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

(1) Political forces. The oil and gas sectors have been of strategic importance for both internal and external political affairs. In the early 2000s, the Russian state became increasingly interested in controlling oil revenues. High oil prices could support Russia in its recovery growth (Idrisov, Kazakova and Polbin, 2015), while the oil sector served as an arena for the state to weaken oligarchs and other rivalling power bases (Sakwa, 2014). The result has been an increasing concentration of the Russian oil sector and a growing proportion of state-controlled oil production (Mitrova, 2016, pp. 18-20). This process turned the oil company Rosneft into a national champion (Henderson and Mitrova, 2016, p. 27). The state considers Rosneft as a strategic company and owns a controlling stake through ROSNEFTEGAZ JSC, which is 100% owned by the state, and the Federal Agency for State Property Management, which belongs to the Russian Ministry of Economic Development (Rosneft, 2020). Rosneft's CEO, Igor Sechin, is within Putin's inner circle and heads the Commission on Strategy for Developing the Fuel-Energy Complex, which is an important administrative body to manage the operations of the energy complex (Baev, 2014, p. 12). Sechin's position within the political landscape secures for Rosneft valuable advantages (Mehdi and Yenikeyeff, 2013, p. 21). In contrast to the oil sector, the Russian gas sector was consolidated into one state-owned company in the 1990s, namely Gazprom (Mitrova, 2016, p. 20). Although the company's natural monopoly has been challenged by domestic competitors in the recent past (Henderson and Mitrova, 2015, p. 22), the Russian state considers Gazprom to be vital for its energy security and views it as an important domestic and international political tool (Mitrova, 2016, p. 22). What is more, Gazprom's CEO, Alexei Miller, is close to Putin, just like Rosneft's CEO, and also receives absolute support for his company (Baev, 2014, p. 9). The position of Rosneft and Gazprom within the country's political landscape secures privileges for the oil and gas sectors. This includes, among others, subsidies through a favourable tax environment and a strategic role in Russia's legislation and energy policies (Ogarenko, Bossong, Gerasimchuk and Pickard, 2015). It follows from the above that the strategic relevance of the oil and gas sectors has led to a close link between the two sectors and the state, which explains why organisations create a favourable institutional framework for the high-carbon energy system in Russia.

The high-carbon energy system is further strengthened by other organisations, including unions, industry associations, lobbies, and universities. The Union of Oil & Gas Producers, for example, is an influential organisation and “was founded to protect and represent corporate interests in executive and legislative authorities … as well as to influence upon decision-making processes” (Union of Oil & Gas Producers, 2007). The union campaigns for the interests of the oil and gas sectors, cooperates with other unions, engages experts, and establishes organisations and funds. While unions, industry associations and lobbies provide strong political support for Russia's high-carbon energy system, universities offer degree programmes aimed at recruiting new staff for the system. Notable examples include the Gubkin University of Oil and Gas, the Saint Petersburg Mining University, and the Ufa State Petroleum Technological University. Universities can strengthen Russia's high-carbon energy system not only through an expansion of the knowledgebase, but also through the active creation of networks that connect students with industries from the high-carbon energy system and the state. Thus, unions, industry associations, lobbies, and universities are influential organisations that contribute to the making and perpetuation of a favourable institutional framework for Russia's high-carbon energy system.

(2) Economic forces. Russia's economy is heavily dependent on its fossil fuels. Their importance is reflected in the country's GDP. Although numbers about the exact share vary, one should highlight several points here. On the one hand, the oil, gas and coal sectors are directly relevant for Russia's GDP due to the large production level and export of hydrocarbons (Movchan, 2015). In 2018, fossil fuels accounted for approximately 65% of Russia's exports (Federal'naia sluzhba gosudarstvennoi statistiki, 2019a). In terms of U.S. dollars, the oil sector generated most export revenues (207.407 Mill. U.S. dollars), followed respectively by the gas (49.148 Mill. U.S. dollars) and coal sectors (19.878 Mill. U.S. dollars) (Federal'naia sluzhba gosudarstvennoi statistiki, 2019b). On the other hand, the three sectors finance also non-hydrocarbon components of Russia's GDP (Movchan, 2015). Trade, for example, is important for the country's GDP, but a large share of the total consumption is imported and financed with earnings from hydrocarbon exports. State budget expenditures are also relevant for the GDP. A significant share of Russia's consolidated budget revenues, however, originate from duties and taxes related directly or indirectly to the oil, gas and coal sectors. What is more, earnings from these sectors are also used for investments and spending in other sectors of the economy. Hence, the true extent of the three sectors' importance for Russia's GDP is much higher than displayed in statistics. Furthermore, the two sectors enjoy a variety of economic privileges, including different duty reductions, tax exemptions and tax deductions (Ogarenko, Bossong, Gerasimchuk and Pickard, 2015). It follows that the high-carbon energy system is extraordinarily relevant for Russia's economy. The system's economic relevance disincentivises the high-carbon energy system's decarbonisation and deters the expansion of a low-carbon energy system. One can therefore clearly see how economic forces can strengthen Russia's high-carbon energy system and the country's carbon lock-in condition.

(3) Social forces. Russia's abundance of fossil fuels allows the country to sell its energy domestically at low prices. Although oil is sold at a price that is approximately the same as the one on international markets, Russian oil companies supply occasionally cheap deliveries of oil to farmers and remote areas (Rutland, 2015, p. 73). The country's oil wealth is also reflected in cheap petroleum products. The price for gasoline, for example, is slightly more than two thirds of the global average price (GlobalPetrolPrices.com, 2020b). LPG prices are even lower and reach the global bottom price (GlobalPetrolPrices.com, 2020c). Natural gas prices, however, are most exemplary for how Russia uses its abundance of fossil fuels to sell energy at low prices to its citizens. Although natural gas prices have been increasing in the past few years (IRENA, 2017a, p. 48), they are still among the world's lowest ones (GlobalPetrolPrices.com, 2020a). In addition, subsidies on the consumption of natural gas have seen a significant increase in 2018 (IEA, 2020a). The low price for natural gas becomes even more relevant if one considers the aforementioned important position of natural gas within the energy mix of households (IRENA, 2017a, p. 38). In view of the provision of cheap fossil fuels and their relevant role in the country's energy mix, one can argue that that Russia's society is more inclined to support the country's high-carbon energy system.

Apart from low energy prices, the Russian society has also seen several corporate campaigns aimed at improving the oil and gas sectors' image. Gazprom is an example in case (Rutland, 2015, pp. 73-74). The gas company's commercials are aimed at messaging safety and security and to symbolise Gazprom as Russia's future (p. 74). Moreover, the company financed period lamps in St. Petersburg's downtown as a “gift of Gazprom” and sponsored various sport clubs like St. Petersburg's Zenit soccer team and leagues such as the European Champions League and the new Kontinental Hockey League (p. 74). For its 15th anniversary, Gazprom used “national treasure” as its main slogan (p. 73). A survey found that the majority of participants either fully agreed (32%) or were inclined to agree (35%) with that slogan, meaning that Gazprom seems to have a relatively positive image in Russia's society (pp. 74-75). In addition, the survey shows that a majority fully agrees (29%) or is inclined to agree (35%) that Russia is an energy superpower (p. 75). Considering the low energy prices and the effectiveness and prevalence of publicity campaigns as mentioned above, one could conclude that in general, the country's high-carbon energy system receives great support from its citizens. Thus, it can be argued that Russia's social forces strengthen the country's carbon lock-in condition.

(4) Technological forces. In 2014, three sectors accounted for almost the entire Russian energy consumption: industry (38%), buildings (35%), and transport (24%) (IRENA, 2017a, pp. 37-39). In all three sectors, fossil fuels play a dominant role. In industry, coal and natural gas are the most important sources of energy next to electricity and district heating (pp. 38, 41). In transport, the need for oil and its products is increasing, as Russia's number of cars has been steadily growing (pp. 38, 43-44). In buildings, one can notice an extraordinary demand for heat, in particular for space and water heating (pp. 38, 41-43). District heating accounts for more than half of the energy demand here (pp. 38, 44-45). Russia has the world's largest district heating system. In the European part of the country, it is mainly fuelled by natural gas, whereas in Siberia, coal is predominantly used. Electricity also plays an important role, especially in industry and buildings (pp. 38-41). In 2014, Russia's capacity reached 248 GW (p. 38). Thermal plants accounted for almost 70%, while hydropower (21%) and nuclear power (10%) generated the remaining 30%. Using scale as a simple proxy, one can clearly see that Russia's technological and infrastructural path of development is dominated by fossil fuels. Thus, technological forces are strengthening Russia's high-carbon energy system and therefore its carbon lock-in condition.

In view of the above, it becomes clear that political, economic, social and technological forces strengthen Russia's high-carbon energy system and therefore the country's carbon lock-in condition. In political terms, the strategic importance of the oil and gas sectors have led to an increased proximity between the two sectors and the state, which is why various organisations create and maintain a favourable institutional framework for the high-carbon energy system. In economic terms, the oil, gas and coal sectors are of crucial importance to Russia's economy, including the GDP, exports, revenues, and the federal budget. In social terms, one can argue that the provision of cheap fossil fuels and corporate campaigns convince significant parts of the Russian society to support the high-carbon energy system. In technological terms, fossil fuels have a large share of the country's energy mix, which means that the high-carbon energy system dominates Russia's infrastructural and technological path of development. It follows that the four systematic forces strengthen Russia's high-carbon energy system, which perpetuates its dominant position and inhibits a shift towards a low-carbon energy system. This explains the country's carbon lock-in condition. Table 3 summarises the arguments presented in this sub-chapter.

Table 3: Summary of discussion regarding carbon lock-in

4.2 Stranded assets

As the previous sub-chapter has shown, systematic forces strengthen Russia's high-carbon energy system and its carbon lock-in condition. Assuming that the demand for the country's fossil fuels will be stable or that it would even grow, one can argue that the status quo is unlikely to change. In other words, domestic factors that could weaken the high-carbon energy system and unlock the carbon lock-in condition might be too weak or not even generated. In view of the progressing energy transition, however, one can also claim that such a scenario is becoming less and less likely due to a profound change in the global energy system (cf. sub-chapter 4.2.). Thus, the future of the high-carbon energy system is not cloudless. It risks stranded assets. Considering the EU's energy transition and the obstacles that Russia faces in its pivot to Asia and its energy relations with various African countries (cf. sub-chapter 4.3.), it is likely that substantial parts of Russia's fossil fuel assets can lose their economic value before the end of their anticipated lifetime. Coal and oil assets are challenged most by the energy transition (cf. sub-chapters 4.2. and 4.3.). Although natural gas assets are at lower risk due to the potential role of natural gas in the energy transition (cf. sub-chapters 4.2. and 4.3.), one should highlight that revenues from the gas sector cannot fully compensate for the potentially lost revenues from the coal and oil sectors. Hence, stranded assets have a disruptive potential, which requires Russia's energy sector to introduce new pathways. This means that the energy transition can serve as an exogenous factor which could function as an impetus for the transformation of the country's energy sector. The following sections elaborate more in depth on the disruptive potential of stranded assets and explain how (1) political, (2) economic, (3) social and (4) technological forces can weaken the country's high-carbon energy system and unlock its carbon lock-in condition.

(1) Political forces. While various organisations maintain a favourable institutional framework for Russia's high-carbon energy system (cf. political forces in sub-chapter 5.1.), one can also point at other aspects of the country's institutional character. Etkind's (2015, 2019) notions of the `hyper-extractive state' and the `Russian disease' are useful here. Both are derived from well-established concepts from political science and economics. Concerning political science, Etkind (2015) refers to the `resource curse' and the `Dutch disease'. The resource curse is a paradox in which a state has an abundance of natural resources like fossil fuels, but experiences less democracy, less economic development, more administrative corruption, and more social inequality. The Dutch disease became a historical example of the resource curse and concerns the economic downturn of the Netherlands following the discovery of natural gas. As the Dutch disease has shown, however, a resource curse is not a real curse, but a choice. Etkind (2019) argues that countries like the Netherlands, Norway, Canada and Australia could overcome the Dutch disease because of their democratic institutional framework. Etkind (2019) emphasises therefore the presence of democratic institutions. In view of Russia's challenges that are caused by the country's resource curse (cf. economic forces below) and the absence of a democratic institutional framework, he argues that the country does not have a Dutch but a Russian disease. Note: the Russian disease exists, despite its name, in many parts of the world.

With regards to concepts from economics, Etkind (2019) highlights the difference between resource-dependent and labour-dependent states. The latter seek to improve competition, property rights and societal progress, as they are reliant on the wellbeing of the labour force, whereas the former are not dependent on the population for the exploitation of their natural resources. In addition, Etkind (2015) builds upon the distinction between inclusive and extractive states. While the former are meritocracies that create democratic institutions, the latter suppress such institutions, since they undermine profits and the elites' privileged position. The Russian resource-based and hyper-extractive state needs only a small fraction of the population for the exploitation of its fossil fuels. Hence, Etkind (2019) argues that Russia's society is superfluous and taxpayers cannot control the government. The government, in turn, is not incentivised to invest into democratic institutions, since they could undermine the elites' privileges and their extraction of natural resources. As explained before, the absence of a democratic institutional framework means that it is difficult for Russia to escape its resource curse. Since Russia's high-carbon energy system can be considered as the fundament of the resource-based and hyper-extractive nature of the Russian state, the high-carbon energy system is directly connected with the Russian disease and the aforementioned problems that are associated with it. This means also that the Russian disease inhibits the expansion of a low-carbon energy system, as such a system contradicts the principles of a resource-based and hyper-extractive state.

By implication, the above means that the dominant position of the high-carbon energy system needs to be overcome in order to mitigate the resource-based and hyper-extractive institutional character that causes the Russian disease. If the demand for Russia's fossil fuels remains stable or if it even grows, it is likely that domestic factors, which could challenge the dominant position of the high-carbon energy system, are too weak or not even generated. However, an exogenous factor like the energy transition can decrease that demand and therefore lead to stranded assets, which, in turn, can undermine the position of the high-carbon energy system. This means that stranded assets caused by the energy transition can also challenge Russia's resource-based and hyper-extractive state. Once this challenge becomes strong enough, stranded assets could also enhance the mitigation of the Russian disease and therefore unlock the country's carbon lock-in condition.

(2) Economic forces. The high-carbon energy system is of particular importance to Russia's economy (cf. economic forces in sub-chapter 5.1.). This importance, however, can be also interpreted as a resource curse that leads to a variety of economic problems. The Russian rouble, for example, is highly influenced by world oil prices. Exchange rate depreciations are therefore attributed to declining oil prices (Dreger, Kholodilin, Ulbricht and Fidrmuc, 2016, p. 297). While countries with a diversified economy can use a weakened currency to make export products more competitive in international markets, Russia cannot use this option, as it lacks a major export industry except for its oil and gas sectors (Beattie, 2015). What is more, one should also highlight the impact of oil shocks on Russia's economy. For example, it is argued that the big drop of world oil prices in 2014 and 2015 has been the main reason for Russia's economic hardship, which led to a drop of the rouble's value by 59% relatively to the US dollar, a GDP growth of merely 0.4%, a rise of the official annual inflation rate from 6% to 9%, a jump in food prices, and an increase of private-sector net capital outflows (Tuzova and Qayum, 2015, p. 141). The ongoing COVID-19 crisis together with the historic drop in oil prices will most certainly affect Russia's economy even more than previous crises and oil shocks. Although the evolution of this double crisis has yet to be seen, and even though Russia possesses some macroeconomic instruments such as the National Wealth Fund to counter declining revenues from the oil sector, observers predict serious challenges for Russia's economy, including a negative impact on the country's exchange rate, stock market and GDP (Becker, 2020). While the Russian Central Bank expects the country's GDP to decline by 4-6% in 2020 (TASS, 2020), others consider even higher numbers that could reach 8.5% (Becker, 2020). Hence, the current double crisis is another reminder that Russia's resource curse and its continued dependence on fossil fuels constitute a serious risk to the country's economy and its citizens. What is more, this can be also understood as a little foretaste for the consequences of the energy transition. In view of dire forecasts for the oil demand in the future (IEA, 2020c), stranded assets seem at least possible. While Russia has learned fiscal and monetary lessons from past crises and oil shocks (Becker, 2020), it is argued here that the prospects for potential stranded assets can incentivise Russia to learn something new, including a more ambitious diversification of the country's economy and its export portfolio. In terms of Russia's energy sector, this could introduce a carbon unlock process.

(3) Social forces. Energy subsidies and corporate campaigns can strengthen the Russian society's support for the country's high-carbon energy system. However, one should also consider other aspects and look at societal opinions on that system. It is worth to be noted, for example, that although a majority views Russia as an energy superpower (Rutland, 2015, p. 75), a majority also affirms the slogan that Russia is a “raw materials appendage” of the West and increasingly also of China (p. 76). Furthermore, the oil sector is considered as a reason for the rising social inequality and personal enrichment of a small elite that emerged during the transition process. Oil but also gas have therefore not been part of national debates over Russia's post-Soviet identity (pp. 78-80). What is more, the move of the oil and gas sectors into Russia Far North and East constitutes not only opportunities, but poses also new challenges for them (p. 81). Since the age of “easy oil” is coming slowly to an end and new extraction methods are being increasingly applied for “heavy oil” and “shale oil” (p. 81), the sectors' encroachment on the territory of native peoples could become more salient in the future. Oil and gas companies are increasingly aware that formal legal licenses and permits are no longer enough. Instead, they need to earn the trust of local communities that are affected and secure a so-called “social license” to operate (Wilson, 2016). An example from the Khanty-Mansiysk Autonomous Okrug evidences this need. Lukoil attempted to take over land in the okrug for the exploitation of natural resources, but a local Khanty family demonstrated resistance and achieved that the okrug's government took their concerns seriously (Borodyansky, 2014). Social resistance to Russia's high-carbon energy system could also grow outside of indigenous communities. Assuming that stranded assets caused by the energy transition would mean a decline of the economic basis for social benefits, and considering the above-mentioned opinions, one can imagine that social forces could also weaken Russia's high-carbon energy system.

(4) Technological forces. Russia's infrastructure is aging and needs to be replaced in many sectors. In industry and buildings, Russia requires a modernisation of its facilities and building stock (IRENA, 2017a, pp. 41-43). The two sectors account together for one third of Russia's total energy saving potential (p. 41). Although new and retrofitted buildings could significantly reduce the energy demand in buildings, Russia faces various difficult challenges here, including, among others, large investment needs, outdated norms, and long permission processes (p. 43). The country's district heating is also in urgent need of replacement. The Russian government announced that 70% of infrastructure has to be replaced in the near future, while 30% is in urgent need of replacement (p. 44). Power generation from fossil fuel-based plants is also generally considered to have a low fuel utilisation efficiency (p. 40). Furthermore, the current stock is on average more than 30 years old and about half of the plants operate by exceeding their lifetime (p. 40). Although Russia's high-carbon energy system dominates the country's energy mix, the system's age leaves a certain margin for low-carbon alternatives. It is argued here that Russia's need to modernise its energy system could constitute an opportunity to shift towards a low-carbon energy system, as investments into the high-carbon energy system could become stranded assets due to the energy transition.

It follows from the above that political, economic, social and technological forces do not only strengthen Russia's high-carbon energy system, as explained in sub-chapter 5.1., but also weaken it. In view of the energy transition and the disruptive impact of stranded assets, one can argue that the four systematic forces could potentially turn into rather weakening than strengthening factors. This means that they could unlock Russia's carbon lock-in condition and potentially introduce a carbon unlock process. In political terms, stranded assets could challenge Russia's resource-based and hyper-extractive state, which could enhance the mitigation of the Russian disease and therefore support the introduction of a carbon unlock process. In economic terms, the ongoing COVID-19 crisis and the historic oil shock remind of the problems that are associated with Russia's resource curse, including the rouble's dependence on oil prices and the concentrated nature of the Russian economy. In social terms, one can argue that the Russian society seems to support the high-carbon energy system only as long as it benefits from it. In technological terms, the high-carbon energy system's infrastructure is aging and in need of replacement. Since investments into the high-carbon energy system could become stranded assets due to the energy transition, one can argue that technological forces could incentivise a shift towards a low-carbon energy system. It follows that stranded assets can increase the weakening function of the four systematic forces. This can unlock Russia's carbon lock-in condition and serve as an impetus for the transformation of the country's energy sector. Table 4 summarises the arguments presented in this sub-chapter.

Table 4: Summary of discussion regarding stranded assets

4.3 Carbon unlock

The hydrogen economy is a potential pathway for Russia's carbon unlock. For Russia and her energy sector, the hydrogen economy offers various benefits, as outlined in the report “Russia's Prospects in the Global Hydrogen Fuel Market” (EnergyNet, 2019, p. 4). First, blue and green hydrogen are products of an emerging segment of the global energy sector. Russia could take a significant share and claim 10-15% of the global market, according to the estimates of the report. Second, this could lead to an increase of export earnings and boost economic growth. The report considers additional revenues of $1.7-3.1 billion per year by 2035. Third, the hydrogen economy could increase the capacity factor and thus the efficiency of power plants in Russia, as unlocked capacities could be used for the production of hydrogen. Fourth, blue and green hydrogen could be delivered to remote and isolated territories. This could decrease the energy costs of such territories by 27-30%, according to the report. Fifth, the hydrogen economy offers new forms of energy storage, which could create an additional source of flexibility in the electricity sector. Sixth, the hydrogen economy could stimulate the growth of renewable energy and thereby contribute to its development in Russia. Seventh, the hydrogen economy is a knowledge-intensive sector, which is why it could create new high-tech jobs across the country. Finally, Russia could join the energy transition, while profitably using its free energy capacities, as the country could export blue and green hydrogen to its foreign buyers. Russia is well aware of these benefits and shows interest in the hydrogen economy. Moreover, the country seeks to understand and seize global trends of the energy transition, so that it does not fall behind its competitors as happened in the case of LNG, where Russia's energy sector has a backlog. It is therefore important to explore the drivers and obstacles of the development of a hydrogen economy in Russia. The following sections elaborate more in depth on how (1) political, (2) economic, and (3) technological forces strengthen or weaken that development. Note: Since the hydrogen economy is taking shape only now, it has not yet penetrated Russia's society on a large scale. Thus, societal opinions on the hydrogen economy have not yet been formed. This is why the dissertation considers social forces to neither strengthen nor weaken the development of the hydrogen economy in Russia. Hence, social forces are excluded from the discussion on the carbon unlock.

(1) Political forces. The hydrogen economy has entered Russia's energy agenda. In the past few months, its development has been endorsed by various members of the executive management of Russia's Ministry of Energy. It is noteworthy that the officials support the hydrogen economy, because they view it as a way to respond to the energy transition and other risks that challenge Russia's energy sector. Russia's Minister of Energy, Alexander Novak, said in his presentation of the new Energy Strategy until 2035 to the government that “it is very important to consider the trend of promoting the green agenda around the world” (Ministerstvo Energetiki, 2020c, author's translation of the Russian original). To respond to this trend, he announced that “the Ministry of Energy of Russia began organising the effective use of the potential of hydrogen energy.” (Ministerstvo Energetiki, 2019b, author's translation of the Russian original). Pavel Sorokin, Deputy Minister of Energy, considered the rapid expansion of new technologies and claimed that “Russia has the necessary requisites and competitive advantages to enter the global hydrogen energy markets” (Ministerstvo Energetiki, 2020a, author's translation of the Russian original). Alexey Kulapin, head of the Department of State Energy Policy, emphasised the development of hydrogen technologies as well and argued like Sorokin that “Russia has the necessary requisites in the field of hydrogen energy, which opens up broad prospects for our country to enter new world markets” (Ministerstvo Energetiki, 2019a, author's translation of the Russian original). Anatoly Yanovsky is responsible for the Department of International Cooperation. In a meeting with the chairman of the Russia Working Group of the Eastern Committee of the German Economy, he expressed his interest in discussing potential partnerships between Russia and Germany in the field of hydrogen (Ministerstvo Energetiki, 2020b). In addition to these official endorsements, the hydrogen economy became an important topic of discussions at the governmental level, as the following paragraph outlines.

In 2019, the Ministry of Energy held several meetings dedicated to hydrogen economy. The participants included representatives of other state bodies, the scientific community and companies, such as Gazprom, Rostec, Rosatom and Sibur (Petlevoi, 2019). In the first meeting in August 2019, the participants decided to develop a National Programme for the Development of Hydrogen Energy and named the Sakhalin Oblast as a pilot region (Grib, n.d.). Shortly afterwards, Rosatom, Russian Railways and Transmashholding signed an agreement on the production of trains using hydrogen fuel cells and announced the Sakhalin Oblast as a testing ground (Volkova, 2019). In the second meeting in October 2019, the participants considered the aforementioned report “Russia's Prospects in the Global Hydrogen Fuel Market” as a basis for the development of the national hydrogen programme (EnergyNet, 2019). The report was done by the EnergyNet infrastructure centre of the National Technology Initiative. It outlines Russia's export potential in the hydrogen economy and argues that the country could secure 10-15% of the world market by 2030 (p. 12). Furthermore, the report emphasises that hydrogen storage could increase the efficiency of energy supply to remote and isolated territories (p. 14). In the October meeting, the participants also agreed to create a special thematic working group to bring together all key organisations, including state bodies (e.g. Ministry of Foreign Affairs, Ministry of Economic Development, Ministry of Science and Higher Education), energy companies (e.g. Gazprom, Rosatom), equipment and technology suppliers, banking institutions (e.g. Sberbank), scientific organisations and experts (Mel'nikov, 2020). In November 2019, the Ministry of Energy established the working group by Order No. 1231 (Ministerstvo Energetiki, 2020a). The working group is chaired by the aforementioned Sorokin and is responsible “to develop systemic measures to support hydrogen energy, to examine pilot projects in the field of hydrogen energy, to remove regulatory barriers to form a hydrogen energy market in the Russian Federation, as well as the formation of an action plan for the development of hydrogen energy in the Russian Federation” (Ministerstvo Energetiki, 2020a, author's translation of the Russian original). The establishment of a working group and the development of a national hydrogen programme need to be stressed here. Although their outcome remains open and needs to be further monitored, they indicate that organisations have moved from hypothetical considerations to the strategic planning of a hydrogen economy in Russia. The potential creation of a favourable institutional framework is also reflected in key strategic documents and legislative acts, as the next two paragraphs demonstrate.

In April 2020, the Russian government approved the new Energy Strategy until 2035 (Ministerstvo Energetiki, 2020d). The strategy acknowledges the energy transition as a potential challenge for Russia's energy sector. Although it underlines that the energy transition's “negative impact … on the Russian fuel and energy complex is unpredictable at this stage”, it emphasises that it “may turn out to be significant” (Ministerstvo Energetiki, 2020e, article 120, author's translation of the Russian original). Hence, the strategy argues that “an accelerated transition … to a more efficient, flexible and sustainable energy sector … will be required” (article 13, author's translation of the Russian original). Hydrogen technologies are highlighted as potential breakthrough technologies and as a component of this transition (chapter 2.2.6.). The strategy predicts that “hydrogen, which is used today mainly in the chemical and petrochemical industries, can potentially become a new energy carrier, replacing hydrocarbon energy carriers” (article 108 author's translation of the Russian original). Moreover, the strategy claims not only that “Russia has a significant potential for hydrogen production” (article 108, author's translation of the Russian original), but also that the country can become “one of the world leaders in the export of it” (article 18, author's translation of the Russian original). What is more, the strategy considers the diversification of energy exports as a way to contribute to the national goal of creating a highly productive export-oriented sector (article 18), as determined by the Decree No. 204 of the President of the Russian Federation (Ukaz No. 204, 2018). For these reasons, the strategy dedicates a separate chapter to the hydrogen economy. This is especially noteworthy in view of the fact that the hydrogen economy was almost neglected in the previous energy strategy. In chapter 3.1.7., the energy strategy outlines key measures contributing to the development of the hydrogen economy (Ministerstvo Energetiki, 2020e, article 154). The measures include (a) government support measures for the creation of hydrogen infrastructure; (b) legislative support for hydrogen production; (c) an increase in the scale of hydrogen production from natural gas; (d) the development of technologies for hydrogen production; (e) the stimulation of demand for hydrogen in the domestic market; (f) the creation of a regulatory framework; (g) and the intensification of international cooperation in the hydrogen economy. With these measures, the strategy aims to establish a hydrogen economy in Russia and allow the country to “retain its position as one of the top three world leaders in the production and trade in the energy sector” (article 231, author's translation of the Russian original). This means that the new Energy Strategy until 2035 could potentially facilitate a more favourable institutional framework for a hydrogen economy in Russia.

Shortly after the approval of the new Energy Strategy until 2035, Russia's president Putin signed the decree No. 270, titled “On the development of equipment, technology and scientific research in the field of atomic energy in the Russian Federation” (Ukaz No. 270, 2020). The decree launches de facto another national project and seeks to ensure the development of a new nuclear energy programme within a three-month period (article 1a). It stipulates the development of various significant nuclear energy technologies and emphasises the importance of “new materials and technologies for promising energy systems” (article 1b). Although hydrogen energy technologies are not mentioned explicitly in the decree, it can be assumed with reasonable certainty that the hydrogen economy is considered as a “promising energy system” for the following reasons. Rosatom is determined as the main coordinator of the programme and responsible for its development (article 1d). Thus, it is relevant to see whether and to what extent the company considers the hydrogen economy for the development of the programme. An answer can be found in a recent statement by Alexei Likhachev, head of Rosatom, who said that “the programme spells out all key areas of nuclear technology development: two-component nuclear energy, medium and low power nuclear units, hydrogen energy and fundamental scientific research on thermonuclear fusion” (Emelyanekov, 2020, author's translation of the Russian original, italics added). Nikolay Ponomaryov-Stepnoy, member of Rosenergoatom's directorate and science advisor to the company's General Director, gives another insight, as he takes part “in the preparation of this programme in terms of atomic hydrogen energy technologies” (AtomInfo.ru, 2020, author's translation of the Russian original, italics added). In a recent interview, Ponomaryov-Stepnoy claims that “the development of the nuclear hydrogen economy is one of the most promising areas that Rosatom should get involved in” (OKBM Afrikantov, n.d.b). More specifically, he argues that a nuclear hydrogen economy “solves the problem of introducing nuclear energy into production processes of metallurgic, chemical, oil and other industries” (OKBM Afrikantov, n.d.b), as hydrogen is considered as a promising approach for the decarbonisation of various industries. In political terms, one could argue that this line of reasoning constitutes a strong incentive for Russia's nuclear sector to develop a hydrogen economy, as it allows company's like Rosatom to expand within the country's energy mix and to increase its overall significance. Thus, it becomes clear that the hydrogen economy will most likely become an element of Russia's new nuclear energy programme, even though the exact degree of relevance remains uncertain at this stage. Similar to the new Energy Strategy until 2035, the new nuclear energy programme could also potentially enable the creation of a more favourable institutional framework for a hydrogen economy in Russia.

In addition to the strategic considerations above, one can also point at the growing interest in the hydrogen economy in Russia's corporate sector. Rosatom and its subsidiaries show their interest in the development of industrial hydrogen production technologies in Russia. In April 2018, Rosatom announced its intention to establish both a network of hydrogen fuelling stations and nuclear-hydrogen complexes to generate hydrogen in Russia (Analiticheskii Tsentr pri Pravitel'stve Rossiiskoi Federatsii, 2019, p. 18). In August 2018, Rosenergoatom entered into a contract with OKBM Afrikantov and commissioned the company to develop project proposals for the industrial production of hydrogen at nuclear power stations (p. 18). Both companies are part of Rosatom. Rosenergoatom operates all nuclear power plants in Russia and is part of the Rosatom State Electricity Division, while OKBM Afrikantov belongs to the Rosatom State Machine-Building Division. In January 2019, VNIIAES, which is part of the Rosatom Electric Power Division, carried out a technical and economic feasibility study on hydrogen production and storage modules that could be used in nuclear power plants in order to generate hydrogen (p. 18). In September 2019, Rusatom Overseas, which is responsible for building Rosatom's international portfolio, and Japan's Agency for Natural Resources and Energy under the Ministry of Economy, Trade and Industry signed an agreement to jointly conduct a feasibility study in 2020-2021 on exporting hydrogen from Russia to Japan (Press Service of Rusatom Overseas, 2019). Japan constitutes a particularly lucrative market for Russia's hydrogen exports, as the country is not only close to Russia in geographic terms, but also, it heavily invests in the hydrogen economy at home. This is also why the government of the Magadan Oblast, RusHydro and Kawasaki Heavy Industries have joined forces to determine the feasibility of a liquefied hydrogen project in Russia's Far East (RusHydro, 2017). Another lucrative market for hydrogen exports could be the EU. In view of the EU's energy transition, Gazprom “looks to hydrogen to make gas greener for Europe” (Shiryaevskaya, 2018). In 2018, executives from the company assumed that the production of hydrogen from natural gas could secure a $175 billion a year market by 2050, which would be even bigger than the $110 billion value of the natural gas supply to the EU in 2017 (Shiryaevskaya, 2018). The company promotes a switch from coal to natural gas in the EU, followed by the use of a mixture of hydrogen and natural gas in a second stage and a complete transformation towards hydrogen produced from natural gas by 2050 (Gazprom Export, 2018). This shows that the corporate sector understands the challenges of the energy transition and that it is interested into the hydrogen economy, as it offers a way to combine the prevention of stranded assets and the opening of new business models and export markets. This interest means that organisations from the corporate sector are likely to lobby for a more favourable institutional framework for the hydrogen economy. At the same time, however, it should be also noted that the interest in the hydrogen economy has only in few exceptional cases gone further than technical and economic feasibility studies.

(2) Economic forces. The hydrogen economy enjoys a number of economic drivers. Although these drivers are mostly strategic considerations at this stage, it is argued here that they are nonetheless significant and worth to explore, as they provide an economic basis for the previously discussed working group and the development of Russia's national hydrogen programme. The beforementioned report “Russia's Prospects in the Global Hydrogen Fuel Market” (EnergyNet, 2019), which serves as a basis for the development of the national hydrogen programme, emphasises, among others, an improved utilisation of the capacity of power plants (p. 4), Russia's export prospects and earnings (pp. 11-13), and an increased economic efficiency of energy supply to remote and isolated areas (p. 14). The report focuses on three potential sites for the production of hydrogen, namely the Ust-Srednekanskaya hydroelectric plant in the Magadan Oblast, which is currently under construction and should reach its design capacity by 2024, the Kola nuclear power plant in the Murmansk Oblast, and the Leningrad nuclear power plant in the Leningrad Oblast (p. 11). Considering the relatively low capacity factors of both the Kola and Leningrad nuclear power plants, which are 65.9% and 76.4% respectively, the report argues that the hydrogen economy could enable both plants to overcome their network limitations and to increase therefore their capacity (pp. 11-12; cf. Ponomaryov-Stepnoy on the Kola nuclear power plant in AtomInfo.ru, 2020). In other words, the hydrogen economy could allow Russia's energy sector to profitably use its locked capacities.

With regards to Russia's export potential, the report outlines the following hypothetical case (EnergyNet, 2019, pp. 11-13). Assuming a capacity factor of 38.7% for the Ust-Srednekanskaya hydroelectric plant and 93% for both the Kola and Leningrad nuclear power plants, the report claims that the three sites could generate 190 thousand tons of hydrogen per year. Furthermore, the report argues that the two nuclear power plants could cover the basic needs of the pilot segments of the EU's hydrogen market, while the Ust-Srednekanskaya hydroelectric plant could provide significant amounts of green hydrogen to Japan from 2025 onwards. What is more, the report underlines Russia's competitive advantage in the global hydrogen economy, as the country enjoys relatively low electricity prices and a geographical proximity to emerging hydrogen markets such as Japan and potentially the EU. Thus, the hydrogen economy offers additional revenues, which could reach $1.7-3.1 billion per year by 2035 (p. 4).

The hydrogen economy also offers opportunities for Russia's remote and isolated areas in the Far North and East (p. 14), where traditional energy systems based on diesel generators are mostly used. These energy systems are expensive and heavily depend on substantial energy subsidies from the federal and regional budgets amounting to 100 billion Roubles per year. Renewable energy could reduce this economic burden, but the absence of an adequate energy storage technology poses several energy security risks. The hydrogen economy offers a solution to this problem, as hydrogen storage could be combined with renewable energy and standby diesel generators. According to estimates done by the Moscow Institute of Physics and Technology, the cost of ownership of such a hybrid system is 27% lower compared to a system based exclusively on diesel generators (p. 14). The “Snowflake International Arctic Station” is particularly noteworthy here (Snowflake, 2020). The arctic station was launched by the Moscow Institute of Physics and Technology and recently presented in the Arctic Council's Sustainable Development Working Group. The station is scheduled to become operational in 2022. Its energy system will rely exclusively on renewable energy and hydrogen. It has been endorsed by the Ministry of Science and Higher Education, the Ministry of Foreign Affairs, the Ministry for the Development of the Russian Far East and Arctic, the governor of the Yamalo-Nenets Autonomous Okruk and the aforementioned EnergyNet infrastructure centre of the National Technology Initiative (Snowflake, 2020). The arctic station serves not only as a platform for scientists, but it also offers insights into the design of low-carbon energy systems that could potentially be deployed in Russia's Far North and East.

The hydrogen economy enjoys not only drivers, but also some obstacles, including, most importantly, high costs. Since decarbonisation is not prominent on Russia's agenda, the competition with other types of fuel is exclusively on price. Under the given economic conditions and considering the high production costs of blue and green hydrogen, some argue that the hydrogen economy has little chances of success against the much cheaper fossil fuels (Mel'nikov, 2020). This means that the domestic market - with the exception of remote and isolated areas - does not serve as a strong incentive for the development of a hydrogen economy in Russia. Therefore, some believe that only a state intervention can help the launch of a hydrogen economy. Rosatom, for example, argues that the aforementioned new nuclear energy programme could serve as a mechanism to finance the development of Russia's hydrogen economy (Analiticheskii Tsentr pri Pravitel'stve Rossiiskoi Federatsii, 2019, p. 18). In 2019, Yuri Olenin, Rosatom's Deputy General Director for Science and Strategy, emphasised that the development of a hydrogen economy is “a large-scale task, and even though Rosatom is a large state corporation, our funds will not be enough here. Therefore, we first turned to the possibility of setting up a national project in the field of atomic science and technology” (TASS, 2019, author's translation of the Russian original). With the recently signed Decree No. 270, Rosatom realised this possibility and secured support from the state (Ukaz No. 270, 2020). The new nuclear energy programme can therefore potentially become a way to overcome high high costs as an obstacle to launch the hydrogen economy.