: Exemplary definitions of stranded assets Based on the summary of definitions presented in IRENA (2017b, pp. 13-14).

2. Research design

This chapter outlines the dissertation's research design. The first sub-chapter defines the conceptual framework. It builds upon the two key concepts `carbon lock-in' and `stranded assets', which are derived from the literature on the geopolitical implications of the energy transition, and introduces the notion of `carbon unlock'. The second sub-chapter specifies the methodology and operationalisation. It explains the qualitative meta-analysis and the PEST analysis. The final sub-chapter explains what data has been collected and used.

2.1 Conceptual framework

The conceptual framework builds upon the established concepts of (1) `carbon lock-in' and (2) `stranded assets' and introduces the notion of (3) `carbon unlock'. Carbon lock-in means a condition, in which a country has become locked into a high-carbon system. In a carbon lock-in condition, the high-carbon system is not incentivised to introduce decarbonisation pathways for itself and inhibits the development of a low-carbon system. Increasing returns to scale and a variety of systematic forces build and maintain a country's high-carbon system and perpetuate thus its carbon lock-in condition. Domestic factors that could unlock this condition might be too weak or not even generated. Exogenous factors, however, can have a more significant and even disruptive impact. The dissertation considers the energy transition as such a factor. It uses the stranded assets concept as a proxy to discuss the energy transition's disruptive impact on a country's carbon lock-in condition. The disruptive impact can serve as an impetus for that country to transform its high-carbon system into a low-carbon one. To discuss that transformation, the dissertation introduces the notion of carbon unlock. In a carbon unlock process, the high-carbon system launches decarbonisation pathways for its own, while elements of a low-carbon system become stronger. The dissertation presents the hydrogen economy as an example of a carbon unlock process. The hydrogen economy has been selected, as it constitutes both an attractive decarbonisation pathway for a country's high-carbon system and a promising element of an emerging low-carbon system. Hence, it is a possible response strategy of a potential loser of the energy transition, i.e. Russia and her energy sector. Combining the established concepts of carbon lock-in and stranded assets with the introduced notion of carbon unlock, the conceptual framework helps explaining whether, and if so, how the energy transition can function as an impetus for the transformation of Russia's energy sector. The following three sections elaborate on the components of the conceptual framework in more depth.

(1) Carbon lock-in. Unruh (2000) defines carbon lock-in as a condition in which “industrial economies have become locked into fossil fuel-based technological systems through a path dependent process driven by technological and institutional increasing returns to scale” and “a combination of systematic forces that perpetuate fossil fuel-based infrastructures” (p. 817, italics by author). The perpetuation of a carbon lock-in condition means that a country faces obstacles for a shift from a high-carbon to a low-carbon system (p. 817). Three elements of this definition require further clarification. First, technology should be understood as the “know-how imbedded in architecturally linked systems and subsystems” (p. 819). In other words, it can be defined “as inter-related components connected in a network or infrastructure that includes physical, social and informational elements” (p. 819). Hence, individual technologies are part of a larger technological system. The more developed that system is and the more inter-related technological components it has, the stronger it is compared to alternative technological systems that have a less developed network of inter-related technological components. In this dissertation, technological systems refer specifically to those energy systems that are based on fossil fuels. Thus, Unruh's (2000) “fossil fuel-based technological systems” mean high-carbon energy systems in this dissertation. In a carbon lock-in condition, high-carbon energy systems are stronger than low-carbon energy systems.

Second, increasing returns to scale are a driving principle of the systematic forces that build and perpetuate a carbon lock-in condition. They emerge when a rise of production volumes and market shares benefits the utility of a technology and diminishes its costs. There are four main classes of increasing returns (pp. 820-821). First, scale economies occur when costs for unit production decline as a result of a division of fixed costs over a growing production volume. Second, learning economies arise when more market experience improves performance because of the accumulation of specialised skills and knowledge. Third, adaptive expectations grow when users and producers become more confident about quality, permanence and performance due to an expanding adoption. Finally, network economies occur when interrelations among technological systems and users yield outcomes such as standards. These different increasing returns to scale are a driving principle of the systematic forces that build and perpetuate a country's carbon lock-in condition.

Third, systematic forces strengthen or weaken a country's energy system. The dissertation uses four categories that are most frequently used in the literature and aligns them with the PEST analysis. The remaining part of this section elaborates on the four systematic forces. First, political forces refer to institutions and organisations. Following Douglass North's differentiation of the two, institutions mean formal and informal social constraints like rules and laws, whereas organisations are agents with preferences and objectives (Khalil, 1995, p. 445). Agents are, among others, state bodies, companies, societal organisations, unions, industry associations, lobbies, and academic programmes. In a carbon lock-in condition, most agents prefer a high-carbon energy system and seek to perpetuate it through the creation of a favourable institutional framework, including a beneficial tax environment, legislation and subsidies. Second, economic forces are relevant in several ways. On a company level, one can note that “following the establishment of a dominant design a shift occurs from product (Schumpeterian) innovation to incremental process (Usherian) improvement” (Unruh, 2000, p. 820). After this shift, companies begin to specialise and to reinvest in dominant design competencies, which marginalises alternative options and leads to a lock-in at the company level. On an industry level, one can see “the creation of standards and design-specific supply relationships” (p. 822). An extensive network of such relationships means a large number of participants, in whose interest it is to maintain the status quo. Economic forces are also reflected in macroeconomic terms, including a country's GDP, exports and imports, budget, and currency. In a carbon lock-in condition, a high-carbon energy system involves a large number of companies and industries and shows a macroeconomic importance for a country. Third, social forces can strengthen or weaken an energy system, too. They include a society's support or opposition for that system. To a certain extent, support can be produced through publicity campaigns, various benefits, and other means. In a carbon lock-in condition, a society supports a high-carbon energy system. Finally, technological forces determine the infrastructural and technological outlook of an energy system. With regards to high-carbon energy systems, this includes, among others, “supporting infrastructure” like pipelines, refineries, and gasoline stations, and “energy-demanding infrastructure” such as buildings, transportation infrastructure, and other spatial arrangements of urban settlements (Seto et al., 2016, pp. 431-432). Moreover, the higher the investments and the expected equipment lifetime are, the stronger the infrastructural and technological path of development becomes (Erickson, Kartha, Lazarus and Tempest, 2015, p. 2). In a carbon lock-in condition, a country has an extensively expanded and expensive high-carbon energy system with a long equipment lifetime.

To sum up, the dissertation paraphrases Unruh (2000) and places his definition of carbon lock-in into the context of Russia. Here, carbon lock-in means a condition in which Russia has become locked into a high-carbon energy system through a path dependent process driven by increasing returns to scale (e.g. scale economies, learning economies, adaptive expectations, network economies) and a combination of political, economic, social and technological forces that perpetuate the country's fossil fuel-based infrastructures and create therefore obstacles for a shift towards a low-carbon energy system.

(2) Stranded assets. In a carbon lock-in condition, increasing returns to scale and the four systematic forces can obstruct the emergence of domestic factors that could potentially introduce a shift from a high-carbon to a low-carbon energy system. An exogenous factor, however, can have a more significant and even disruptive impact (Seto et al., 2016, p. 434). The dissertation considers the energy transition as an exogenous factor that can undermine a country's high-carbon energy system and unlock its carbon lock-in condition. To illustrate the energy transition's disruptive potential, the dissertation uses the stranded assets concept as a proxy. This proxy has been selected, as stranded assets constitute serious or even existential challenges to industries that belong to a country's high-carbon energy system. It is argued here that such challenges can therefore lead to a shift from a high-carbon to a low-carbon energy system, as they can incentivise a high-carbon energy system to introduce decarbonising pathways and the expansion of a low-carbon energy system. These changes are possible, because an affected country seeks to minimise the negative effect of its potentially stranded assets. As shown in the previous chapter, there are different albeit similar conceptualisations in the literature (cf. Table 1). In essence, all definitions share the notion that a stranded asset is an asset that loses its economic value well ahead of its anticipated life as assumed at the investment decision point. However, the definitions differ to a certain extent with regards to the reason why assets become stranded. Causes that are used in the literature include, among others, new regulations, unprofitable price environments, evolving social norms, and emerging environmental challenges. Instead of formulating a generalised definition, this dissertation highlights the energy transition as the cause for stranded assets. It should be noted that this does not exclude the disruptive potential of other causes. Instead, it follows the dissertation's research focus, which is Russia and her energy sector in the age of the energy transition. This dissertation defines therefore stranded assets as those fossil fuel assets that lose their economic value before the end of their anticipated lifetime due to changes caused by the energy transition. Fossil fuel assets include, among others, discovered reserves, facilities that are necessary for processing, storage and transportation, and the distribution and marketing networks (Kielmas, 2019). As stranded assets can have a significant political, economic, social and technological impact on a country, they can weaken those systematic forces that maintain a country's high-carbon energy system, which, in turn, undermines that country's carbon lock-in condition. This explains the energy transition's disruptive potential and shows how stranded assets can introduce a carbon unlock.

(3) Carbon unlock. This dissertation introduces the notion of carbon unlock. In contrast to carbon lock-in, carbon unlock does not refer to a condition. Instead, it means a process. The dissertation defines carbon unlock as a decarbonising process that shifts a country from a high-carbon to a low-carbon energy system. The decarbonising process covers all pathways that are aimed at transforming a country from a high-carbon to a low-carbon energy system. Thus, the dissertation stipulates only the low-carbon direction of the carbon unlock process without prescribing the specifics of its realisation. Carbon unlock processes include therefore both the decarbonisation of high-carbon energy systems and the expansion of low-carbon energy systems. The reasoning behind this conceptual choice is the following. A country that is in a carbon lock-in condition cannot abruptly switch from its high-carbon to a low-carbon energy system, as the former is essential for the functioning of the country. Hence, it will most likely have to integrate its high-carbon energy system into its strategies to shift towards a low-carbon energy system. The decarbonisation of the high-carbon energy system becomes therefore part of the country's carbon unlock process. With regards to the expansion of low-carbon energy systems, the dissertation includes also a role for nuclear energy, as opposed to an exclusive focus on renewable energy for example. This can be explained by the fact that many countries include nuclear energy into their considerations about the energy transition. The dissertation discusses the hydrogen economy as an exemplary carbon unlock process for Russia. This selection can be explained by three reasons. First, the hydrogen economy constitutes an option for the decarbonisation of Russia's high-carbon energy system, in particular with regards to the country's natural gas sector. Second, Russia's nuclear energy sector views the hydrogen economy as a way to expand a low-carbon energy system. Finally, the literature has so far largely ignored the potential of a hydrogen economy in Russia and focuses predominantly on renewable energy when discussing the energy transition in the context of Russia. It should be emphasised, however, that the hydrogen economy constitutes only an exemplary carbon unlock process. Future contributions can and should discuss other carbon unlock processes within the same conceptual framework.

Hydrogen is the most abundant chemical element in the universe. Today, it is mostly used in oil refineries and chemical industries, but in the future, it could turn from an “industrial gas” into a “new energy carrier” as part of a “hydrogen economy” (Mitrova, Melnikov and Chugunov, 2019, pp. 6-7). In this economy, hydrogen can be used for power generation, since it can run fuel cell mini-power plants in households and replace natural gas in gas-fired power plants (pp. 32-35). Hydrogen can also become critical for energy storage. It enables long-term large-scale storage and can thus balance output fluctuations that are caused by the expansion of variable renewable energy (VRE) (pp. 30-32). Moreover, hydrogen can be transported over any distance. It can therefore be imported and exported via pipelines, trucks, and ships (pp. 14, 25-30). What is more, hydrogen can be utilised in transport as a fuel (pp. 36-42), in chemical industries as a basis for the production of synthetic gases (pp. 42-43), and in metallurgy as a means to reduce the use of iron ore (pp. 43-44). The production of hydrogen uses mostly fossil fuels (68% natural gas, 16% oil, 11% coal) as a feedstock and steam-methane reforming as a method (p. 6). Since this process releases a large quantity of CO2, the product is called `grey hydrogen' (p. 20). An alternative process generates `blue hydrogen' by adding carbon capture, utilisation and storage technologies (CCUS), which help decreasing the release of emissions (p. 20). Another approach spares fossil fuels and uses renewable or nuclear energy for the electrolysis of water to produce `green hydrogen' (p. 21). While these are the most common technological approaches in the production of hydrogen, it should be noted that industries are developing alternatives, including, among others, methane pyrolysis, low-temperature plasma and high-temperature gas-cooled reactors (HTGR). The production of grey hydrogen is well established on an industrial scale, but the release of emissions excludes it from being part of a decarbonising pathway. Blue and green hydrogen, however, are options for a country to shift from a high-carbon to a low-carbon energy system. Blue hydrogen can be used as a decarbonising pathway for a country's high-carbon energy system, while green hydrogen can be part of the expansion of a low-carbon energy system.

2.2 Methodology and operationalisation

The dissertation uses two distinct methodological approaches. For chapter 4., the dissertation applies a qualitative meta-analysis, which means “the aggregating of a group of studies for the purposes of discovering the essential elements and translating the results into an end product that transforms the original results into a new conceptualisation” (Schreiber, Crooks and Stern, 1997, p. 314). In this dissertation, a qualitative meta-analysis is used to aggregate studies on the energy transition, including its definition (i.e. sub-chapter 4.1.), pace and scale (i.e. sub-chapter 4.2.). Using this approach, the dissertation discovers “the essential elements” and transforms these elements into a new end product, which is a discussion on the energy transition's relevance for Russia (cf. sub-chapter 4.3.). Hence, the qualitative meta-analysis helps in providing a contextual background and establishing the reason why the energy transition is of relevance to Russia and her energy sector.

For chapter 5., the dissertation uses a political economy approach. Political economy is interdisciplinary and builds upon political science, economics and sociology to understand how a country or a specific sector is managed (Moncrieffe and Luttrell, 2005, p. 3). It focuses on “how power and resources are distributed and contested in different contexts” and reveals “the underlying interests, incentives and institutions that enable or frustrate change” (DFID, 2009, p. 1). Thus, a political economy approach is helpful to research how systematic forces maintain Russia's carbon lock-in condition, how stranded assets can function as a driver of change, and how systematic forces can support or obstruct a carbon unlock. Within its political economy approach, the dissertation uses a PEST analysis (Widya Yudha and Tjahjono, 2019). PEST analysis is usually used in business and management to gauge factors that influence current and future markets (p. 3). This approach, however, can be also applied to explore factors that impact entire sectors, such as the Russian energy sector. The dissertation applies the PEST analysis to all three components of the conceptual framework. In doing so, it shows how political, economic, social and technological forces strengthen (i.e. carbon lock-in) or weaken (i.e. stranded assets) Russia's high-carbon energy system and the potential development of a hydrogen economy (i.e. carbon unlock). The operationalisation is different for each systematic force and is explained below.

(1) Political forces. The dissertation focuses on organisations and institutions here. It looks at various organisations (e.g. state bodies, companies, unions, industry associations, lobbies, universities) and analyses how and why they support a favourable institutional framework for a high-carbon energy system (sub-chapter 5.1.) / a hydrogen economy (sub-chapter 5.3.). Moreover, it assesses how that institutional framework can weaken the high-carbon energy system and introduce a low-carbon energy system (sub-chapter 5.2.).

(2) Economic forces. Firms, industries and macroeconomic factors are relevant in conceptual terms. To maintain within the limits of the dissertation, however, the operationalisation includes only macroeconomic factors (e.g. GDP, exports, revenues, budget, currency) as a simple proxy. This allows interpreting the economic role of the high-carbon energy system (sub-chapters 5.1. and 5.2.) and elaborating on the economic drivers and obstacles of the development of a hydrogen economy (sub-chapter 5.3.).

(3) Social forces. This section concerns the society's support (sub-chapter 5.1.) or opposition (5.2.) for the high-carbon energy system only, as social forces are not considered in the discussion on the carbon unlock due to the hydrogen economy's novelty and lack of data. The dissertation explores societal opinions and attempts to influence those opinions.

(4) Technological forces. The final section refers to Russia's technological and infrastructural path of development. Since it is outside of the dissertation's scope to measure all technological and infrastructural elements, this dissertation uses scale (sub-chapter 5.1.) and age (sub-chapter 5.2.) as a simple proxy. The greater the scale and newer the equipment of an energy system in the energy mix, the stronger that system is. In addition, it looks at transportation infrastructure and production technologies to explore technological drivers and obstacles of the development of a hydrogen economy (sub-chapter 5.3.).

2.3 Data

The dissertation uses a mixture of primary and secondary sources. In sub-chapter 4.1., secondary sources are used to elaborate on how the literature understands the energy transition. The final paragraph of sub-chapter 4.1. presents several energy outlooks to inform about the uncertainty concerning the future shape of the energy sector. Since the objects of interest are the energy outlooks themselves, they are considered as primary sources here. In sub-chapter 4.2., the dissertation looks at a variety of secondary sources to provide a contextual background information on the debate about the pace and scale of the energy transition. This includes reports from the IEA and IRENA and a broad selection of academic studies. In addition, the sub-chapter includes some primary sources such as official speeches and EU documents. In sub-chapter 4.3., the dissertation interprets the data used for the debate and adds both primary (e.g. data from Eurostat and statista.com) and secondary sources to discuss the energy transition's relevance for Russia. In sub-chapter 5.1., the dissertation merges academic studies with primary sources such as company websites and data from Russia's Federal State Statistic Service and GlobalPetrolPrices.com to explore how political, economic, social and technological forces can strengthen Russia's high-carbon energy system. In sub-chapter 5.2., secondary sources constitute the sole basis. In sub-chapter 5.3., the dissertation uses a broad selection of both primary and secondary sources to analyse the drivers and obstacles of the potential development of a hydrogen economy in Russia. With regards to primary sources, the sub-chapter uses official documents, publications from Russia's Ministry of Energy, company websites, and studies that have been conducted on behalf of Russia's government. Secondary sources are used additionally to complement the interpretation. It should be noted that the majority of the data used in sub-chapter 5.3. is in Russian.