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National Human Development Reportin the Russian Federation 2009Energy Sector and Sustainable Development

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National Human Development Reportin the Russian Federation2009Energy Sector andSustainable DevelopmentMoscow2010

The 2009 National Human Development Report (NHDR) for the Russian Federation has been preparedby a team of Russian experts and consultants. The analysis and policy recommendations in this Reportdo not necessarily reflect the views of the UN systems and other institutions by which the experts andconsultants are employed.Chief Author:Prof. Sergey N. Bobylev, Dr.Sc. (Economics), Faculty ofEconomics at Lomonosov Moscow State UniversityAuthors:Leonid M. Grigoryev, PhD. (Economics), President,Institute for Energy and Finance; Chairman of the Board,WWF-Russia; Dean of Management, Moscow InternationalUniversityAlexander A. Kurdin, Expert, Economic Research,Department of Economics, Institute for Energy and FinanceChapter 1Natalia V. Zubarevich, Dr.Sc. (Geography), Professor,Department of Geography, Lomonosov Moscow StateUniversity; Head of Regional Programs, IndependentInstitute for Social PolicyChapter 2Isak D. Froumin, Dr.Sc. (Pedagogics), Lead EducationSpecialist, Russia Country Department, World Bank; Head ofResearch Institute for Education Reform, State University -Higher School of EconomicsDenis V. Nikolaev, MA in Education, Consultant inEducation Sector, Human Development Department, RussiaCountry Department, World BankEducation for Energy Sector (Box 3.1)Evgeny A. Zenyutich, Ph.D. (Engineering), Director,Research Institute of Energy Efficient Technologies, NizhnyNovgorod State Technical University; General Director,Nizhny Novgorod Investment Center of Energy EfficiencyProgramme of the Ministry of Education and Science of theRussian Federation: Integrated Solutions for Saving Energyand Resources to Promote Innovative Development inVarious Sectors of the Economy (Box 5.1)Energy efficiency indicators used by the Federal EducationAgency (Box 8.2)Lilia N. Ovcharova, PhD. (Economics), Research Director,Independent Institute for Social Policy;Head of Laboratory of Distributive Relations, Institute ofSocial and Economic Studies of Population, RussianAcademy of SciencesAlexandra Ya. Burdyak, MA (Economics), SeniorResearcher, Independent Institute for Social PolicyChapter 3Prof. Boris A. Revich, Dr.Sc. (Medicine), Professor, Head ofLaboratory, Institute of Forecasting, Russian Academy ofSciencesChapter 4Igor A. Bashmakov, PhD. (Economics), Executive Director,Center for Energy Efficiency (CENEf)Chapter 5Igor S. Kozhukhovsky, PhD. (Economics), General Director,Energy Forecasting Agency (the EFA)Olga A. Novoselova, Head of Ecology and Energy EfficiencyProgram, Energy Forecasting Agency (the EFA)Chapter 6Victor I. Danilov-Danilyan, Dr.Sc. (Economics),Corresponding Member of the Russian Academy ofSciences; Director, Institute of Water Problems, RussianAcademy of SciencesChapter 7Prof. Sergey N. Bobylev, Dr.Sc. (Economics), Faculty ofEconomics at Lomonosov Moscow State UniversityChapter 8Box Contributors:Alexander A. Averchenkov, PhD (Economics), SeniorClimate Change Adviser, UNDPCorrelation between climate change, the energy sector andhuman development (Box 1.1)Opportunities for use of carbon market instruments to raisepower efficiency of the Russian economy (Box 5.2)Olga A. Murashko, Research Scientist, Institute for ResearchStudies and the Museum of Anthropology, LomonosovMoscow State University; Journal Editor, Russian Associationof Indigenous Peoples of the NorthNative Minorities of the North and the Energy Sector(Box 2.2)Prof. Rafael V. Arutyunyan, Dr.Sc. (Physics andMathematics), First Deputy Director, Institute for SafeDevelopment of Atomic Power Engineering, RussianAcademy of SciencesIrina L. Abalkina, PhD. (Economics), Senior Researcher,Laboratory of Systems Analysis, Institute for SafeDevelopment of Atomic Power Engineering, RussianAcademy of SciencesNuclear Power Opportunities (Box 6.3)Victoria R. Bityukova, Ph.D. (Geography), AssociateProfessor, Geographic Department, Lomonosov MoscowState UniversityEnvironmental Sustainability of Russia’s UrbanDevelopment (Box 7.2)Alexander S. Martynov, PhD. (Biology), Director,Independent Ecological Rating AgencyPower Efficiency Rating of Russia’s Constituent Entities(Box 8.4)National Human Development Report 2009 for the RussianFederation /Edited by Prof. Sergey Bobylev; editing in Englishby Ben W. Hooson/ Design and prepress and printing byLLC ‘Design-project ‘Samolet’. – M., 2010 – 166 pages, 45 tables,50 figures, 21 boxes.Readers are invited to inspect the latest Human DevelopmentReport for the Russian Federation. National reports such as thisare published on the initiative of the United NationsDevelopment Programme (UNDP) in many countries of theworld. Global reports are also brought out annually. The reportsare compiled by teams of independent experts.The 13 th Human Development Report for the Russian Federationassesses impact of the energy sector on the country’s economyand human development. The global economic crisis hasbrought many problems, but it also offers a window ofopportunity for Russia to transform its energy sector, whichevolved in its present form during the late 20 th century, into amodern, high-tech vanguard for the national economy in the21 st century, with due respect for the environment and humanhealth. Issues, which are the traditional subject matter of humandevelopment reports – economic development, income levels,employment, education and health care – are discussed in thecontext of the energy theme.The Report is intended for top managers, political scientists,scientific researchers, teachers and high school students.2 National Human Development Report in the Russian Federation 2009

ACKNOWLEDGEMENTSThe authors express their gratitude to the management and employees of the Department ofInternational Organizations at the Ministry of Foreign Affairs of the Russian Federation: Gennady M.Gatilov, Director of the Department; Dmitry I. Maximychev, Deputy Director of the Department;Victor I. Zagrekov, Head of the UN Technical Assistance Division and the National Project Director,as well as to the staff and management of the UNDP Russia Team: Frode Mauring, UN ResidentCoordinator/UNDP Resident Representative; Sascha Graumann, Deputy Resident Representative;Elena A. Armand, National Programme Coordinator; Victoria K. Zotikova, Communication Analyst;Mikhail V. Babenko, Project Manager and Natalia V. Voronkova, Project Coordinator.The authors also thank the Federal State Statistics Service (also called ‘Rosstat’) for data provided forthe Report, as well as the participants of Public Hearings on the Report draft for their constructivecomments.3

Address to readersThe 2009 National Human DevelopmentReport (NHDP) for the Russian Federation,entitled ‘Energy Sector and SustainableDevelopment', outlines issues associated with aprime concern in Russia today, which isdevelopment of the fuel & energy sector. Theauthors provide a detailed analysis of thesituation, make forecasts and study the optionsfor overcoming current negative trends in supplyand consumption of energy resources.The energy sector currently supports allother parts of the Russian economy, consolidatesconstituent entities of the Russian Federation andhas major impact on formation of the country’smain social and economic indicators. In order forthe sector to develop, meet modern challengesand provide sustainable development of thecountry’s economy, the government isconducting a policy that aims to maximize theefficiency of energy resource utilization and thepotential of the energy segment.Energy preparedness and environmentalsafety, as well as energy and budget efficiencyare the cornerstones of long-term governmentenergy policy. A key condition for achieving themis formation of an adequate, modern regulatorysystem, which could provide stability, as well asa proper legal environment and dynamicdevelopment of both the energy market and thefuel & energy sector.Despite different approaches of variousnations to the future of the world energy industrythe international community, headed by the G8,has worked out an effective mechanism forresolving these complex issues throughdiscussion. Its principles were clearly defined inthe G8 St.Petersburg Declaration: diversificationof energy transportation routes, increase ofenergy efficiency, market transparency,development of renewable energy sources andcreation of national management institutions forenergy efficiency.An important step will be change ofRussia’s technical control legislation in order toincrease energy efficiency and environmentalsafety of such industries as power generation,construction, transportation, and housingutilities. Power efficiency indicators will becomemandatory requirements of the new technicalcontrol system.Utilization of existing technical andstructural potential for improved energyefficiency will enable greater balance betweenproduction and utilization of energy resourcesand significantly reduce greenhouse gasemissions without compromising high rates ofeconomic growth. These goals will requirecreation of adequate incentive mechanisms topromote energy efficiency among powervendors and consumers.I am absolutely convinced that the 2009National Human Development Report for theRussian Federation will be of interest and help toa wide variety of politicians and officials,scientists and journalists, as well as to all thosewho are concerned about the development ofRussia’s energy industry.Sergey I. ShmatkoMinister of Energyof the Russian Federation4 National Human Development Report in the Russian Federation 2009

Dear Reader,You have before you the 13 th NationalHuman Development Report for the RussianFederation, published by the United NationsDevelopment Programme. The topic of this year’sReport, ‘Energy Sector and SustainableDevelopment’, is of special interest today both inthe context of Russia’s development and ofinternational development. Promotinginnovative evolution of the energy sector andraising energy efficiency of the national economyrepresent major challenges for Russia. At thesame time, the structure of the global energysector is a focus of debate for the internationalcommunity, and impact of the sector on theenvironment is of great concern to the UnitedNations.As a major part of the Russian economy,the energy sector has large impact, both directand indirect, on human life and determines tosome extent the structure of economicdevelopment in the country. The sector is animportant source of national incomes, affectingthe health and well-being of people who may notbe directly involved in energy business. In manyregions and cities, energy firms determine theenvironment for self-realization by local people,professional training, employment and smallbusiness development. This pivotal role of theenergy industry in Russia is the main topic of thisReport.The authors set out to analyze currentimpact of this backbone industry of the Russianeconomy on human development. One of thechallenges we encountered during preparation ofthe Report is a tendency to view the energyindustry and related issues in a purely technicallight. Discussions about energy sectordevelopment tend to be limited to production andtransportation of fuel and power, sectoral cashflow, industrial safety and environmental impacts,while impact of the sector on Russia’s humandevelopment is left unconsidered.Assessments given by the authors in thisReport are not uncontroversial, because positivesteps – whether increasing profits for national andregional economies, or developing new scienceand technology in the energy sector – areassociated with a number of equally negativeimpacts, related to public health, pressure on theenvironment, and disincentives to developmentof energy-saving technologies.Russia is a major player on the globalenergy market and a global energy donor, andstill has to find the optimum combination ofenergy preparedness and environmentalsustainability. We saw it as a matter of principleto study Russia’s long-term challenges from thepoint of view of these interrelated, but potentiallyconflictual positions. Our report contains somevery interesting conclusions about the role of theenergy sector in Russia’s economic and humandevelopment, and prospects for the country’ssustainable development, as well as related risks.I would like to express my sinceregratitude to the Ministry of Foreign Affairs ofthe Russian Federation, which has been ournational partner in preparing National HumanDevelopment Reports for over a decade. UNDPactivities in promoting the humandevelopment concept have also found theMinistry’s support with respect to developmentof training programs and regional reports. Ihope that this report will serve as a basis fordiscussion of key issues of post-crisisdevelopment and for deeper understanding ofthe energy sector’s role in Russia’s social andeconomic development, especially in its humandevelopment aspect.Frode MauringUNDP Resident Representative5

CONTENTPreface ........................................................................................................................................................................................................................7General review .........................................................................................................................................................................................................8Chapter 1. The Energy Sector, the Economy, and the Crisis................................................................................................................13Box 1.1. Correlation between climate change, the energy sector and human development .........................................26Chapter 2. Energy Industry and the Regions: Human Development Challenges.......................................................................28Box 2.1. Human Development Index ....................................................................................................................................................44Box 2.2. The energy sector and indigenous minorities of the Russian North ........................................................................48Chapter 3. Personal Incomes, the Energy Sector and the Crisis........................................................................................................51Box 3.1. Education for the power industry..........................................................................................................................................70Chapter 4. The Energy Sector and Public Health ....................................................................................................................................74Box 4.1. The village of Kolva in Ussinsk District.................................................................................................................................77Box 4.2. Ambient air pollution and public health in coal-mining citiesof the Kemerovo Region ...........................................................................................................................................................78Box 4.3. Ambient air pollution and public healthin Novokuibyshevsk....................................................................................................................................................................81Box 4.4. Gas exploration and processing – public health risks....................................................................................................82Box 4.5. Cherepetskaya condensing power plant: ambient air qualityand modernization plans..........................................................................................................................................................84Box 4.6. A city at risk....................................................................................................................................................................................85Chapter 5. Energy-efficient Russia ...............................................................................................................................................................90Box 5.1. Programme of the Ministry of Education and Science of the Russian Federation:‘Integrated Solutions for Saving Energy and Resources to Promote Innovative Developmentin Various Sectors of the Economy’....................................................................................................................................103Box 5.2. Opportunities for use of carbon market instrumentsto raise power efficiency of the Russian economy.......................................................................................................106Chapter 6. Opportunities for Renewable Energy Sources ...............................................................................................................108Box 6.1. Tidal power plants....................................................................................................................................................................114Box 6.2. Geothermal power plants ....................................................................................................................................................115Box 6.3. Prospects for nuclear power.................................................................................................................................................117Chapter 7. The Energy Industry and Environmental Sustainability..............................................................................................122Box 7.1. Negative consequences of excessive growth of the fuel & energy sector ..........................................................134Box 7.2. Environmental sustainability of Russian cities ..............................................................................................................136Chapter 8. The Energy Industry and Sustainable Development Indicators...............................................................................143Box 8.1. Adjusted Net Savings Index for Kemerovo Region ......................................................................................................151Box 8.2. Energy efficiency indicators used by the Federal Education Agency....................................................................153Box 8.3. System of sustained development indicators for Tomsk Region ............................................................................154Box 8.4. Energy efficiency rating of Russian regions....................................................................................................................155Attachments ......................................................................................................................................................................................................1596 National Human Development Report in the Russian Federation 2009

PREFACEThis is the 13 th National HumanDevelopment Report for the RussianFederation. Such reports, covering humandevelopment issues in various countries, areelaborated by groups of independent expertsand are published on the initiative of theUnited Nations Development Programme(UNDP) in many countries of the world.The 2009 National HumanDevelopment Report for Russia remains true tothe concept of previous national reports,prepared by various independent groups ofRussian experts with assistance and supportfrom the UNDP Representative Office inMoscow. Like its predecessors, the 2009 Reportis not a mere accounting of the country’s socialand economic progress in the past year, but athorough scientific and analytical case study.The focal point of this 2009 NationalHuman Development Report is the energysector and sustainable development. Russia isrich in both energy resources and humanresources, and the Report analyzes impact ofthe energy sector on national development andon the individuals who live in Russia. The sectormakes a vital contribution to the country’s mainsocial and economic parameters, and is of vitalimportance for national income and thebudget. In this respect, the global crisis hasdemonstrated the fragility of the economicgrowth, which Russia had enjoyed since theearly 2000s. The national economy is stillmarked by structural disproportions, anddominance of the export-oriented fuel &energy sector is the most obvious of them. TheReport shows the need for a change ofdirection towards the goal of energy efficiency,ending the country’s addiction to raw materialexports in favor of sustainable development,reduction of negative impact of the powersegment on human health and theenvironment, and broad use of power-savingtechnologies. The current crisis can be seen as awindow of opportunity for Russia to find andimplement new approaches to nationaldevelopment, and to transform its existingenergy sector into a high-tech asset for the 21stcentury, which no longer represents a burdenon the environment and public health.The authors have mostly used officialRussian statistical data provided by the FederalState Statistics Service, ministries and agencies.When several sources were available officialdata was preferred. Information taken fromother sources is accompanied by relevantreferences. Public survey data were also used insome instances.The Report was prepared in closecooperation and with active feedback fromstate institutions and civil society.7

GENERAL REVIEWChapter 1: The Energy Sector, theEconomy, and the Crisis surveys the impactof Russia’s energy sector on the country’ssocial, economic and human development.The world crisis, which entered its acute phasein the fall of 2008, has shown that Russia’seconomic recovery of the early 2000s was veryfragile. The country’s economy still has clearstructural disproportions, most obviouslydomination of the economy by the exportorientedfuel & energy sector. The statebudget, investments, and foreign trade are allstrongly dependent on the situation on worldenergy markets. Dominance of energyresourceexport in the national economy notonly makes it vulnerable to global shocks, butshackles its long-term economic growthpotential. Factors often grouped togetherunder the heading of the ‘resource curse’,including Dutch Disease and problemsassociated with resource rent, can suppressmotivation for investments in humandevelopment and its effective utilization bythe state, private business and ordinarypeople.Energy intensity of Russia’s GDP wasmuch lower in the economic rise of the 2000scompared with the early 1990s, and there hasbeen sustained progress towards greaterenergy efficiency, although dependence of thenational economy and budget incomes onenergy exports has increased. However, overallenergy efficiency in Russia remains lowcompared not only with developed countries,but also with developing countries. Thissituation dilutes relative advantages of theRussian economy in the energy sector, creatingobstacles and postponing humandevelopment. Low energy efficiency anddominance of traditional energy carriers alsoleads to environmental impacts, creating publichealth hazards.There is a consensus among Russianelites that sustainable development of Russia’seconomy can no longer be provided byextensive development of energy resources.The energy sector itself has shown worryingtendencies in the past two decades, notably aconstantly shrinking ratio of proven oil & gasreserves to production volumes.A goal-oriented governmentprogramme together with other changes,including some brought on by the internationalcrisis, could change the trajectory of thenational economy and open the way foralternative scenarios, which would prevent lossof human potential and help to achievesustainable growth.Fuel & energy specialization of theeconomies of some Russian regions in the1990s served as a ‘safety cushion’ in a context ofoverall economic decline, but, with rareexceptions, did not become a factor of fast andsustainable economic development in thoseregions in the 2000s. These problems areanalyzed in Chapter 2: Energy Industry andthe Regions: Human DevelopmentChallenges. Fuel & energy regions remain themain donors to the national budget: the twoautonomous districts of Tyumen Regionprovide 29% of all taxes received by the federalbudget (the city of Moscow gives the sameamount). These two districts, with the highestoil & gas reserves in Russia and, consequently,high personal and budget incomes, stand outby their success in increasing life expectancy,reducing infant mortality and improving theirvocational education system. But high profitscannot cope with illnesses that depend on thestate of society: social environment andlifestyles need to be improved. Most fuel &energy regions cannot spend significantlymore on social programmes than regions,which lack fuel & energy resources, but whichobtain large-scale financial aid from the federalbudget. So specialization in fuel productiondoes not give major advantages in socialdevelopment.Decline of industrial output, caused bythe world crisis, has been less marked in fuel &energy regions than in other regions, but it hasnot been possible to avoid social impacts:budget incomes have fallen and half of the8 National Human Development Report in the Russian Federation 2009

country’s fuel & energy regions report adramatic increase in unemployment. The crisishas demonstrated again that the existingrelationship between the federal center and theregions lacks sustainability and fails tostimulate institutional modernization of fuel &energy territories.The Chapter also offers analysis of theHuman Development Index (HDI). In 2007 overone quarter of Russia’s regions (22 out of 80)were rated as ‘developed’ by the HDI. Thethreshold for this group is 0.800. In 2006 Russiahad almost twice fewer developed regions (12in total). The improvement reflects growth ofthe income index. Nearly half of the developedregions are specialized in extraction of fuel &energy resources (more than half if regionsspecializing in processing of these resources areincluded). Consideration of the populationchart for high HDI regions makes the progressmore vivid: in 2007 one third of Russia’s peoplelived in regions with high HDI, while only a yearbefore only a quarter lived in such regions. Ingeneral, 2007 was very successful for Russiafrom the point of view of human development,but it should be remembered that the mainfactor in this success was income growth, whichrelied excessively on international marketprices for oil and metals.Chapter 3: Personal Incomes, theEnergy Sector and the Crisis points out thatprogress of personal incomes and employmentdetermine the vector of human developmentchange in the aftermath of the crisis. Personalincomes in Russia on the eve of the crisis were1.3 times higher than in the last years of theSoviet period. But development of the Russianmarket economy had created incomes frombusiness and real estate, which came torepresent a significant part of personalincomes, and these were the incomes, whichsuffered most from onset of the crisis. Thechronic nature of the crisis became evident inearly 2009 and the Russian labor market beganto react in its traditional fashion: salaries shrankfaster than employment rates.Energy-related business hastraditionally been highly paid and not verylabor intensive. Employment and wages indifferent energy industries reacted differentlyto the crisis: the effect was serious in the oilsegment, but much less serious in other energyindustries. The overall energy sector reportedsmaller reduction of employment and payrollindicators compared with the nationaleconomy as a whole. The energy sector hasrelatively low intra-industrial payrolldifferentiation, and cannot be a source ofpersonal income inequality due to its smallnumber of employees.The main impact of energy sectordevelopments on living standards of ordinarypeople is via housing utilities. The share ofexpenditures on housing utilities in Russianhousehold budgets is small compared withother countries. There are two main reasonsfor this: inadequate technical and institutionalstate of the housing utility segment in Russia,which entails low-quality services; and highdifferentiation of household expenditures onutilities, which means that significant tariffincrease would force most Russianhouseholds to seek social assistance(subsidies) or become non-payers.Rising living standards, popularizationof high-tech living habits, as well as growinghousing construction during the period ofeconomic growth have resulted in increasingenergy consumption by the public. Thesetrends will continue, entailing further increaseof the household share in overall energyconsumption.Chapter 4: The Energy Sector andPublic Health points out that environmentalpollution caused by the energy segment is aserious health hazard. Development of theenergy segment should take account both ofexisting environmental conditions in variousregions and new environmental requirementsissued by international authorities. Manypolluting fuel refineries and energy plants arelocated in population centers and some are in9

territories rated as environmental emergencyareas. More efficient combustion of coal andreduction of its negative impact on theenvironment and public health are increasinglyurgent priorities. The resurgence of coal as apower generating fuel needs to beaccompanied by introduction of new,environmentally safe technologies.The fuel & energy sector is one of themain sources of atmospheric emissions.Atmospheric pollution causes up to 40,000deaths annually among urban populations, ofwhich no less than 15-20% are theresponsibility of the fuel & energy sector. Theshare is higher in some settlements withpolluting coal-fired condensing power plants(CPPs) or combined heat & electricity plants(CHPs). Reduction of negative impact from allsegments of the energy sector (extraction,transportation, refining, and production of heatand electric energy), requires implementationof modern technologies which are alreadywidely used in developed countries.Any substantial administrativedecisions regarding expansion of the fuel &energy sector should in any case include healthhazard assessments and action plans to reducerisk to an acceptable level. Environmentallyunsound decisions on construction and/orexpansion of sector facilities could furtheraggravate living conditions and public health.Chapter 5: Energy-efficient Russia,defines Russia’s energy efficiency ratings,presents the risks, which continuous energyintensivedevelopment poses for humandevelopment and the economy, andsubstantiates the need to build an energyefficientsociety, leading Russia’s economyaway from its resource-oriented developmenttrajectory, which is turning the country into aresource appendage of the ‘green’ worldeconomy, onto the road of sustainabledevelopment based on wide implementationof clean, energy-efficient technologies. Russiahas reduced energy intensity of its GDP fasterthan most other countries, but still remainsone of the most energy-inefficient countries inthe world, since the reductions were mainlydue to structural changes and the country hasfailed to narrow its technological gap withdeveloped countries. Increasing globalcompetition and shrinking scope fordevelopment based on raw material exportsmake dramatic increase in productivity,including energy productivity, vitallyimportant for Russia’s aspirations to matchliving standards in developed countries.Russia’s potential for increasing energyefficiency is among the biggest in the world,representing almost half of the country’spresent energy consumption. This resourcecould become the main contribution of theenergy sector to future economic growth.However, there has been little progress inmaking use of this resource until recently,largely due to lack of support from the federalgovernment for energy efficiency.The Chapter contains analysis of energysaving potential and ways of realizing it in mainsectors of the national economy: housing,industrial production, energy, transportation,and heat supply.Chapter 6: Opportunities forRenewable Energy Sources looks atrenewable energy sources (‘renewables’),which are now viewed as one of the mainvectors for long-term innovative developmentof the energy sector. The global boom inrenewable technologies reflects the desire ofcountries to reduce pressure on theenvironment, but also their need to optimizestructure of energy balances, cut dependenceon exports or imports of fossil fuel, and startpreparing for the new, low-carbon, stage ofhuman and changeover to low-carboneconomies.Increased use of renewabletechnologies in Russia could create more jobs,improve living standards, and reduce migrationof rural populations and outflow of people fromnorthern and eastern territories. Developmentof renewable energy slows down10 National Human Development Report in the Russian Federation 2009

environmental degradation and enhancespublic health and well-being.Russia is now only in the first stages ofdeveloping a strong renewable energyindustry. The business community has showngrowing interest and much has been done interms of legislation for development ofrenewables. But to date these efforts lackcoordination and have met with a number ofproblems and controversies, including: lack ofspecific mechanisms for government supportof renewables development, lack of publicawareness, lack of professional staff, etc.Increased use of renewables forproduction of heat and electric energy couldpromote development of Russia’s high-techmachine-building sector and creation of newjobs in Russian regions. Public supportshould be the determining factor inpromoting development of renewableenergy resources.Chapter 7: The Energy Industry andEnvironmental Sustainability deals withenvironmental impact of the oil & gas, coal andpipeline transportation industries (incomparison with other segments), looking atatmospheric emissions, waste water discharge,solid waste, land disturbance, and pipelineleakages, and giving an analysis of the impactof all these hazards on various ecosystems. Thechapter assesses the extent to which highenergy intensity of housing utilities can beblamed on Russia’s cold climate. Fallinginvestment efficiency of the extractionindustries in terms of time and volumesproduced reflects increasingly difficultextraction conditions.Environmental impacts of overdevelopmentof the fuel & energy sector arestudied along with other social and economicconsequences. Russia’s current situationdeserves to be called ‘energy andenvironmental malaise’. The country is currentlya global environmental donor, because overallimpact of Russia’s economy on theenvironment is significantly less than usefulinput of Russia’s ecosystems to globalenvironmental stability. But Russia could losethis status if negative environmental impactfrom the fuel & energy sector increases.The chapter offers examples ofunsatisfactory environmental outcomes andthe reasons for them, which also indicate waysof remedying the situation. Measures toachieve energy savings, increase energyefficiency of the economy, and protect theenvironment should be applied at all levels ofthe economy. Priorities at the national level areto change sectoral structure of the economyand support development of non energyintensiveindustries.Chapter 8: The Energy Industry andSustainable Development Indicators looks athow the energy factor can be taken intoaccount by sustainability indexes. The globaleconomic crisis has highlighted the need tocorrect traditional development indexes.Macroeconomic indicators often ignore ordistort actual economic, social andenvironmental processes. There are two mainapproaches to measuring sustainability:construction of an integral (aggregate)indicator (index); and development of a systemof indexes, each of which presents a specificsustainability aspect.The energy factor is widely reflected insustainable development indexes. There arecurrently a number of indexes andcorresponding systems, which were developedand are widely used by internationalorganizations (United Nations, World Bank,European Community etc.) and by somecountries. Energy intensity remains the keyfactor in all these approaches. For Russia energyintensity is the key factor for sustainabledevelopment of the country as a whole and theenergy sector in particular. So it can act as ahighly telling indicator of the country’sdevelopment prospects.The Adjusted Net Savings Index is very auseful tool for taking account of the energyfactor, since it has a solid statistical base and11

can be used for calculations at national andregional level. Adjusted net savings include awider range of human developmentassessments, and energy and environmentalfactors compared with traditionalmacroeconomic indexes. In particular, they takeaccount of depletion of natural resources,which, in Russia’s case, leads to an overallnegative net value for the Adjusted Net SavingsIndex, even for the period since 2000, whenGDP was growing.The Chapter also describes experienceand potential for adapting and applying energyindicators at national and regional levels. Suchindicators need to be included in Russian statestatistics at regional and national level, so thatthey can be more widely used in decisionmakingprocesses.12 National Human Development Report in the Russian Federation 2009

Chapter 1The Energy Sector,the Economy and the Crisis1.1. The energy sectorand human developmentHuman development is only possible ifenergy needs are met to a sufficient extent. Sothe acute problems, which the internationalenergy industry is facing today, must be ofconcern to the global community. Russia has aspecial role to play in this context, because it hasboth enormous human potential and vast energyresources. The country’s comparative wealth innatural resources has made it one of the world’sleading suppliers of energy. This role also hasspecific impact on human development trendsinside Russia.It is a characteristic feature of the worldenergy system at its current stage ofdevelopment that centers of production andconsumption do not coincide geographically.Formation of energy markets in the 20 th centuryboth at the level of macro-regions and on aglobal level played an important role in theeconomic growth of developed countries and ofsome developing countries. The formation ofglobal markets greatly reduced the limitations,which developed countries would face, if theyhad to meet their huge energy requirementsfrom their own resources.Functioning of energy markets mightcause a move towards an optimum in terms of aglobal economic equilibrium, but this has led toa number of externalities, which have complexand often unforeseen implications forsustainable development of the world economyand for human development.Firstly, disproportions in global energyconsumption promote global inequality. At thebeginning of the third millennium developedcountries produce less than one third of theworld’s primary energy, while consuming almosthalf of it. In 1991–2008 average per capitaconsumption of primary energy in OECDcountries was three times higher than the worldaverage, and that gap had widened incomparison with the preceding two decades.The economies of power supplyingcountries are accordingly becoming more andmore specialized in the world division of labor.Experience shows that such orientation slowsdown diversification of national economies andcan lead to a slowdown of economic growth inthe long run. The mechanisms of this ‘paradox ofabundance’ or ‘resource curse’ are describedfurther on, and they can have impact on humandevelopment by reducing motivation forinvestments in human resources, raising socialtension, and holding back real growth ofpersonal incomes.Secondly, there are even more seriousimbalances in production and consumption ofhydrocarbons. The problem of energy poverty isnot being dealt with quickly enough. Supply ofenergy (fuels and energy infrastructure) to lowincomecountries remains unsatisfactory, stallingindustrial development and therefore hinderinggrowth of real personal incomes. Africa remains anet exporter of energy resources even thoughper capita energy consumption on the continentis extremely low (three times lower than theworld average). Lack of available energy reducesthe quality and quantity of collective goods,including education and health care.Thirdly, existence of low-cost energyresources (compared with alternative energytechnologies), which do not carry additionalcosts associated with environmental and healthhazards, postpones technology breakthroughs inthe world energy industry, as was seen in1986–2002. This preserves the socially nonoptimalstructure of energy consumption and, asa consequence, non-optimum production andconsumption of goods and services. Scientificprogress and its commercial application toenergy saving are slowed down as a result.Fourthly, both exporters and importers ofenergy face large-scale problems associated withenergy security. Fuel importing countries dependon supplies from regions of the world, whichsometimes lack political stability. Delivery routesbecome longer. Large-scale energy pricedeviations create serious problems for exporters(for their sustainability, well-being andinvestments). These factors create a threat oftemporary external shocks for developed13

countries, as seen at the start of the 1970s, whiledeveloping countries face serious burdens ontheir balance of payments, driving up levels ofnational debt. The theory of market economicsportrays this as natural utilization of comparativeadvantages, which is neither threatening norunjust. But it adds to systemic risk in the worldeconomy, for example by threatening energyimbalance if supplier countries do not obtainsufficient investments to support required levelsof energy production. Because it has afundamental (not occasional) nature, thisphenomenon can lead not only to temporarydrops in world GDP, but to long-term negativeconsequences for human development in thesocial and environmental spheres.These are the main problems, which areusually highlighted when considering thepresent state of the world energy sector from theviewpoint of human development. They arerelevant to Russia too, but with specificqualifications.1.2. Russia’s energy industryin conditions of global economicgrowth and crisisThe Russian economy had not begunbroad modernization before onset of the globalrecession in the middle of 2008. Recovery of GDPto 1989 levels by 2007 was largely based on oil rent,so it is unsurprising that the crisis pulled Russia’sGDP down by 8% in 2009. In the years of economicgrowth (1999–2008) dependence on export ofhydrocarbons increased, and this was particularlytrue of the country’s budget. The dependencereflected depth of the transition crisis, whichbrought 43% decline of the country’s old-fashioned(Soviet-vintage) GDP, and a large measure ofdeindustrialization. Energy and semi-products (witha large part of energy in their value) became crucialfor the country’s industry and exports.The role of Russia’s energy industry(designed for the needs of the old Soviet bloc) inthe world economy today tends to beunderestimated. Russia produces about 11.5% ofthe world’s primary energy, which is five timesmore than its share of world population or GDP.So the country should spend five times more ofits GDP than other countries on maintenance anddevelopment of its fuel & energy industry. In fact,the overall investment ratio in Russian economyin 1999–2006 was about 17% of GDP, which ismuch lower than the world average (20-24%),and even in 2007–2008 the ratio only reached21% of GDP with investments in the fuel andenergy sector representing 4.5 percentage pointsout of the total. The country invested much lessthan its neighbors and rivals in worldcompetition in human capital, the processingindustries, and rehabilitation of infrastructurecreated in the 1960s–1980s.Rapid growth of the world economy inthe 2000s caused demand for power toskyrocket. Developing countries, whoseeconomies are relatively energy inefficient, madea particularly large contribution to growth(Figure 1.1). Half of the world’s increase inconsumption of primary energy and about 40%of increase in oil consumption in 2001–2008 weredue to China’s fast-growing economy, which ismore energy intensive than economies ofdeveloped countries. Measured by purchasingpower parity (PPP), US GDP outran that of Chinaby two times in 2008 (20.6% vs. 11.4% of worldGDP), while the difference in energyconsumption was only 15%.Growing demand for energy and theresulting energy price boom significantlyincreased income of countries specializing inenergy exports, enhancing their economic andpolitical status. This was particularly true forRussia, which accounted for nearly half of worldincrease in oil production in the first half of the2000s, becoming one of the resource mainstaysof global economic growth during the period. If,at the beginning of the decade, Russia had notbeen able to carry out rapid increase of fuelproduction (following the 1990 recession), it ispossible that world energy prices would haverisen much further by the mid–2000s. That couldhave entailed a major slowdown of worldeconomic growth (Table 1.1).14 National Human Development Report in the Russian Federation 2009

By 2008 Russia had increased its share inworld oil production from 9% to 12.4%. Itovertook the US in 2002 and almost drew levelwith the world’s leading oil producer, SaudiArabia, in 2007, producing only 5% less. Includingits natural gas and coal exports, Russia is theworld’s leading exporter of energy. Increase in oilproduction by 1.5 times and increase of oil priceson the world market by more than three timesdid much to restore Russia’s economy to the levelof the late 1980s by size of GDP. Revenue fromexports of oil and oil products alone had grownfrom USD 36.2 billion in 2000 to USD 241 billionin 2008. The latter figure exceeds Russia’s entireGDP in 1999.In addition to its oil exports, Russiaconsistently supplied around one third of allnatural gas imported to Europe and about 20%of total world production of gas through the2000s. Since long-term contracts bind natural gasprices to prices for oil, Russia’s natural gasindustry has also received major dividends frombooming oil prices.The energy market suffered the mostamong commodity markets as a result of theFigure 1.1World energy consumption and industrialproduction (1981-2008)M.t. oil equiv.700060005000400030002000100001981198219831984198519861987198819891990199119921993199419951996199719981999200020012002200320042005200620072008Energy consumption, developed countriesEnergy consumption, developing countriesGrowth of industrial production, developed countries (right scale)Growth of industrial production, developing countries (right scale)Source: World Bank (World Development Indicators Online Database),British Petroleum (BP Statistical Review of World Energy, June 2009)crisis, and Russia’s economy was bound to beseriously affected. After explosive growth in2007–2008 to a level of USD 147/barrel the oilprice plummeted to USD 30/barrel by the end of2008, posing a major threat to budget stabilityand the overall Russian economy. Despitestabilization of oil prices in the range around USD70/barrel the national currency, which is closelytied to energy prices, was devalued, foreigninvestments flowed out of the Russian financial121086420-2-4%Table 1.1Average annual growth of energy consumption and GDP (%, 1986–2008)GDPPrimary energyconsumptionOil consumption1986-2002 2003-2008 1986-2002 2003-2008 1986-2002 2003-2008World 2.9 3.5 1.7 2.9 1.6 1.4Developed countries 2.7 2.2 1.5 0.5 1.5 -0.1USA 3.0 2.5 1.5 0.1 1.4 -0.3EC 2.4 2.3 0.4 0.1 0.7 0.0Japan 2.2 1.7 1.9 0.1 1.1 -1.6Developing countries 3.8 6.7 1.9 5.7 1.8 3.6Brazil 2.3 4.0 3.1 3.7 2.9 2.5Russia (GDP since 1990) -2.5 7.0 -1.4 1.3 -3.8 1.2India 5.5 8.7 5.1 5.9 5.9 3.3China 9.5 10.7 4.1 11.2 6.5 7.1Average real oil price,USD per barrel, 200828.7 63.2Source: World Bank (World Development Indicators Online Database), British Petroleum (BP Statistical Review of World Energy, June 2009)15

market, and there was a reduction of bothconsumer and investment demand.By summer 2009 world demand forenergy was still much lower than in 2008 (Figure1.2). Russia’s exports of oil and (to an even greaterextent) natural gas diminished as a result. Gasexports were down by more than 40% at the endof H1 2009 compared with H1 2008, although thefall was partly due to the Ukrainian gas transitproblem in January. However, OPEC’s successfulpolicy for reducing supply (by almost 4 millionbarrels per day) enabled oil prices to stabilize at arelatively high level in historical terms. This givesground for optimism, but forecasts of leadinginternational analysts for Russia’s economicgrowth rates through the crisis period remainvery cautious. The IMF estimates that Russia wasamong 15 countries, which suffered most duringthe acute phase of the crisis (in 2009).1.3. The role and place of the fueland energy sector in Russia’seconomy. Current state ofthe sector and potentialfor modernizationStable international demand for oil is akey factor enabling Russia to overcome effects ofthe crisis (Russian oil export volumes haveremained flat) and the ‘price per barrel’ remainshighly important for macroeconomic prospects:such is the importance of the fuel & energy sectorfor the national economy. The fuel & energysector is the biggest source of budget income.The sector provided 43% 1 of all federal budgetearnings in 2008, and should have representedthe same share of the 2009 budget, according tothe draft approved in the fall of 2008 2 . Due to thecrisis and its effect on the energy markets, therevised version of the budget, approved in April2009, reduced the share of energy revenues to30.6% 3 . Oil & gas revenues include mineralextraction tax, as well as export duties for oil, oilproducts and natural gas. Actual budgetrevenues from the oil & gas sector, includingincome tax of oil companies, VAT, excise fees andother charges are substantially higher.Russia’s extraction sector has become afocus for foreign investments, attracting 15-20%of annual capital investment from abroad in themid–2000s. Leading world oil & gas companies(BP, Shell, ConocoPhillips and others) havebecome involved. Measured by its relative size,mineral resource extraction (mainly energy) is theleading sector in the Russian economy by volumeof foreign investments, rivaled only by electricity,gas supply and water, where large foreigninvestments in the last couple of years are atemporary phenomenon linked withrestructuring of the country’s electricitymonopoly (Table 1.2).Total fixed capital investments in theenergy extraction industries in 2008 were 12.8%of fixed capital investments throughout theRussian economy. The figure for the electricpower, water and natural gas supply segmentwas 7.7%, while the figure for the wholemanufacturing was 15.6%.The fact that two thirds of Russia’smerchandise exports consist of oil, oil productsand natural gas demonstrates the country’sspecialization as a fuel & energy exporter. Thesame point is proved by 20% share of exportedhydrocarbons in GDP (this share is an often-citedmeasure of dependence on the energy sector).However, the high level of these indicators inRussia in recent years is largely a consequence offavorable conditions on international energymarkets.It would be statistically more correct tolook at physical volume indicators, focusing onoutput of primary energy per one USD of GDP,based on PPP.The data in Table 1.3 show that Russia isindeed approaching OPEC countries as regards1In accordance with Federal Law No. 19, as amended on March 3, 20082In accordance with Federal Law No. 204, dated November 24, 20083In accordance with Federal Law No.76, dated April 28, 200916 National Human Development Report in the Russian Federation 2009

the share of energy in the national economy,although that does not necessarily entail thatdiversification of the national economy has beencurtailed in recent years. In this context it wouldbe useful to have an accurate assessment of theshare of the fuel & energy sector in GDP, but this ishard to obtain, since fuel & energy has largeimpact on a number of other sectors, includingtrade and the financial sector. The role of the fuel& energy sector is probably much greater than issuggested by indicators obtained by analyzinggross output or gross value added, if only becausea part of the value added, which the sector in factcreates, is registered in other sectors.Dependence on revenues from exportedenergy resources entails serious risks for aFigure 1.2Demand for oil on the worldmarket by regions, 2007-2009(12-month moving average)Q2. 2008 = 100105100959085JanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberJanuaryFebruaryMarchAprilMayJuneJulyAugustSeptemberOctoberNovemberDecemberJanuaryFebruaryMarchAprilMayJuneJuly2007 2008 2009BRIC Europe (OECD)Japan USA RussiaSource: US Department of Energy (Short-Term Energy Outlook,August 2009)Table 1.2Breakdown of foreign investments in Russia’s economy in 2008 (% of total)Type of business Direct Portfolio Other OverallGross value addedin the industryAgriculture, hunting, forestry,fishing1.9 0.0 0.5 0.8 4.9Mineral extraction 18.4 6.9 9.7 11.9 9.2Of which, fuel & energyextraction17.2 6.9 6.8 9.5Processing industries 21.9 16.2 36.9 32.7 17.4Production and distributionof electric power, water andnatural gas8.6 57.4 0.3 3.3 3Construction 3.5 0.0 3.2 3.3 6.5Wholesale and retail sales,small repairsTransportation andcommunications14.8 1.8 26.4 23.0 20.6*4.7 1.0 4.7 4.7 9.4Financial 6.3 2.4 4.3 4.8 4.7Real estate operations,rental and other services18.7 14.1 13.5 14.8 11Other 1.1 0.1 0.5 0.6 13.3Total 100 100 100 100 100Source: The Federal State Statistics Service (Central Statistics Database).* Part of value added in trade is oil rent, which shifts the data to some extent.17

Table 1.3Role of the energy sector in gross production:relation between primary energy production andGDP of selected countries/regions (tonnes of oilequivalent per thousand USD in 2000 at PPP)1990 2000 2007World 0.26 0.22 0.19OECD 0.16 0.14 0.12Russia 0.84 0.94 0.77EC-27 0.11 0.09 0.07OPEC 1.33 1.42 1.17Source: IEA (IEA World Energy Statistics and Balances – EnergyBalances of Non-OECD Countries – Economic Indicators Vol. 2009,release 01)Figure 1.3Russian energy exportsM.t. oil equiv.160014001200100080060040020001971, USSR 1981, USSR 1991, Russia 2007, RussiaOil production Net oil exports Energy production Net energy exportsSource: IEA (IEA World Energy Statistics and Balances – Energy Balancesof Non-OECD Countries – Economic Indicators Vol. 2009, release 01)country. The real earnings of a large share of itspopulation, as well as the education and healthcare systems, are dependent on resource rent,either directly or through the mechanism of thegovernment budget. So there is a threat ofpoverty, social instability, limited access tomedical and educational services, and reductionof overall living standards in case of a fall inexport earnings. This threat is not only short-term(causing such temporary difficulties as were seenin 2008–2009), but also long-term, in case ofdevelopment and large-scale application ofalternative energy technologies by importingcountries. We doubt that such technologicalbreakthroughs are likely in the next 10-15 years,but a changeover of this kind is more probableby 2030. Export earnings could also decline dueto lack of investments in extraction segments,which would confront Russia with a dilemma:whether to limit exports or domesticconsumption. This problem does not exist atpresent, but the worrying trends mentionedabove make it important to give thought to sucha scenario.Russia itself consumes around half of theprimary energy, which it produces. This includesover two thirds of extracted natural gas and coal,and around on third of crude oil. It is thereforequite wrong to describe Russia as a ‘petrostate’,functioning as an energy donor to the developedworld. Energy efficiency of the EuropeanCommunity, the main recipient of Russianenergy, depends on efficient utilization of theseimports, which represented about 40% of allprimary energy consumption in the EC in 2008.It is true, however, that the share of energyconsumed domestically has significantly declinedduring Russia’s changeover to a market economy.This is evidence that the country’s economy hasbecome more energy efficient, requiring smallervolumes of energy. Energy intensity of Russian GDPhas declined by more than 40% since the peak in1994–1996 and is 25-30% lower than in the 1980s.This process has not been met by relevant increasein energy consumption (since growth of internalindustrial production and consumer demand hasnot been sufficient to cause a significant growth ofabsolute consumption).The Russian fuel & energy sector wasincreasingly geared to exports by the mid–2000s(Figure 1.3). Increased export orientation ofRussia’s energy industry can be tracked over alonger period of time, though comparison withthe USSR can be misleading: in the USSR Russiawas in effect an exporter of energy resources toother Soviet republics, but (naturally)international trade statistics did not show thisfact until after the collapse of the union state.The trend began to reverse from 2004 asa larger share of crude oil was consumed insidethe country for refining into oil products (Figure1.4). The share of oil products, which were18 National Human Development Report in the Russian Federation 2009

exported, increased. However, this positive trendhas been partly offset by decline in depth ofprocessing: 75% of the increase in export of oilproducts in 2006–2008 was represented by fueloil. There have been efforts to raise the yield oflight products, but diesel fuel export has grownmuch more slowly than export of fuel oil, andexports of automobile-grade gasoline evendecreased in 2008.The fuel & energy sector became a steadysource of rent for Russia in the 2000s thanks tonatural limitations on global supply of energyresources in the medium term. Theoretically, thisrent could have emerged in another sector, mostobviously metallurgy, but developments onworld markets were such that the fuel & energysector became the cornerstone of Russia’smedium-term macroeconomic stability.The role of Russia’s fuel & energysegment could have negative impact on both thespeed and the quality of economic growth in thelong run. Two phenomena, which havecharacterized Russia’s economy in recent years,are specifically at issue: structural disproportionsand natural resource rent.These two phenomena have been usedby economists to develop theories of what isoften called the ‘resource curse’: deceleration ofeconomic growth in countries, which are rich inmineral resources. These theories have existed forover 20 years. They are not fully accepted inacademic circles and have been opposed by anumber of researchers. Nevertheless, they areoften used for comprehensive analysis of theexperience and economic outlook in variouscountries, including Russia.Most studies related to the ‘resourcecurse’ deal with countries that export fuel &energy resources. Brief historic examination ofGDP and inflation leads to the conclusion thatthese national economies are generallycharacterized by lower growth and highermacroeconomic instability (Figure 1.5).Such a generalized approach is less thanadequate on a number of grounds. Nevertheless,the experience of several countries, which failedto achieve high levels of development despiteFigure 1.4Quality indicators for Russian liquid hydrocarbonexportsM.t.300250200150100500401998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Depth of processing of exported oil products (right scale)Crude oil exportExport of oil productsSource: The Federal State Statistics Service (Central Statistics Database)Figure 1.5GDP of Russia and IMF countrygroups (1991-2010)%121086420-2-4-6-819911992199319941995199619971998199920002001200220032004200520062007200820092010Developing fuel exportersDeveloped economiesSource: IMF (World Economic Outlook Database)Other developing economiesRussiahaving extensive fuel & energy resources thathad been in production for some time, suggestthat natural resource wealth can place additionallimitations on economic development.The best-known phenomenon of this kindis ‘Dutch disease’, which combines deleteriouseffects from use of revenues and reallocation ofresources. The mechanism associated with revenueuse is as follows: inflow of foreign currency(‘petrodollars’) from export of natural resourcesbecomes excessive when international prices forthe resources are high, causing a significant surpluson the balance of payments. It the local currency isfloating against other currencies, its nominal andreal exchange rate will tend to appreciate,undermining competitiveness of the country’sother industrial sectors and agriculture on bothdomestic and international markets (Figure 1.6).6560555045%19

Figure 1.6Urals price and real trade-weighted exchangerate of the Russian ruble (1994-2007)2000 = 10020018016014012010080604020019941995199619971998199920002001200220032004200520062007Real trade-weighted ruble exchange rateUrals price (right scale)Source: World Bank (World Development Indicators OnlineDatabase), US Department of Energy(http://www.eia.doe.gov/emeu/international/oilprice.html)The Central Bank may then intervene, slowing thenominal appreciation by currency interventions,but increase of money supply will stoke inflationand this negative effect could also, in turn,strengthen the real exchange rate.The resource reallocation effect arisesfrom transfer of labor force and capital fromprocessing industries and agriculture to the rawmaterials exporting segment and other sectorsof the national economy, which do not directlycompete with imports, i.e. the so-called ‘nontradable’sector, including construction, retailtrade, transportation and communications.These effects do not directly reduceeconomic growth but they lead to structuraldisproportions, as a result of which the economycan become more exposed to external priceshocks related to a specific group of commodities(energy commodities). There is also a long-termthreat of economic slowdown if the fuel & energysector fails to update its technology andbecomes immune to innovation.Natural resource rent can also have theeffect of suppressing economic growth. If therent is high, rent-seeking behavior becomesprevalent and a large share of resources may beused for redistributive instead of productiveactivities. The fact of a resource rent, which is80706050403020100USD/barreldistributed in accordance with specific rules, canworsen and distort incentives for government,business and the general public. This factor isparticularly dangerous when the country lacksthe well-established institutions of a marketeconomy.Structural disproportions together withprevalent rent-seeking economic behavior canhave impact, through a number of channels, onparameters of the key factor for economicgrowth, namely human potential 4 , becausemeans of stimulating and implementinginvestments in human potential are reduced.Reasons for low investments in humanpotential include wealth inequality, DutchDisease, and improper redistribution policy bythe state. Inequality caused by unevendevelopment of various sectors and regions or byconcentration of geographically localized naturalresources in the hands of a small group of peopleundermines both vertical mobility (e.g. throughimpairment of access to education among poorersocial groups), and incentives for a significantpart of the population. Dutch Disease leads todiminishing demand for skilled labor because theprocessing industry shrinks while the capitalintensiveresource segment may only need alimited number of highly-skilled employees. Thegovernment may try to redistribute revenues, butthis can also undermine incentives, since peoplelook to the paternalistic state instead ofdeveloping their own strengths, educationalpotential and careers. The state may provide itscitizens with free education, but will people seethe sense of developing their own human capitalwhen there are insufficient highly qualified jobsin any case? This sort of scenario leads toincreasing social and material stratification and,consequently, to more social tension.Possibility of this scenario poses a gravethreat to sustainable development in Russia. Inorder to avoid it the state needs to pursue severalpriorities. A wise industrial policy should beaimed at diversification of the economy,4The issue of negative structural disproportions in Russia’s economy is studied in more detail in a work by V.Danilov-Danilyan: EnergyEfficiency as the Key Direction for Russia’s Economic Development//Vestnik Ekologicheskogo Obrazovaniya, 2001, No.19.20 National Human Development Report in the Russian Federation 2009

elimination of structural and territorialimbalances and creation of new jobs. Moderateand flexible re-distributive policy should providecitizens with equal rights for their developmentand preservation of their human potentialwithout destroying incentives provided by themarket economy. This mostly means governmentsupport for the education and health caresectors, combined with smooth development ofmarket mechanisms within these sectors.1.4. Development scenariosfor the fuel & energy sectorin the context of the economicdevelopment modelThe economic crisis has had severeimpact on the Russian economy, but it can beregarded as a window of opportunity both foradjustment of state economic policy and for realchanges in the national economy. Theopportunities arise from reduction of naturalresource rent and devaluation of the nationalcurrency, which create opportunities fordomestic industrial and agriculturalmanufacturers, but, most of all, from a newunderstanding in Russia’s government andbusiness establishments of the fragility of suchprosperity as has been achieved to date. Thesefactors in combination could promote realchanges in the growth and development featuresof the Russian economy.Although diversification of the nationaleconomy is an important objective, Russia’s fuel& energy sector as such has a crucial role in thepositive development scenario, which has justbeen outlined, because of its scale and its role asa energy supplier to all other sectors. We look atseveral possible scenarios for development ofRussia’s fuel & energy sector in the context ofnational economic development.The scenarios we propose are slightlydifferent from those reviewed in the Long-termDevelopment Concept for Russia up to 2020(approved in September 2008) and theaccompanying Social and EconomicDevelopment Forecast 5 . These differences are dueto impact of the world economic crisis onprogress of the national economy and somedivergences in assessment of the developmentpotential of Russia’s fuel & energy sector. Possibleconsequences of the global recession and theeconomic crisis for the Russian economy cannotbe fully gauged at present, and scenarioparameters will have to be amended in the future.Implementation of the innovationscenario (the main scenario in the Long-termDevelopment Concept), which calls for adramatic increase in the level of structuraldiversification of Russia’s economy up to 2020,now looks unlikely. Several years will be requiredto overcome the crisis and to restore the nationaland global economy, so the innovativebreakthrough stage, foreseen in the Concept, willbe postponed. In this Chapter it is assumed thatthe diversification scenario will not be realizeduntil after 2020.However, innovation processes could bewell underway by 2020 in the traditionallydominant fuel & energy sector. The second of thethree scenarios outlined below, is our owninnovation scenario where the key role is playedby increasing energy efficiency (probably to alevel corresponding to the innovative scenario inthe Long-term Concept) and development ofnew technologies in the fuel & energy sector.Inertial scenarioIn such a scenario global demand forenergy resources would remain fairly strong inthe post-crisis recovery stage. High earnings fromexports of oil & gas are capable of maintainingthe fuel & energy sector and the Russianeconomy as a whole. It is therefore possible thatneither the state nor big business will implementa serious innovation policy (despite frequentdeclarations). This could lead to:5http://www.economy.gov.ru/wps/wcm/myconnect/economylib/mert/welcome/economy/strategyandinnovation/longtermstratdirectarea/21

• Russia’s energy efficiency remaining lessthan half that of developed countries;• Slower progress towards energy efficiency inRussia during the coming decade andincreased export of energy-intensivecommodities with low levels of processing(metals, paper etc.);• Oil & gas continuing to dominate primaryenergy consumption structure for thecoming decade (75% of the total). Thehydro-electric and nuclear energy industrieswould grow, but relatively slowly. Efficiencyof the oil & gas industry could be increasedto some extent by an end to gas flaring;• Continued dominance of natural gas as thefeedstock to fuel-fired power stations,despite limited changeover to coal in somelocations;• Continued low levels of oil product export(2-2.5 times less than exports of crude oil byvolume);• Government energy priorities remainfocused on increase of extraction capacitiesand development of transport infrastructurefor the oil & gas industry. Development ofnuclear and hydro-electric generating due tointerest of government companies in thesesegments;• Most innovative activity remains in the oil &gas sector and supporting industries.Innovative energy scenarioDecreasing income from oil & gas exportsdue to general worsening of the internationalenergy market after the world crisis or todifficulties in further development of energyresources lead the government and business topartial restructuring of the fuel & energy sectorand of the economy as a whole. Thegovernment’s long-term investment policy takesaccount of new global tends towards energyefficiency. These factors in combination couldhave the following consequences:• Shift of government and private investmentsfrom extensive development of the fuel &energy sector to its modernization.Achievement of greater refining depth andincrease of oil product export volumestowards the level of crude oil exports;• Energy efficiency innovations and muchgreater use of existing mechanisms forenergy saving;• Development of market institutions in theenergy sector, including ending ofsubsidized energy use and improvement ofcontract mechanisms;• Indirect energy efficiency incentives forindustry and households including flexiblepricing mechanisms, subsidies, exemptionsand other economic instruments toencourage voluntary energy savingbehavior;• Increasing the share of renewable energysources (not including large hydro-electricstations) to 4-5% of total electricity generation(stated objective of the Ministry of Energy);• Significant narrowing of the gap in energyintensity of GDP between Russia anddeveloped countries. The ratio of energyproduction to GDP in Russia is still 3-4 timeshigher than the world average;• Government focus on freeing additional fuel& energy resources through improvedenergy efficiency. Targeting of competitiveadvantages in ‘new energy’ (energyefficiency and use of alternative energies);• Focus of innovation in the fuel & energysector and related industries, as well as in thedefense industry, led by state companies.Diversification scenarios (after 2020–2025)Diversification scenarios assume that, inthe long-term, the government chooses andimplements a diversification policy. Goodinstitutional environment is created fordevelopment of other economic sectors (inaddition to the fuel & energy sector and defenseindustry).• Energy efficiency of the Russian economycomes closer to that of developed countries(though Russia remains much more energyintensive due to export-oriented productionof energy-intensive commodities such aspaper, fertilizers and metals);22 National Human Development Report in the Russian Federation 2009

• Establishment of competitive mechanisms indomestic fuel & energy markets to reducecosts for consumers and motivate energyefficiency;• Government energy policy becomesfocused on competitiveness of otherindustries. Support of ‘national energychampions’ ceases to be the main priority;• Shift of government focus to other sectorsforces the fuel & energy sector to seekprivate investments, including foreigninvestment. The share of energy productionin GDP is dramatically reduced;• Innovation activity spreads quickly throughmanufacturing and agriculture.1.5. Environmental and energyefficiency of the Russian economyThe targets of Russia’s Energy Strategy upto 2020 have been successfully implemented todate, but a number of fundamental problems arelikely to arise in the medium and long terms.The main issue is heavy strain exerted onthe fuel & energy sector by Russia’s high energyintensity, which exceeds that of developedcountries by more than two times, despiteprogress achieved in recent years (Figure 1.7). TheMinistry of Energy estimates that only 20% of theexisting potential for energy efficiency is actuallyused. This will have negative impact oncompetitiveness of the national economy in thelong run due to high spending on energy.Per capita energy consumption in Russiais much higher than the average level ofdeveloping countries and comparable with levelsin developed countries. However, the Russianfigure is much lower than in countries withcomparable climate: it is 15-30% lower than thecountries of northern Europe and 40% belowCanada, while energy intensity of GDP in Russia is1.5-2.5 times higher than in these countries. Sohigh nominal levels of domestic energy supplyare canceled out by inefficient use. It seemsFigure 1.7Energy intensity of GDP in selected countries(1990-2008)Tonnes of oil equiv / thousand USD 2005 (PPP)0.60.50.40.30.20.10.01990199119921993199419951996199719981999200020012002200320042005200620072008ЕС-27 USA Russia JapanSource: World Bank (World Development Indicators Online Database),British Petroleum (BP Statistical Review of World Energy, June 2009)unreasonable to count insufficient access toenergy as a factor that slows down developmentof Russia’s human potential, but less apparentlimitations related to inefficient use of availableenergy do exist. This is reflected in practice by awhole range of infrastructure problems in theenergy sector, which put limitations on livingstandards (e.g. access to electric energy andnatural gas) and impair business development.Exceptionally high energy intensity ofRussia’s economy, perpetuated in part bymechanisms of energy subsidies, has negativeeffect on the environment and threatens tofurther reduce life expectancy or, at least, to raisehealth care costs.Special studies, including a report by theWorld Bank 6 , have shown that application ofexisting commercial technologies throughoutthe country could save up to 45% of the energy,which Russia now consumes (the potentialsaving is roughly equal to total energyconsumption in Germany). This could not bedone quickly and would cost about USD 320-340billion. But the enormous potential for savingsshow how much could be achieved by futureeconomic and energy policies. It would beimportant to decide what to do with the energyvolumes, which are freed by greater efficiency:either exporting them profitably or reducingoverall extraction rates. Comparative merits of6Energy Efficiency in Russia: Untapped Reserves / World Bank Working Paper # 46936. World Bank, IFC, 200823

Figure 1.8Proven oil reserves: years until depletion at currentrate of extraction (1990-2008)Years till depletion90807060504030201001990 2000 2005 2008World OPEC OECD RussiaSource: British Petroleum (BP Statistical Review of World EnergyJune 2009)these two approaches have not even beendiscussed to date, but, when the time comes,they will represent a difficult choice requiringpublic discussion. Russian leaders are takingsome steps to increase energy efficiency.Presidential Decree No.889, ‘On measures toincreasing energy and environmental efficiencyof the Russian economy’ (June 2008) calls for 40%reduction of energy intensity by 2020 comparedwith 2007. A new draft law, ‘On energy efficiencyand improvement of energy efficiency’ waspresented to the State Duma in October 2008, asstipulated by the Decree, and was approved bythe Duma and the Federation Council inNovember 2009. There is a threat that anti-crisismeasures will now override energy efficiencymeasures in the government’s list of priorities,but the President’s address to the FederationCouncil in November 2009 made energyefficiency one of the key vectors formodernization, raising hopes that the issue willreceive due attention in the medium term.Rational long-term use of naturalresources is an important part of Russia’ssustainable development, helping to ensurequality of life for future generations.Forecasts of imminent oil reservedepletion worldwide or in a single country havebeen common currency for over a century, andhave proved to be exaggerated. Improvement ofextraction technologies and energy pricefluctuations, which make development of newfields economically feasible, move the depletiondate further and further into the future. It can beconfidently predicted that world oil productionwill not come to an end in 2050, as presentreserve statistics suggest, even taking account offorecast increase in oil consumption.However, the threat of depletion ofRussia’s proven and accessible oil resources in 20-30 years time has become a real threat, mainlybecause of inadequate exploration in the pastdecade and more difficult extraction conditions,which require work in remote regions with harshclimate. Even during the recent boom years(2002–2008) the depletion date came nearer(from 26.3 to 21.9 years) (Figure 1.8). Reservereplacement is progressing very slowly and thecrisis has clearly worsened the situation. Thesituation with natural gas reserves is better,mainly due to huge deposits, which are sufficientfor 70 years of production. But the expecteddepletion date for natural gas has moved closerby 9.4 years in the last decade, canceling outreserve replacement. It should be stressed thatthese trends were observed during the energyprice boom, when profitability of energy resourcedevelopment was at a high level.A development model based onextensive increase of traditional energy resourceproduction does not look sustainable for Russia.Significant investments are needed fordevelopment of new deposits and moreattention should be paid to use of renewablesources of energy. Russian use of renewables iscurrently extremely limited: the Ministry ofEnergy estimate for 2008 was less than 1% ofelectric power, not counting large hydro-electricstations with more than 20MW capacity.As a result of the economic crisis in the1990s and relatively energy-sparing recoverysince then, greenhouse gas (GHG) emissions inRussia have dropped by 34% compared with1990. But there has been little progress towardslow-carbon energy production, which couldsafeguard what has been achieved and obtainfurther emissions reduction. The share of coal,oil & gas in Russian energy consumption is stillaround 90%. The level is not much different in a24 National Human Development Report in the Russian Federation 2009

number of developed countries, including theUSA, but the main developed countries havemade a number of decisions supporting lowcarbonenergy production (e.g. the G8 ActionPlan for Energy Preparedness, signed inSt.Petersburg in 2006). Both the USA and the EChave recently adopted ambitious programs forgreater use of renewables, and this is also atarget of the Russian leadership, which has saidthat the renewables share should rise to 19-20% by 2020 (including large hydro-electricstations) 7 .Decisions taken by the government inJune 2009 suggest that Russia is not keen to leadthe way in meeting commitments on emissionreductions by 2020, which are to be agreed inCopenhagen in December 2009. The decision toput a -15% limit on reductions as compared with1990 leaves Russia room for maneuver, and evenallows it to return in the post-crisis period to thepower-intensive development path, whichseemed to have been abandoned in 1999–2008,though such a backward step looks very unlikely.The whole world is preparing for major shifts inapproaches to energy efficiency, but these shiftswill probably require much more time andresources than climate enthusiasts predict. Theprogramme of US President Obama and the EC’s20-20-20 programme are unlikely to beimplemented in the near future. Butdevelopments towards energy efficiency willcontinue and Russia, as a responsible country,will take part in this process.1.6. Summary and recommendationsThe important role played in Russia’seconomy by the energy sector means that anymodernization program must take specialaccount of its specific features.Firstly, modernization requires reductionof dependence on energy exports. Economicdiversification can be based on development ofpower-intensive industries and deeper levels ofprocessing. But added competitiveness due toenergy wealth tends to be undermined byinefficient energy use.Secondly, Russia needs a multi-sectoral,diversified programme for increase of energyefficiency. The large energy efficiency gapbetween Russia and developed countries cannotbe overcome by piecemeal measures. The world’sleading countries are already committed togreater energy efficiency, including promotion oflow-carbon technologies. The process has onlyjust begun, but Russia must avoid falling behind.Thirdly, minimization of rent-seekingbehavior by government and private businessesis vital for development of new sources ofindustrial development, in the high-tech sectoras well as the power-intensive semi-productsector. Overcoming rent-seeking behavior hasbeen a condition of success in countries withlarge natural rents. Modernization of theinstitutional environment is the key to success inthis task.The fuel & energy sector has specificneeds, which require special attention in themedium term. Faced with depletion of naturalresources, the sector must carry out investmentprojects to find and develop new fields, and tomake better use of existing fields.Finally, and most importantly, all of thechanges outlined above have to be focused onsustained, long-term development based onincrease of human potential. The actions, whichare taken, must stimulate both economic growthand investments in human development.Environmental efficiency of the economy as awhole and of the fuel & energy complex, inparticular, also have high priority.7http://minenergo.gov.ru/activity/vie/25

Box 1.1. Correlation between climate change, the energy sectorand human developmentClimate change is one of the most dramaticgeopolitical and economic problems of the century,since it poses a real threat to human development andbetter quality of life worldwide in both the short andlong term. Production and combustion of fossil fuelsare one of the main causes of registered increase inGHG emissions and resulting quickening of the globalclimate change process. In Russia over 72% of GHGemissions are related to use of fossil fuels.Climate monitoring records by thenational hydrometeorological network, as well asscientific publications by Russian and foreignscientists on global climate change and itsconsequences show significant negative and, insome cases, positive impact from climate changeon Russia’s natural environment and socioeconomicdevelopment, both nationally and byregions. The Assessment Report on ClimateChange and its Impact on the Russian Federation,prepared in 1998 by experts of the StateHydrometeorological Committee (Roshydromet),the Russian Academy of Sciences and specialistsfrom the country’s universities 8 , did much to focusattention on severity of the problem.Climate change will have negative impacton many parts of the national economy and theenergy sector may be among the hardest hit.Energy facilities in Siberia and northern territoriesare particularly vulnerable due to thawing ofpermafrost, which covers two thirds of Russia’sterritory. It is expected that depth of seasonalmelting will increase by 30-50% by 2050, which willcreate new technical challenges for the resourceextraction industry in the Russian Arctic and Siberia.Communities and energy infrastructure intraditional permafrost areas are particularly at risk.In Western Siberia 21% of all accidents on trunk oiland gas pipelines have mechanical causes,including failure of foundations and deformation ofsupports.Further melting of the permafrost coulddamage even larger facilities, such as oil depots.Special technical projects will be needed in orderto prevent an increase of oil and gas pipelinefractures.Forecast change of flow volumes in riverswill change the of water influx to large reservoirs.Forecasts predict a 5-10% increase of water influxto the Volga-Kama reservoir series and toreservoirs in the North-Western Federal District.Water influx to reservoirs on the Angara andYenisei rivers, and also on the Viluy, Kolyma, andZeya rivers will increase by between 0% and 15%.Changes in river flow due to expected climatechanges will force reassessment of reservoiroperation procedures with respect to main users(especially power generating facilities) and theenvironment.Russia’s transportation infrastructure isalso at risk. Increasing volume and frequency ofprecipitation, and the fact that winterprecipitation will increasingly be in the form ofrain, rather than snow, will tend to destabilize roadbeds and weaken support walls. Prolonged dryperiods could result in soil subsidence beneathstructures and buildings. Larger temperaturefluctuations will speed up road degradation.Permafrost melt is already destroying winter iceroads, which are vitally important for the oil andforestry segments.Russia is more subject to weather extremesthan other countries of Europe and Central Asia andvulnerability of the country’s economy reflects itslarge tracts of territory with unfavorable ecologicalconditions and poor condition of the country’sinfrastructure.Benefits from climate changes in Russiainclude reduction of heating costs, greater potentialfor agriculture and forestry, ability to developshipping along the Northern Sea Route, as well asgreater access to, and hence production of, mineralresources and biological marine resources.Both positive and negative climate changeimpacts require complex and professional study. Itis important to develop climate risk assessment andforecasting research, as well as studies of theirpossible benefits for the energy industry and othersegments so that these factors can be taken intoaccount when making long- and medium-termstrategic decisions.8Assessment Report on Climate Change and its Impact on the Russian Federation: General Summary, Roshydromet, 200826National Human Development Report in the Russian Federation 2009

Although the United Nations ClimateChange Conference in Copenhagen in 2009 did notmark a breakthrough in putting the climate issue atcenter stage of the world economy and nationaleconomies, its results will have major impact forstrengthening and expansion of the drive towardslow-carbon development, which the leading nationsof the World are embarked upon. The CopenhagenAccord (the political document developed andadopted by world leaders at the Conference)confirmed the commitment of most developedcountries to keep global warming under 2 o C andstart immediate actions for prevention of andadaptation to climate change, to organize relevantfinancing and technologies, and to stop forestdevastation in developing countries. The strategicmeasures for energy saving and GHG emissionsreduction at the national level that have alreadybeen adopted or are under development willinfluence global markets (both markets fortraditional fuel & energy, and the new market forGHG emission certificates) and will encouragetransfer and distribution of energy-efficient and lowcarbon technologies.Adoption of the Climate Doctrine of theRussian Federation, signed by the Russian Presidenton November 17, 2009, is an important stepforward. The Doctrine sets out attitudes towards thegoal, principles, content and means ofimplementation of a unified climate change policyin the Russian Federation. The strategic goal of theRussia’s climate change policy is to ensure safe andsustainable national development, including theinstitutional, economic, environmental and social(including demographic) aspects of suchdevelopment, in the context of climate change andrelated threats and challenges. The Doctrine paysspecial attention to development of Russian climatescience, which many prominent experts believe tobe in need of strong state support.Objective media coverage of problemsrelated to climate change and its implications,including ‘popular science’ approaches to climateawareness, is a priority for Russia. Successfuldevelopment and implementation of Russia’s climatechange policy will depend on greater environmentalawareness and understanding of climate changeissues among government officials, business people,civil society and the general public.Almost simultaneous adoption of theClimate Doctrine and of the Energy Policy of Russiaup to 2030 (approved by Governmental DecreeNo.1715-r, dated November 13, 2009) bodes well forclose integration of energy and climate policies withrespect to action plans and socio-economicdevelopment programmes.27

Chapter 2Energy and the Regions:Human Development Challenges2.1. Fuel & energy regions:their role in Russia’s economyand developmentThe industries that comprise Russia’s fuel& energy sector are spread unevenly across itsregions, and therefore play different roles indifferent regional economies. About a quarter ofRussia’s administrative regions, with one sixth ofRussia’s population, specialize in extraction andprimary processing of fuel resources. However,federal budget revenues from extraction andexport of fuel resources are redistributedthroughout the country.The largest oil & gas producing region isTyumen, specifically the Khanty-Mansi andYamal-Nenets Autonomous Districts, which areconstituent parts of the Region. Tyumen Regionprovides 12% of Russia’s industrial production(including 8% from Khanty-Mansi alone) and thesame share of Gross Regional Product (GRP).These figures are understated, because many fuel& energy companies use transfer pricing torelocate profits in favor of their Moscow-basedheadquarters or offshore companies in order tominimize taxation. The fact that Moscow has thebiggest share of Russian GRP (23%) is largely dueto concentration of profits in head offices of largecompanies in the city. Besides, a statistical quirklocates 10% of all fuel & energy extraction inRussia in the city of Moscow. Corporate reportingjuggles figures to distort the actual input ofextraction regions to fuel & energy production,creating special advantages for the Moscow citybudget thanks to huge amounts of profit taxfrom the country’s leading corporations.The main regions for Russia’s fuel &energy sector are obvious from figures that showraw fuel and electricity production. Territorialconcentration of most sub-sectors is very high,especially in oil & gas extraction. Tyumen Regionwith its autonomous districts accounts for 91% ofgas and 66% of oil production (Table 2.1). Coal ismined in many regions, but the two leaders –Kemerovo Region and Krasnoyarsk Territory –account for 70% of all production. Electric powerproduction is most dispersed, but the leader isagain Tyumen Region, followed by Siberianregions, which have a well-developed hydropowerindustry (Irkutsk Region and KrasnoyarskTerritory) and the cheapest electric power in thecountry as a result. Moscow and the leadingTable 2.1Leading regions for fuel extraction and electric power production(share in national production in 2007-2008, %)Crude oilextraction*%Natural gasextraction% Coal extraction %Electric powerproduction%Tyumen Region 66 Tyumen Region 91 Kemerovo Region 58 Tyumen Region 9incl. Khanty-MansiAutonomous District57incl. Yamal-NenetsAutonomous District87 Krasnoyarsk Territory 12incl. Khanty-MansiAutonomous District7incl. Yamal-NenetsAutonomous District9incl. Khanty-MansiAutonomous District4 Chita Region 4 Irkutsk Region 6Republic of Tatarstan 7 Orenburg Region 3 Republic of Komi 4 Krasnoyarsk Territory 6Orenburg Region 4 Astrakhan Region 2Republic of Sakha(Yakutia)4 Moscow 5Sakhalin Region 3 Irkutsk Region 3 Sverdlovsk Region 5Nenets AutonomousDistrict3 Republic of Khakassia 3 Saratov Region 4Republic of Komi 3 Primorsky Territory 3 Leningrad Region 4*incl. gas condensate28 National Human Development Report in the Russian Federation 2009

industrial region of the Urals – Sverdlovsk Region –are also major producers of electric power.The fuel & energy industries play animportant role in regional economies, creatingwell-paid jobs and providing large revenues forregional budgets. However, domination of suchsegments and formation of single-industryregional economies increase development risksdue to instability of fuel prices and depletion ofnatural resources in the long term. Singleindustryoil & gas regions include Tyumen andthe Nenets Autonomous District and, in the pastlast few years, Sakhalin Region (Figure 2.1). In 8-9 other regions contribution of the fuel & energysector to regional industrial output is higher thanthe national average. The Republic ofBashkortostan, Samara Region and Perm Territoryshould also be included in the list: these regionsare specialized in primary processing of oil & gasas well as having sizeable extraction industries,so that total contribution of the fuel & energyindustry to their economies is higher thansuggested in Figure 2.1. Moscow is includedamong oil & gas producing regions because ofthe statistical eccentricities mentioned above. Oil& gas production in Arkhangelsk and TyumenRegions is concentrated in their constituentautonomous districts.Specialization in oil & gas productionhelped these regions to survive the 1990s crisiswith much less serious industrial recessionscompared with the Russian average. TheRepublic of Udmurtia, where the defenseindustry dominates the economy, was anexception. Coal-mining regions were not sparedthe privations of the transition period. The coalindustry has undergone restructuring and masslayoffs, particularly in traditional mining areas,where many mines had been loss-making for along period (Rostov, Tula and Chelyabinskregions, Perm Territory), and in the northern andeastern territories where costs of coal mining arehigh due to harsh climate and remoteness.The period of economic growth, whichlasted for a decade (1999–2008), saw highestgrowth rates in two oil & gas producing regions,where development of new deposits started atthat time: the Nenets Autonomous District(industrial output quadrupled compared with1990) and Sakhalin Region (output rose by 1.8times compared with 1990). These results areshown in Figure 2.2. Tatarstan also enjoyedstrong growth of industrial output in 1999–2008(by 1.3 times) thanks to large governmentinvestments. Nearly all other regions with asizeable fuel & energy sector only approachedlevels of the end of the Soviet era or, at best,slightly surpassed them. Oil & gas production didnot provide strong and consistent economicgrowth in these regions after 2000. Tomsk Regionand Yamal-Nenets Autonomous District showeddeclines of industrial output from 2004. TheFigure 2.1Share of fuel resource extraction in regional industrial output in 2007, %10090807060504030201009890 88 88776448 47 4542 38 3631 27Nenets Autonomous DistrictKhanty-Mansi Autonomous DistrictSakhalin RegionYamal-Nenets Autonomous DistrictTyumen RegionChechen RepublicTomsk RegionArchangelsk RegionKomi RepublicOrenburg RegionKemerovo RegionRepublic of UdmurtiaRepublic of TatarstanChita RegionAstrakhan RegionRussian Federation2419 17 15 1413 12MoscowPerm TerritoryRepublic of Sakha (Yakutia)Republic of BashkortostanSamara Region29

Figure 2.2Accrued industrial growth of regions where the fuel & energy sector has large relative or absolute size,% to 1990 (1990=100%)400350300250200150100500Nenets AutonomousDistrictSakhalin Region1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Republic of TatarstanOrenburg RegionTyumen RegionKhanty-Mansi AutonomousDistrictRepublic of Sakha (Yakutia)Republic of BashkortostanSamara Regionslowest growth rates were in the Komi Republicand Republic of Udmurtia, where oil deposits areapproaching exhaustion, and in coal-miningKemerovo Region, though one should bear inmind that industrial growth in these regionsdepends on machine-building, metallurgy orforestry, as well as on the fuel & energy sector.Development prospects in regionsdepend on investment levels. Extraction of fuelresources is the most capital-intensive industrialsector, so main oil & gas regions rank high byinvestments, along with the ‘federal cities’Moscow and St.Petersburg and with regions, thathave large metallurgy industries. Nevertheless,Astrakhan Regiononly the biggest oil & gas producing regions andregions with newly developed fields have clearinvestment advantages. Per capita investmentrates in such regions are 4-15 times higher thanthe national average, even when adjusted fortheir relatively high consumer price levels (Table2.2).In general, specialization of regionaleconomies in fuel & energy gave them a safetynet during the recession of the 1990s, limitingtheir economic decline, but, with fewexceptions, it did not become the driving forcefor fast and sustained economic developmentin the 2000s.Table 2.2Regions with highest per capita investments in fixed assets in 2000-2008, % to national average*(Russian Federation=100%)Nenets Autonomous District ** 1533 Vologda Region 129Yamal-Nenets Autonomous District 900 Astrakhan Region 129Khanty-Mansi Autonomous District 480 St. Petersburg 121Tyumen Region 468 Tomsk Region 120Sakhalin Region 387 Lipetsk Region 112Chukotka Autonomous District 212 Moscow 109Leningrad Region 192 Moscow Region 108Republic of Sakha (Yakutia) 164 Krasnodar Territory 108Republic of Tatarstan 157 Kaliningrad Region 105Komi Republic 151 Republic of Bashkortostan 104* Figures were calculated in constant prices and adjusted to reflect cost of living in each region (the price coefficient for a fixed number ofcommodities and services used for interregional measurements by Rosstat (the Federal State Statistics Service))** Oil & gas producing regions are in boldTomsk RegionKrasnoyarsk TerritoryYamal-Nenets AutonomousDistrictRussian FederationPerm TerritoryKemerovo RegionKomi RepublicRepublic of Udmurtia30 National Human Development Report in the Russian Federation 2009

2.2. Budget capacityand structure of socialexpendituresThe fuel & energy sector has impact onregional development through the state ofenergy markets, investment issues and otherindustrial factors, but also through the policies ofgovernment and large fuel & energy companies,which redistribute a great deal of the valuearising from energy production. These policiesinfluence the budgets of regions that specializein fuel & energy, but they also influence thebudgets of the federal cities (Moscow,St.Petersburg) due to large tax earnings from theheadquarters of fuel & energy companies, whichare located in those cities.The biggest oil &gas producing regionsare the main ‘bread-winners’ for the Russianbudget. The two autonomous districts in TyumenRegion provide 29% of all revenues to the federalbudget, which are collected in the country’sadministrative regions, equaling the contributionmade by Moscow. This concentration of taxearnings in just three regions reflects the fact thatRussia’s fuel & energy companies have largebusinesses and pay much tax. The main taxes,paid by oil & gas companies, are channeled to thefederal budget (as opposed to regional budgets):all of VAT, a part of income tax, and (since 2005)almost all of the mineral extraction tax.Centralization in the federal budget ofmajor taxes in oil & gas regions leads to specificproportions between federal and regionalbudget revenues in these regions. Taxes that arecollected in Russian regions are, on average,divided equally between the two levels of thebudget system (federal and regional), but 82% ofall taxes collected in 2007–2008 in Khanty-MansiAutonomous District went to the federal budget,while figures for the Nenets and Yamal-NenetsAutonomous Districts were 72-76%, and 63-64%for Komi Republic, Republic of Udmurtia,Orenburg and Tomsk Regions. These figurescompare with 20-40% of all taxes collected inother regions that went to the federal budget.The largest oil & gas producing regions, togetherwith metallurgy regions and the federal cities, are‘budget donors’, contributing to instead ofreceiving adjustment subsidies from the federalbudget.Profit tax is the main source of income forregional governments in fuel & energy regions,contributing 20-45% of their budget revenues. InMoscow, where the largest fuel & energycompanies have their head offices, the share ofthis tax is even higher: in 2007 it was 66% of allMoscow budget revenues and 49% in 2008. Profittax revenue is unstable, declining sharply duringrecession periods, particularly in regions wheremineral resource mining and primary processingare the main industries. This source of taxrevenue is vulnerable to corporate policies as wellas to economic crises. For various reasonscompanies may move the addresses of their unitsfrom one region to another, depriving theabandoned region of a strong source of budgetrevenue.As a result extraction regions are exposednot only to risks posed by fluctuations oninternational energy markets, but also to budgetrisks, including the policy of centralizing energytax revenues in the federal budget. Thus in 2009the government decided to completelycentralize mineral extraction tax. The longestablishedidea that extraction regions havestrong fiscal capacity is becoming a myth: onlythe three leading oil & gas producing regionshave high per capita budget revenues.Human development in the regions isimpossible without increase of budgetexpenditures for social programs and withoutgeneral prioritization of social issues. On averageacross Russia, about half of regional budgets arespent on social items, though most regionsdevote more than half of their spending to socialneeds. The share of social expenditures is higherthan the national average in many fuel & energyregions (Figure 2.3), with the exceptions ofTyumen Region (without its AutonomousDistricts) and Moscow, where social expendituresare only a third of total spending. The latterexceptions are explained by very high budgetrevenues, which enable these regional31

governments to spend much more budgetmoney on investments in the economy.Moscow’s budget revenues account for 20% of allrevenues of Russian regions, because Moscowgathers profit tax from all major corporationsregistered in the country. Revenues of theTyumen regional budget increased by six timesin 2003–2008 (from 27 to 163 billion rubles),compared with threefold growth in other regionsof Russia. These figures are not merely reflectionsof economic growth, but also of institutionaladvantages: the Tyumen regional budgetreceives some of the taxes from its residentautonomous districts with their oil & gas wealth,Moscow obtains tax from large oil & gascompanies registered there, etc.Regional budgets have highly variedpriorities in financing of social items. The biggestshares of spending on education (a quarter of allbudget spending) are in Perm Territory, TomskRegion, Republic of Tatarstan, Republic ofBashkortostan, Komi Republic and NenetsAutonomous District. On average regions spendabout 21% of their budgets on education, but inTyumen Region this figure is only 11% and inAstrakhan Region it is 16%. Health care and sporthave top priority in Khanty-Mansi AutonomousDistrict (20% of all spending, compared with 13%average for all regions), while Tomsk Region andthe Nenets Autonomous District spend only 8%of their budgets on these items, and TyumenRegion and Krasnoyarsk Territory give them a10% share. Social policy spending is highest inKomi Republic and in Samara Region (15%against average 12% for all regions) and twothirds of these funds are spent as social paymentsto individuals and families. Housing & utilitieshave top priority in the federal cities and inYamal-Nenets Autonomous District (21-29% ofbudget spending compared with 16% averagefor all regions). But this is a forced priority:regional governments are postponing reform ofthe housing & utility sectors because of concernabout social consequences.These figures reflect social priorities ofregional governments, but a more preciseassessment of regional investments in humandevelopment can be obtained by studying percapita social expenditures. In order to make a justcomparison, they need to be adjusted for pricedifferences between regions and objectivedifferences in the cost of budget services basedon climate, remoteness, population density, etc.The Ministry of Finance uses a speciallydeveloped Budget Expenditures Index, whichtakes account of all these differences, and RosstatFigure 2.3Share of social and housing & utilities spending in all expenditures of consolidated budgets of Russianregions in 2008, %Social expendituresSocial expenditures and housing & utilities expenditures8070605040302010058 57 56 5553 52 52 51 50 50 50 49 49 49 49 47 47Republic of UdmurtiaKhanty-Mansi Autonomous DistrictPerm TerritoryKomi RepublicRepublic of BashkortostanOrenburg RegionSakhalin RegionSamara RegionKemerovo RegionKrasnoyarsk TerritoryRepublic of TatarstanRF national averageYamal-Nenets Autonomous DistrictTomsk RegionAstrakhan RegionSt. PetersburgNenets Autonomous District36 33MoscowTyumen Region32 National Human Development Report in the Russian Federation 2009

(the Federal State Statistics Service) hasdeveloped a coefficient for interregionalcomparisons, which reflects differences in thecost of a fixed list of commodities and services.These two correcting coefficients differ from eachother to a considerable extent, especially fornorthern and eastern regions and the federalcities, so that adjustments made using themproduce different results. Table 2.3 shows percapita budget expenditures, including socialexpenditures, calculated by three methods:nominal, using the Rosstat coefficient, and usingthe Budget Expenditures Index.The choice between types of adjustmenthas major impact on the final result, so per capitabudget comparisons are relative. But someconclusions can be drawn, despite thedivergences. First, per capita financing of socialexpenditures is much higher in the three northernautonomous districts, with large fuel resourceproduction and scant population, as well as in thefederal cities. But most fuel & energy regions donot have strong advantages in their fiscal capacityand cannot spend much more on social items thanother regions, which have the benefit of largesubsidies from the federal budget.The lowest per capita socialexpenditures are in Bashkortostan, Udmurtiaand Orenburg Region, but they also have lessfiscal capacity. Tyumen Region stands out byhaving the biggest gap between overall percapita expenditures and per capitaexpenditures on social items (a threefolddifference). The Region was one of the first inTable 2.3Per capita expenditures of consolidated regional budgets and per capita social expenditures*of Russian regions in 2008 (thousand rubles per capita)Per capita budget expenditures, total Of which, per capita social expendituresAdjusted Adjusted Adjusted AdjustedNominal using the using the Nominal using the using theRosstat coefficient Budget Rosstat coefficient BudgetExpendituresExpendituresIndexIndexNenets Autonomous District 233 153 147 110 72 69Yamal-Nenets Autonomous 150 102 96 74 50 47DistrictKhanty-Mansi Autonomous 124 89 79 71 51 45DistrictSakhalin Region 100 68 46 52 35 24Moscow 126 89 134 45 32 48St. Petersburg 79 73 97 37 35 46Tyumen Region (withoutautonomous regions) 111 110 71 36 36 23Krasnoyarsk Territory 54 51 40 27 26 20Komi Republic 46 39 30 25 22 16RF regional average 44 44 44 22 22 22Republic of Tatarstan 39 47 47 20 23 24Perm Territory 35 34 38 20 19 21Kemerovo Region 40 48 44 20 24 22Tomsk Region 38 37 28 19 18 14Astrakhan Region 36 41 46 18 20 22Samara Region 35 33 42 18 17 21Orenburg Region 31 37 35 16 19 18Republic of Udmurtia 28 34 32 16 19 18Republic of Bashkortostan 27 31 29 14 16 15* Education, health care, fitness and sport, social policy and mass media33

Russia to carry out social sector reform in 2007and took first place in a rating by the Ministry ofRegional Development for governmentefficiency, with special commendation foreliminating ‘inefficient social spending’.Unfortunately, efficiency improvements in socialspending are equated by federal authorities and(in many cases) regional governments withspending less budget money, although socialmodernization depends on steady growth ofgovernment investments in the most efficienthuman development instruments.2.3. Social situation:achievements and problemsRegions specializing in fuel and energyproduction are scattered across the country andtheir social development depends on differingfactors and specifics. Nevertheless, they can besensibly divided into three groups:• Sparsely populated northern regions withsingle-industry oil & gas economies (Khanty-Mansi, Yamal-Nenets and NenetsAutonomous Districts);• Regions of European part of Russia (most ofthem located in the Volga Federal District)with a longer history of oil & gas extraction,less dependence on fuel & energy, and withbigger cities and higher population density;• Other northern and eastern regions of thecountry, including coal-mining regions,whose social and demographic featuresplace them between the above two groups(Komi Republic, Krasnoyarsk Territory,Sakhalin Region etc.).The demographic situation in regionsdepends on when their industrialization began,and on the duration and scale of migratory flows.Autonomous districts of the north where oil &gas exploration began relatively recently are themost prosperous. Mass migration in the 1970sand 1980s increased population of these areasby 10 times, and the newcomers were mainlyyoung people. There was a second wave ofmigration, on a much smaller scale, in the 1990s,drawn by relatively high wages in the northernoil & gas producing regions. Thanks to theiryoung population the Khanty-Mansi and Yamal-Nenets Autonomous Districts still enjoyrelatively high natural population growth (8-9per 1000 in 2007–2008). The NenetsAutonomous District also has positive naturalpopulation growth (3 per 1000). This contrastswith overall excess of mortality overreproduction in Russia since the early 1990s. Alsothere is a large share of people of working age(over 70%) in the northern oil & gas productionareas, and the share of children (20%) greatlyexceeds the share of the elderly (7-12%).In the regions of the Volga FederalDistrict and southern Siberia large-scaleindustrialization started in the middle of the lastcentury, so their populations have already aged,though not as dramatically as in the Central andNorth-Western parts of Russia. The demographicsituation in older oil & gas producing regions andin the major coal mining regions of southernSiberia is similar to the national average, both asconcerns natural loss of population (2-3 per 1000)and in the age structure (62-63% of people are ofworking age, 16-18% are children and youngpeople, and 18-22% are senior citizens).The demographic advantages ofnorthern autonomous regions will not lastforever. Since the mid–2000s they have beenexperiencing a migratory outflow. The outflowwas small at the outset, but in 2008 it soared by10 times to 77 per 10,000 population in theYamal-Nenets Autonomous District andreached 36 per 10,000 in the Nenets District.Only the Khanty-Mansi Autonomous Districtshowed some migration increase in 2007–2008,when oil prices were at their peak. But thistrend is unlikely to last, since the period ofsuper-profits from oil is now over and thepresent crisis does not favor creation of newjobs. Without input from immigration thepopulation of Russia’s northern areas will age,and the regions will face the samedemographic problems, two generations intothe future, as now face fuel & energy regionswhere industrialization began earlier.34 National Human Development Report in the Russian Federation 2009

Immigration by young and highly skilledworkers since Soviet times has made thepopulation of northern resource-mining regionsbetter educated than the national average.Populations in some other fuel & energy sectorregions with large regional centers also haveabove-average levels of education. But theadvantages are usually concentrated invocational secondary education, as in otherindustrial areas of the country. Results of labormarket sampling by Rosstat show that in 2007the largest part of the workforce in most fuel &energy regions had vocational secondaryeducation, and workforces in other fuel & energyregions (Orenburg Region, Komi Republic andBashkortostan) were dominated by people withvocational elementary education (Figure 2.4).Tomsk and Samara Regions stand out by havingworkforces, which are dominated by employeeswith higher education, mainly because Tomsk isa leading university center in Siberia and theurban agglomeration of Samara and Togliatti,with two million inhabitants, has a very welldevelopedhigher education system. In neithercase is the dominance of well-educatedemployees a result of the regions’ specializationin oil business.Data for whole regions do not reflect theskill level of people employed in the fuel &energy sector. The oil & gas industries are notvery labor-intensive, and employment in the coalindustry has declined significantly during thetransition period. In most regions with a largeshare of fuel resource production, the share ofemployment in extraction industries is only 1-3%of the total. Shares are higher in Sakhalin and theKomi Republic (5-7%) and in Kemerovo Region(10%), and are highest in the northernautonomous districts, where the share ofemployment in extraction industries amounts to16-27% (because the economies of these districtsare single-industry).These figures show that conditions in thefuel & energy sector have major impact onemployment in single-industry oil & gasproducing districts and in Kemerovo Region. Inother regions the state of the labor market isdetermined by a wider range of factors.Resource-mining territories in northern andeastern parts of the country suffer more fromunemployment because they have largenumbers of single-industry towns andsettlements, where the service sector isunderdeveloped and few new jobs are created.Figure 2.4Share of employees with various levels of education, % (based on Rosstat sampling in 2007)Higher education, incl. unfinished Vocational secondary Vocational elementary General secondary General basic4035302520151050Tomsk RegionSamara RegionKhanty-Mansi Autonomous DistrictTyumen RegionRF national averageKrasnoyarsk TerritoryRepublic of TatarstanAstrakhan RegionYamal-Nenets Autonomous DistrictNenets Autonomous DistrictRepublic of UdmurtiaKomi RepublicPerm TerritoryKemerovo RegionOrenburg RegionSakhalin RegionRepublic of Bashkortostan35

As a rule, these regions have above-averagelevels of youth unemployment.The situation in specific regionsdepends on the character of their labor marketand corporate policies of large corporations.Employment problems in oil & gas mining areasare the result of the Soviet strategy fordevelopment of northern territories. Manymigrants were urged to move permanently toareas with adverse climate and high cost ofliving. Development of social infrastructure andhousing for these migrants and their familiesrequired huge expenditures. Financing waspoor and social amenities in the northernterritories were scarce. The standard of livingthere is still lower than the national average.There was a partial exodus from northernterritories in the 1990s, but in regions with oil&gas extraction such remigration effects wererelatively small-scale and brief (limited to theearly 1990s) because high salaries persuadedpeople to stay.Oil companies optimized theiremployment structure in the early 2000s. Someauxiliary processes were outsourced and not allof them were able to survive on their own. Theeffect in Khanty-Mansi Autonomous Districtwas to postpone increase of employment ratesin the first years of economic growth (Figure2.5). Oil companies also started to make fulleruse of rotation schemes, bringing in employeesfrom other regions, primarily from regionswhere oil production was declining. In 2002rotation workers were 12% of all employees inKhanty-Mansi Autonomous District, but theirshare on the regional employment market washalved in subsequent years, as oil companieswere forced to take account of negative impactfor local inhabitants from increasedcompetition for jobs.In the Yamal-Nenets Autonomous DistrictGazprom made special efforts to maintainemployment despite high costs, and sharp risesin unemployment were avoided. But such apolicy only postponed resolution of the problemof inefficient and excessive employment, as hasbecome evident in the new economic crisis of2008–2009, which has been accompanied by adramatic decline in gas production.Unemployment in coal-mining regionspeaked in the 1990s, after which employmentrestructuring programs were implemented in thecoal industry, though with mixed success.Employment in coal-mining declined as a resultof economic difficulties and corporate policies.Russia’s biggest coal-mining regions are insouthern Siberia, which has a relativelytemperate climate and a number of large citieswhere former coal industry workers had a chanceof finding new work. Shrinkage of the coalindustry in the more northerly Komi Republicproduced greater tensions, despite large-scalemigration away from the Region.By the end of the period of economicgrowth labor market conditions in fuel & energyregions were relatively good and the level ofunemployment, as calculated in accordance withrecommendations of the International LaborOrganization, was close to the national average(Figure 2.5). Nevertheless, the employment levelin fuel & energy regions, especially those withsingle-industry economies, is largely dependenton international fuel prices and therefore lacksstability.Human development in fuel & energyregions is promoted by higher incomes. The ratioof average per capita personal incomes to thesubsistence level in the single-industry oil &gasproducing autonomous districts is 4.5-5 times.This level is only surpassed in Moscow, where itis 5.5 times. In other regions, which produce largequantities of fuel resources, the ratio is higherthan the national average (3.3) or is close to it.Relatively high salaries of those employed in thefuel & energy sectors (particularly oil & gasproduction) have impact on income levels of theentire regional population. In the 1990s and early2000s salaries in fuel & energy resourceproduction industries exceeded average regionalsalaries by three times. This gap had narrowedsomewhat by 2007 (to 2.5 times) due to wageincreases in the budget-financed sector.Strong differences in wages betweenindustries and high cost of living in most fuel &36 National Human Development Report in the Russian Federation 2009

energy regions exacerbate the income gapbetween different groups of the population. Theratio of incomes of the wealthiest 10% of peopleto incomes of the poorest 10% in theautonomous districts of Tyumen Region and inthe Nenets Autonomous District is 19-22 times,in Samara Region it is 19 times, and in Perm andKrasnoyarsk Territories, Komi Republic andBashkortostan it is 18 times (the national averageis less than 17 times). Of the 15 regions with thebiggest income gap, 10 specialize in fuelextraction. However, all of them are far behindMoscow where the ratio is 41 times.Large wage differences between sectorsand high cost of living in many fuel and energyorientedregions create special difficulties forlow-income groups. High cost of living makes itnecessary to divert more budget resources tosupport people on low incomes. Single-parentfamilies, families with many children, householdswith handicapped members, the unemployed,and some other groups are particularly at risk.Retirees are vulnerable to poverty in northernand eastern territories, where the averagepension lags 10-25% behind the minimumsubsistence level. The problem was partiallyresolved by pension increases in the past fewyears, but in some Far Eastern regions theaverage pension was lower than the subsistencelevel even in 2007 (by 9% in Sakhalin Region andby 6% in Sakha (Yakutia)). Indigenouspopulations in Russia’s northern territories alsoreceive low incomes, especially those living inrural areas. The problem is less acute furthersouth due to lower subsistence levels, particularlyin the Republics of Tatarstan and Bashkortostan,where the agricultural sector is better developedand receives funding from the budget.Negative impact of polarization ofincomes is compensated by large-scale socialpolicy. A very low poverty rate (6-7% in 2007) inthe autonomous districts of Tyumen Region isnot only due to high personal incomes. It is alsodue to per capita social expenditures of localbudgets, which are 1.6-2 times higher than thenational average (adjusted for differences in thecost of living). Rapid economic growth alsocontributes to reduction of poverty rates.Regions where new oil & gas fields are beingdeveloped (Nenets Autonomous District andSakhalin) have seen rapid growth of budgetrevenues, leading to a sharp reduction of thepoverty rate (by 3-6 times). In Tatarstan, the effectof rising budget revenues in reducing povertywas assisted by a low subsistence level.Nevertheless, in half of fuel & energy producingFigure 2.5Unemployment rate (ILO definition) as % of economically active population181998 2000 2002 2004 2006 2007 20081614121086420Samara RegionRepublic of TatarstanRepublic of BashkortostanYamal-Nenets Autonomous DistrictKhanty-Mansi Autonomous DistrictRF national averageKemerovo RegionKrasnoyarsk TerritoryKomi RepublicNenets Autonomous DistrictTomsk RegionOrenburg RegionPerm TerritorySakhalin RegionAstrakhan Region37

egions the poverty rate is higher, though notmuch higher, than the national average (Figure2.6). Orenburg Region is in the worst situation,with a poverty rate of 18%, due to a large share ofrural population.Human development depends on healthand education as well as on income levels.Educational coverage of children and youngpeople and improvement of educationalinfrastructure are particularly important. TomskRegion is beyond compare with respect to highereducation. The number of students per 10,000population in Tomsk Region is 1.7 times higherthan the national average. In Tatarstan this indexis 14% higher than the national average.However, most fuel & energy regions do not havelarge university centers. Vocational secondaryeducation is relatively well provided in AstrakhanRegion (the number of students at this level per10,000 population is 1.5 times higher than thenational average), and also in Bashkortostan,Perm and Krasnoyarsk Territories and inOrenburg Region (about 25% higher than thenational average).In Soviet times the northern autonomousdistricts received inputs of skilled labor fromother regions. Since 1990 the districts have seena boom in paid education. Many highereducational establishments from elsewhere inFigure 2.6Poverty rate in regions specialized in fuel & energy production, %Russia opened branches in the districts, offeringvery low teaching standards. Regionalgovernment in Khanty-Mansi District thenbacked creation of a network of local educationalinstitutions as part of an innovationaldevelopment policy, gradually forcing out thebranches. Three educational districts wereorganized with centers in Khanty-Mansi, Surgutand Nizhnevartovsk. This increased access tohigher, vocational secondary and vocationalelementary education for young people fromrural areas and towns. Each center has aspecialization: environment (Khanty-Mansi), oil &gas exploration (Surgut), construction and thepower industry (Nizhnevartovsk). Thisprogramme placed a heavy financial burden onthe regional budget, and some institutionalfunding problems had to be resolved: since 2005Russian law has made higher education thejurisdiction of the federal government andstipulates that funding should come from thefederal budget. Nevertheless, the number ofstudents in Khanty-Mansi Autonomous Districtgrew by 10 times between 1995 and 2008,compared with national average increase of 2.5times.Capacity problems in pre-school andschool education are unresolved in most regions,though the problem is less acute in schools. Only402000 2001 2002 2003 2004 2005 2006 200735302520151050Yamal-Nenets Autonomous DistrictNenets Autonomous DistrictKhanty-Mansi Autonomous DistrictRepublic of TatarstanTyumen RegionKemerovo RegionSakhalin RegionRepublic of BashkortostanRF national averageTomsk RegionPerm TerritoryKomi RepublicSamara RegionAstrakhan RegionKrasnoyarsk TerritoryOrenburg Region38 National Human Development Report in the Russian Federation 2009

Khanty-Mansi and Yamal-Nenets AutonomousDistricts are forced to accommodate a larger shareof school pupils in special afternoon shifts (25-29%, compared with a national average of 13.5%).This is a long-standing problem of the northerndistricts, reflecting their underdeveloped socialinfrastructure and young population. In Soviettime pupils in the districts had to beaccommodated in three shifts. A high share ofschool pupils studying in the afternoon inKemerovo Region (22%) reflected long-termdeterioration of social infrastructure in coalminingcities. While problems with school capacityare the exception, shortage of pre-school facilitiesis a common problem for all regions of Russia. Butit is particularly acute in northern and easternterritories, where women are more economicallyactive and more likely to be in employment.Kindergartens are most overcrowded in SakhalinRegion (118 children for 100 places), in Tomsk andKemerovo regions (116) and in Khanty-MansiAutonomous District (113).Health, which is the second majorcomponent of human development, can bemeasured in various ways, and they present arather confusing picture of the situation in fuel &energy regions. The most important healthindicator – life expectancy at birth – is highest inthe autonomous districts of Tyumen Region(69.3-70.2 years in 2007 vs. the national averageof 67.5 years). Life expectancy for men in thesedistricts (63.8-66.6 years) is even higher than thenational average (61.4 years). High per capitaincomes enable better diet and recreation, andhigh levels of budget funding ensure goodqualitymedical care. Strong competition forhighly-paid jobs also motivates a healthy lifestyle.This ‘carrot and stick’ effect has proved effective inachieving high life expectancy.Nevertheless, even high-income regionshave some intractable health problems. Thelowest life expectancy among oil & gas regions isin the Nenets Autonomous District (62 years),where a quarter of the population is indigenousminorities of the Far North, living mostly in ruralareas. Male life expectancy in rural areas isextremely low at 48 years, due to widespreadalcoholism. Other fuel & energy regions in theeast of Russia, with a longer history ofindustrialization and underdeveloped socialinfrastructure, also have low life expectancies:coal-mining Kemerovo and Chita Regions (63-64years), Sakhalin Region (64.5 years) and PermTerritory (65 years). Male life expectancy isparticularly low (57-58 years) due to unhealthylife styles in industrial towns and settlements, aswell as in rural areas. People’s incomes in theseregions are not as high as in Tyumen, and budgetfunding is much lower.Tuberculosis is a common problem ineastern parts of the country, but the explanationis in high concentration of penitentiaryinstitutions, adverse climate and anunderdeveloped health care system, rather thanthe fuel & energy specialization of regionaleconomies. HIV/AIDS is a typical problem formany export-oriented resource manufacturingregions. Higher personal incomes, combinedwith underdeveloped social environment,promote drug addiction, which in turn promotesHIV/AIDS. Data of the AIDS Prevention andControl Center for the period from 1989 to mid-2009 shows particularly high levels of infectionin Samara Region (1171 per 100,000 people),especially in Togliatti. In large fuel & energyregions the worst situation is in Orenburg (912per 100,000) and in Khanty-Mansi AutonomousDistrict (852 per 100,000).Infant mortality is the most tellingindicator for standards of health care and healthcare funding, though differences in livingstandards and ethno-cultural factors also play animportant role. Priority funding of health careand creation of special high-tech medical centershave helped to bring down infant mortality andkeep it at low levels in Khanty-Mansi District(Figure 2.7).Analysis shows that only regions withvast fuel resources, where personal incomesand budget revenues are consequently veryhigh, have been able to increase life expectancyand reduce infant mortality. But even highincomes are not enough to overcome socialdiseases. The whole social environment and39

lifestyle needs to be upgraded, and theeducational system requires more complexdevelopment. In regions where budget andhousehold incomes are not so high, fuel andenergy orientation does not give any clearsocial development advantages.2.4. The crisis andits social aftermathin fuel & energy regionsIn the new economic crisis, which beganin the fall of 2008, specialization in the fuelindustry acted as safety net for regions onceagain, though not for all regions. Levels ofindustrial output held up best in single-industryoil extraction regions: in Khanty-MansiAutonomous District and Tomsk Regionindustrial output in H1 2009 was only 2% lowery-o-y (i.e. compared with the same period of theprevious year), while Sakhalin Region and NenetsAutonomous District showed y-o-y growth of 22-39%. These figures compare with averageshrinkage of Russian industrial production by15% y-o-y in the first half of 2009. In oil producingregions with more diversified economies severityof the crisis was partly determined by the state ofother industries: decline of industrial output wasmoderate (between 8% and 14%) inBashkortostan, Tatarstan and Orenburg Region,but problems in the machine-building industryled to a particularly acute recession (29% outputdecline) in Samara Region. The situation in thegas industry has been more difficult than in theoil industry, so recession rates in major gasproducingregions have been much higher (15%in Yamal-Nenets Autonomous District and 19% inAstrakhan Region). Kemerovo Regionexperienced the worst decline among coalminingareas (19%), but that was mainly due toproblems in the local steel industry, whichsuffered particularly badly as a result of theeconomic crisis.The social aftermath of the crisis has twovectors. The first has been a sharp decline inbudget revenues of more developed regions,regardless of acuteness of their industrial decline.Before the crisis the share of profit tax in budgetsof these regions was as high as 20-45%. Fallingprices on international markets dramaticallyreduced corporate incomes, and profit taxpayments in resource-oriented regions fell bybetween 2 and 9 times. As a result, own budgetrevenues (both tax and non-tax) in Kemerovoand Tyumen regions fell by 30-35%, revenues inKhanty-Mansi Autonomous District andKrasnoyarsk Territory were down by a quarter,and the budget of Samara Region lost 20% ofrevenues raised inside the region. A forecast byFigure 2.7Infant mortality per 1000 live births302000 2001 2002 2003 2004 2005 2006 2007 20082520151050Khanty-Mansi Autonomous DistrictRepublic of TatarstanKomi RepublicSamara RegionSakhalin RegionOrenburg RegionRF national averageAstrakhan RegionKemerovo RegionNenets Autonomous DistrictRepublic of BashkortostanKrasnoyarsk TerritoryPerm TerritoryYamal-Nenets Autonomous District40 National Human Development Report in the Russian Federation 2009

the Ministry for Regional Development predictsthat negative difference between actual andexpected budget earnings in 2009 will be largestin Tyumen Region (59%), Khanty-MansiAutonomous District (38%), Republic of Tatarstan(25%), Perm Territory and Yamal-NenetsAutonomous District (20%), i.e. in all the leadingoil & gas producing regions of the country. Thiswill inevitably lead to reduction of socialspending (purchases of new equipment for socialpurposes will be most affected), though localgovernment has promised to maintain socialpayments and wages of employees in the budgetsector.The other main social consequence ofthe crisis is unemployment. Regionsspecializing in machine-building andmetallurgy have been hardest hit, becausethese industries suffered most from therecession and because they are more laborintensive.Highest rates of unemployment inearly 2009 among fuel & energy regions werein Komi, Krasnoyarsk Territory, Astrakhan andSakhalin Regions, and Nenets AutonomousDistrict, all of which had unemployment ratesabove the national average (Figure 2.8).Quarterly surveys of regional labor markets areinsufficiently accurate, but trends are clear.Firstly, the autonomous districts of TyumenRegion (Russia’s largest oil & gas producers)have been able to avoid a surge ofunemployment. Secondly, the situation inregions, which had higher unemployment rateseven before the crisis, is now worse. Thirdly, inaddition to job losses, there has been a growingtendency towards part-time employment,which is a form of concealed unemployment.The tougher the recession (e.g. in Samara andKemerovo Regions, and in Perm Territory), themore frequently private businesses tried toreduce costs by switching their employees topart-time work. Employment issues came to ahead in Q1 2009 and tension on the labormarket had started to subside by the summer,albeit slowly. However, the improvement maybe seasonal, in which case a new wave ofunemployment should be expected in the fallof 2009.Growth of unemployment and hiddenunemployment should be accompanied bydecline of personal incomes, but the declinehas been minimal to date: in January-May 2009Figure 2.8Unemployment (ILO standards) as % of economically active population and part-time employment(those working part-time and temporarily laid off, % of average employee headcount)16Unemployment, 200814121086Unemployment,February 2009Unemployment, May2009Part-time employment,January-March 2009Part-time employment,June 2009420Nenets AutonomousDistrictSakhalin RegionKomi RepublicKrasnoyarsk TerritoryPerm TerritoryRepublic of TatarstanOrenburg RegionKemerovo RegionRF national averageAstrakhan RegionTomsk RegionRepublic of BashkortostanTyumen RegionKhanty-Mansi Autonomous DistrictSamara RegionYamal-Nenets Autonomous District41

average per capita household incomes weredown by less than 1% y-o-y. Monthly regionalstatistics are not very precise and trendfluctuations are very large, so a final assessmentwill not be possible until full-year figures areavailable. However, comparison of salaries,consumer expenditures and development ofretail trade turnover shows rapid shrinkage ofconsumption in oil &gas regions. The same istrue in the Moscow and St. Petersburgagglomerations, and other regions with maincities that have more than a million inhabitants.People in these regions have adapted relativelyquickly to ‘crisis risks; and have changed theirconsumption behavior accordingly.So less steep decline of industrialproduction in fuel industry regions did not sparethem from social impact of the crisis. Budgets ofthese regions, together with budgets of regionsspecializing in metallurgy, suffered more thanothers. Half of fuel & energy regions reportedsharp increases of unemployment. Companiesare cutting costs and jobs are being lost both inthe fuel sector itself and in auxiliary industriesand services. However, it should be noted that, inregions with other industries in addition to fuel,the main contribution to unemployment, andespecially to hidden unemployment (part-timework), came from other industries and not fromfuel & energy.2.5. Summaryand recommendationsIs it possible for wealthy resource miningregions to lead human development? There is noclear answer. Only 2-3 oil & gas producing regionswith the best fiscal capacity have financialresources for upgrading their socialinfrastructures. But these are northern regionswith low population, where higher investmentsin social infrastructure are swallowed up by highcosts of construction and operation of schoolsand hospitals. Besides, high fiscal capacity onlycreates advantages when expenditure prioritiesare correctly defined. Otherwise social problemspile up, as has happened with pre-schooleducation. Rapid growth of budget revenues isnot necessarily accompanied by rapid growth ofsocial expenditures, and this is true not only infuel & energy regions.Sustained development of singleindustrynorthern regions has to contend withFigure 2.9Wage trends (May 2009 vs. May 2008), consumer expenditures (May 2009 vs. May 2008) and retailtrade turnover (H1 2009 vs. H1 2008) in several regions of the Russian Federation, %115Wages Consumer expenditures Retail trade turnover1101051009597100 999695 95 94 94 93 93 939090 9089 89 888580RF national averageRepublic of TatarstanRepublic of BashkortostanPerm TerritoryYamal-Nenets AutonomousDistrictMoscow regionMoscowSamara RegionSt. PetersburgNovosibirsk RegionRostov RegionNizhny Novgorod RegionKhanty-Mansi AutonomousDistrictTomsk RegionOmsk RegionKomi Republic42 National Human Development Report in the Russian Federation 2009

various other long-term problems in addition tofinancing. These regions find it difficult todiversify their economies due to negative impactof rising prices, which lowers competitiveness ofnon-resource industries. Nevertheless, humandevelopment potential in these regions can berealized if more funding is combined withinstitutional modernization of the socialenvironment, increasing efficiency of suchinvestments.There are much greater opportunities forhuman development in regions with diversifiedeconomies, large cities, more ‘modernized’ lifestyle, and established networks of social services.But Russia’s centralization means that theseregions are strictly limited in their efforts byshortage of financial resources and of authorityto act. The new crisis has once againdemonstrated that the existing relationshipbetween the center and the regions lacksstability and does not stimulate institutionalmodernization of more developed regions. Insuch regions the main vector of development, setby federal government, should be supplementedby competition between social practices, helpingthese regions to choose a path of developmentthat will help them to attract and retain the mostscarce of Russia’s resources – people.43

Box 2.1. Human Development IndexIn 2007 over a quarter of Russia’s regions (22out of 80) 1 were rated as ‘developed’ in terms of theHuman Development Index (HDI). The cut-off point forthis group is a score of 0.800 (Table 2.1.1). In 2006 onlyhalf as many regions (12) were rated as developed.Russia’s leading group of regions moved up therankings due to the income index, whose contributionto the HDI became even greater. Almost half of thisgroup consists of fuel & energy extraction regions(italicized). If regions specializing in crude oilprocessing are added, more than half of the group arefuel & energy regions. But fuel & energy industries arenot alone in boosting regional HDI levels: regions thatspecialize in metallurgy enjoy the same advantages.Moscow remains the runaway leader withHDI exceeding 0.900, far in advance of all otherregions. Tyumen Region can no longer compete withthe capital as it used to in the early 2000s, despitehaving highest per capita Gross Regional Product(GRP) thanks to its autonomous districts, which are thebiggest oil & gas producers in Russia. The reason forthis is that the formula for HDI calculation limits theFigure 2.1.1Regional HDI ratings0.9500.9000.850maximum income level: after reaching USD 40,000 atPurchasing Power Parity (PPP) the income indexbecomes 1.00 and stops growing. Per capita indicatorsof GRP are much higher in Tyumen Region, but theydo not add advantages, while the region is far behindMoscow by other HDI components. HDI ofSt.Petersburg is even farther back because its percapita GRP is twice smaller than Moscow. As wasexplained above, Moscow obtains these advantagesbecause it hosts the head offices of Russia’s largestcorporations, primarily oil & gas corporations. Somebig corporations are starting to relocate toSt.Petersburg, which will definitely increase theincome index in Russia’s northern capital. Factually,though, the two federal cities are redistributing oilrent for their benefit.Besides the growing number of high HDIregions there is also an encouraging trend of risingHDI in the most underdeveloped regions, especiallyin the republics of the North Caucasus (Figure 2.1.1).Even among the outsiders, there is no longer anyregion with HDI lower than 0.700. This positive trend20022004200620070.800HDI0.7500.7000.6500.600MoscowTyumen Region.St.PetersburgRepublic of TatarstanBelgorod Region.Tomsk RegionSakhalin RegionKrasnoyarsk TerritoryRussian FederationSverdlovsk RegionChelyabinsk RegionOrenburg RegionSamara RegionLipetsk RegionKomi RepublicVologda RegionRepublic of BashkortostanRepublic of Sakha (Yakutia)Arkhangelsk RegionNovosibirsk RegionOmsk RegionYaroslavl RegionRepublic of UdmurtiaVolgograd RegionKrasnodar TerritoryMurmansk RegionRepublic of North Ossetia-AlaniaKursk RegionMoscow RegionOrel RegionPerm TerritoryIrkutsk RegionNizhny Novgorod RegionMagadan RegionSaratov RegionRostov RegionRepublic of ChuvashiaRepublic of MordoviaVoronezh RegionKaliningrad RegionKemerovo RegionRepublic of KhakassiaTambov RegionRepublic of KareliaRepublic of DagestanAstrakhan RegionKhabarovsk TerritoryKaluga RegionPenza RegionUlyanovsk RegionKamchatka TerritoryRyazan RegionRepublic of Karachaevo-CherkessiaTula RegionStavropol TerritoryKostroma RegionAltai TerritoryNovgorod RegionSmolensk RegionLeningrad RegionKirov RegionKurgan RegionVladimir RegionPrimorskiy TerritoryRepublic of Mari ElRepublic of BuryatiaTver RegionBryansk RegionRepublic of Kabardino-BalkariaAmur RegionRepublic of AdygeyaChukotka Autonomous DistrictRepublic of KalmykiaIvanovo RegionPskov RegionTrans-Baikal TerritoryRepublic of ChechnyaJewish Autonomous DistrictRepublic of IngushetiaRepublic of AltaiRepublic of Tuva1Except the Chukotka Autonomous District. The index is not calculated for other districts as they are included in the data for otherregions.44

is also associated with the fuel and energy sector. Highoil & gas prices enriched the federal budget, whichcould therefore afford to increase funding of the leastdeveloped regions. It is doubtful that increasingfinancial transfers have been used efficiently andapproaches to solving many social problems areclearly unsatisfactory, but growing GRP has enabledthe outsider regions to increase their HDI ratings, atleast nominally.Rating of the regions is inadequate forevaluating human development potential, becauseRussia’s regions vary tremendously in population,from 10.5 million down to 50,000 people. Populationdistribution across regions with different HDI ratingsgives a more accurate picture (Figure 2.1.2). This formof assessment shows Russia’s HDI progress even moreclearly: in 2007 one third of Russia’s population lived inhigh HDI regions, while the share just one year earlierwas below 25%. In five years the number of peopleliving in regions with low HDI (between 0.700 and0.750) has decreased by 10 times and there are nolonger any regions with ultra-low HDI (less than 0.700).Overall 2007 was a successful year forhuman development in Russia. But it should beremembered that improvements were mainly due toincreasing incomes, associated with pricemovements on international fuel and metal markets.The crisis that began in 2008 could upset this trend,due to falling prices on world markets. Lifeexpectancy indicators also grew in 2007, particularlyin the most problematic eastern regions, wherelongevity has been particularly low. More federalfunding for health care, including implementation ofthe ‘Health’ national project, helped to improve thesituation. However, from 2009 the financing systemhas been changed and responsibility forimplementation of national projects has beentransferred to regional administrations. Their fiscalcapabilities are not equal to the task, particularly inthe post-crisis environment.Forecasts in an unstable environment are notreliable, but it is very likely that the sustained growthof regional HDI ratings seen in 2007 will not continue.That growth smelt too strongly of oil.Figure 2.1.2Breakdown of Russia’s population between regions with different HDI ratings, %70605464 65582004200520062007Share of the population, %50403020291815 17 2233101 1 0637 70Less than 0.700 0.700-0.750 0.750-0.800 0.800-0.900 More than 0.900Human Development Index (HDI)45

Table 2.1.1. HDI ratings in 2007GDP, Income Life Lifespan Literacy, Students Education HDI RatingUSD at Index Expec- Index % aged 7 - IndexPPP tancy 24, %Russian 14737 0.833 67.51 0.709 99.4 0.735 0.908 0.817FederationMoscow 33603 0.971 72.5 0.792 99.8 1.000 0.999 0.920 1Tyumen Region 49969 1.000 68.57 0.726 99.2 0.717 0.900 0.876 2St.Petersburg 16817 0.855 69.86 0.748 99.8 0.988 0.995 0.866 3Republic of Tatarstan 18080 0.867 69.44 0.741 99.0 0.756 0.912 0.840 4Belgorod Region 13738 0.822 70.33 0.756 98.6 0.734 0.902 0.826 5Tomsk Region 14892 0.835 67.68 0.711 98.9 0.814 0.931 0.826 6Sakhalin Region 26657 0.932 64.48 0.658 99.4 0.669 0.886 0.825 7Krasnoyarsk Territory 17758 0.864 66.58 0.693 99.0 0.706 0.895 0.818 8Sverdlovsk Region 14190 0.827 67.5 0.708 99.2 0.720 0.901 0.812 9Chelyabinsk Region 13664 0.821 67.14 0.702 99.1 0.752 0.911 0.811 10Orenburg Region 15596 0.843 66.68 0.695 98.9 0.710 0.896 0.811 11Samara Region 13097 0.814 67.19 0.703 99.2 0.762 0.915 0.811 12Lipetsk Region 15373 0.840 67.31 0.705 98.4 0.683 0.884 0.810 13Komi Republic 16228 0.849 65.83 0.681 99.2 0.710 0.898 0.809 14Vologda Region 14611 0.832 66.96 0.699 98.8 0.713 0.896 0.809 15Republic of Bashkortostan 12791 0.810 67.81 0.714 98.8 0.722 0.899 0.807 16Republic of Sakha (Yakutia) 13629 0.820 66.17 0.686 99.0 0.754 0.911 0.806 17Arkhangelsk Region 15149 0.838 66.27 0.688 99.2 0.681 0.888 0.805 18Novosibirsk Region 10738 0.781 67.43 0.707 98.8 0.795 0.924 0.804 19Omsk Region 12574 0.807 66.54 0.692 98.7 0.749 0.908 0.802 20Yaroslavl Region 11745 0.795 67 0.700 99.2 0.735 0.906 0.801 21Republic of Udmurtia 11973 0.799 66.59 0.693 99.0 0.732 0.904 0.799 22Volgograd Region 10178 0.772 68.84 0.731 98.9 0.701 0.893 0.798 23Krasnodar Territory 10003 0.769 69.25 0.738 99.0 0.676 0.885 0.797 24Murmansk Region 13032 0.813 66.72 0.695 99.6 0.651 0.881 0.796 25Republic of North Ossetia- 7174 0.713 71.74 0.779 99.1 0.696 0.893 0.795 26AlaniaKursk Region 9431 0.759 66.66 0.694 98.5 0.822 0.931 0.795 27Moscow Region 13587 0.820 66.93 0.699 99.6 0.601 0.864 0.794 28Orel Region 8969 0.750 67.23 0.704 98.9 0.787 0.922 0.792 29Perm Territory 12804 0.810 65.23 0.671 98.9 0.702 0.893 0.791 30Irkutsk Region 12267 0.803 64.9 0.665 99.1 0.730 0.904 0.791 31Nizhny Novgorod Region 10744 0.781 65.58 0.676 98.9 0.761 0.913 0.790 32Magadan Region 11549 0.793 63.57 0.643 99.6 0.810 0.934 0.790 33Saratov Region 8710 0.746 68.01 0.717 99.2 0.720 0.901 0.788 34Rostov Region 8288 0.737 68.38 0.723 99.1 0.727 0.903 0.788 35Republic of Chuvashia 8580 0.743 67.39 0.707 99.0 0.752 0.911 0.787 3646 National Human Development Report in the Russian Federation 2009

Republic of Mordovia 8051 0.732 68.4 0.723 97.9 0.748 0.902 0.786 37Voronezh Region 7800 0.727 67.52 0.709 98.3 0.787 0.918 0.785 38Kaliningrad Region 10784 0.781 65.79 0.680 99.4 0.683 0.890 0.784 39Kemerovo Region 13402 0.817 64.01 0.650 98.9 0.672 0.883 0.784 40Republic of Khakassia 9404 0.758 66.19 0.687 98.8 0.732 0.903 0.782 41Tambov Region 8343 0.738 67.9 0.715 98.1 0.712 0.891 0.782 42Republic of Karelia 11437 0.791 65.12 0.669 99.2 0.664 0.883 0.781 43Republic of Dagestan 5439 0.667 74.21 0.820 98.4 0.586 0.851 0.780 44Astrakhan Region 8675 0.745 67.02 0.700 98.6 0.701 0.891 0.779 45Khabarovsk Territory 9517 0.760 64.76 0.663 99.5 0.747 0.912 0.778 46Kaluga Region 9255 0.756 66.64 0.694 99.2 0.673 0.886 0.778 47Penza Region 7339 0.717 68.3 0.722 98.4 0.722 0.897 0.778 48Ulyanovsk Region 8293 0.737 66.97 0.700 98.6 0.705 0.892 0.776 49Kamchatka Territory 8862 0.748 66.15 0.686 99.7 0.687 0.894 0.776 50Ryazan Region 8511 0.742 65.61 0.677 98.7 0.753 0.909 0.776 51Republic of Karachaevo- 5892 0.680 71.28 0.771 98.4 0.651 0.873 0.775 52CherkessiaTula Region 9469 0.760 65.01 0.667 99.1 0.698 0.893 0.773 53Stavropol Territory 6316 0.692 69.49 0.742 98.6 0.684 0.885 0.773 54Kostroma Region 8650 0.744 66.27 0.688 98.8 0.666 0.881 0.771 55Altai Territory 7491 0.720 67.22 0.704 98.2 0.683 0.882 0.769 56Novgorod Region 10322 0.774 63.96 0.649 98.9 0.670 0.883 0.769 57Smolensk Region 8646 0.744 64.46 0.658 98.9 0.726 0.901 0.768 58Leningrad Region 14159 0.827 64.58 0.660 99.5 0.461 0.817 0.768 59Kirov Region 6974 0.708 67.02 0.700 98.4 0.706 0.891 0.767 60Kurgan Region 7141 0.712 66.66 0.694 98.4 0.708 0.892 0.766 61Vladimir Region 8040 0.732 65.3 0.672 99.4 0.696 0.895 0.766 62Primorskiy Territory 7930 0.730 65.11 0.669 99.5 0.705 0.898 0.766 63Republic of Mari El 7412 0.719 66.16 0.686 98.8 0.685 0.887 0.764 64Republic of Buryatia 8134 0.734 64.2 0.653 98.8 0.732 0.903 0.763 65Tver Region 8858 0.748 63.99 0.650 99.1 0.689 0.890 0.763 66Bryansk Region 7050 0.710 66.11 0.685 98.6 0.696 0.889 0.762 67Republic of Kabardino- 5173 0.659 71.18 0.770 98.8 0.582 0.853 0.760 68BalkariaAmur Region 8596 0.743 63.93 0.649 99.3 0.670 0.885 0.759 69Republic of Adygeya 5325 0.663 68.77 0.730 98.7 0.674 0.883 0.759 70Chukotka Autonomous District 15614 0.843 58.72 0.562 99.4 0.614 0.867 0.757 71Republic of Kalmykia 5131 0.657 68.35 0.723 98.2 0.688 0.884 0.755 72Ivanovo Region 5696 0.675 65.55 0.676 99.3 0.735 0.907 0.753 73Pskov Region 7410 0.719 64.09 0.652 98.9 0.666 0.881 0.750 74Trans-Baikal Territory 7969 0.731 63.01 0.634 98.8 0.659 0.878 0.748 75Republic of Chechnya 3257 0.581 74.28 0.821 96.0 0.581 0.834 0.745 76Jewish Autonomous District 8935 0.750 61.94 0.616 99.1 0.623 0.868 0.745 77Republic of Ingushetia 2548 0.540 79 0.900 96.2 0.450 0.791 0.744 78Republic of Altai 5617 0.672 64.33 0.656 98.3 0.682 0.883 0.737 79Republic of Tuva 5022 0.654 59.16 0.569 99.1 0.691 0.891 0.705 8047

Box 2.2. The energy sector and indigenous minoritiesof the Russian NorthCurrent status of indigenousminorities in the Russian NorthLarge energy facilities which are alreadyoperating, under construction, or planned in northernRussia, Siberia and the Russian Far East are mostlylocated in areas, where small, indigenous minoritiesare engaged in traditional natural resource use. Theenergy projects affect these minorities and theirenvironment.In its report, ‘Legal Support for EthnologicalAudits as a Compulsory Condition for Development ofNorthern Territories’, issued for parliamentary hearingsin the Federation Council, the Council’s Committee forNorthern Territories and Indigenous Minorities haspublished the following conclusions of the FederalReal Estate Cadaster: “Since the 1930s the structure ofnatural resource use and concepts for development ofnorthern territories have prioritized industrialdevelopment at the expense of traditional sectors,leading to pollution and environmental degradationover vast areas, causing disturbance and loss of themost valuable grazing and agricultural land ...Reindeer pastures have been particularly badlydamaged … the ecological situation has beendestabilized due to stress exerted by industrialfacilities on reindeer pastures and hunting areas,amounting to as much as 40% of the territory wheretraditional natural resource use is practised.”Industrial development of the North, Siberiaand the Far East has done much to change the localdemographic situation, and experts are concernedabout the current socio-economic and demographicstatus of native minorities.These areas are inhabited by over 250,000people representing 40 indigenous minorities, whichare listed in the official register of indigenous smallnumberedpeoples of the North, Siberia and the FarEast. Criteria for inclusion in the register are adherenceto a traditional way of life and total ethnos size under50,000 people.Russia’s northern territories, particularlyrural areas, are also inhabited by descendants oflarger Slavic and non-Slavic peoples, which havetraditionally lived here, including the Komi, theKarels, Yakuts, Pomors and half-blood descendantsof the first Russians, who came to these regions andhave been living there now for over 300 years.These small nations and population groups are notregistered as indigenous minorities, but in mostcases they have a similar way of life and dependfully on the local environment, making their livingfrom hunting, fishing, gathering and cultivation.Ethnographers estimate their total number ataround one million people.More than 75% of these peoples live in ruralareas, and those who are in towns and cities maintainclose ties with their families in the countryside,supplementing their incomes by traditional seasonalactivities (hunting, fishing and gathering) in theirplaces of origin. Around half of the population ofnorthern territories breeds reindeer.The way of life is self-supporting and relies onuse of traditional natural resources. Unemploymentamong indigenous peoples rose by 8 times in the lastdecade of the 20 th century compared with 3.5 times inRussia as a whole, and cash incomes are 2-3 timeslower than the national average. The number of birthsin 2002 was only 69% of the 1995 level, while themortality rate had risen by 35.5%. Average lifeexpectancy of males among native minorities is 10-20years lower than the national average at 45 years. Theepidemiological and public health situation in theseareas has significantly worsened, and tuberculosis andalcohol addiction rates are much higher than thenational average.The share of deaths from external causes(accidents, suicides, murders) is very high amongnorthern peoples: in 1998–2001 it was 37%,compared with the Russian national average of 14%and much lower figures in developed countries(under 8% in Finland in the same period, 6% in theUS in 1998, and even lower in other Europeancountries). Current birth and mortality rates placeindigenous minorities in a particularly high-riskgroup, and serious damage to the environments, onwhich they rely for their livelihood, could lead totheir complete disappearance 1 .1D.D.Bogoyavlenskiy. Are the minorities of the North dying out?//Social studies, 2005, 8, pp.55-61. D.D. Bogoyavlenskiy. 2008http://www.npa-arctic.ru /Documents /conferences/climat_19052008 /Presentations /19.05.08 /bogoyavlensky.pdf48National Human Development Report in the Russian Federation 2009

Legislative control of impact auditsfor energy projects affectingtraditional human habitatand habitat and way of lifeRussian federal laws do not containprecise standards for assessing the impact ofindustrial projects on the traditional habitat andway of life of local minorities, or for compensatingdamage. The Federal Law, ‘On guarantees of therights of indigenous small-numbered peoples ofthe Russian Federation’ (Article 1) introduces thenotion of ‘ethnological expert assessment’, whichis defined as ‘assessment of the impact of changesin the natural habitat and socio-culturalenvironment of indigenous minorities on theirethnic development’. The same law, as well assome other Russian laws, gives indigenousminorities the right to take part in decisionmakingon issues concerning protection of theirnatural habitats and traditional way of life, as wellas indemnification of losses incurred by them as aresult of damage to their natural habitat (Article 8of the abovementioned law). Theoretically, this isa good foundation for resolving the problem, butin reality, since local populations have no legalownership rights to the land where they live, hunt,fish or breed reindeer, companies do not considerthemselves obliged to obtain the approval of localinhabitants before proceeding with developmentprojects. There is also an absence of statedprocedures for conducting an ‘ethnological expertassessment’, assessment of specific damage tohabitat and people who live by it, andmechanisms for use of any compensation.At the regional level, only 5 out of 27northern administrative regions with their ownindigenous peoples have local laws that obligeindustrial companies to negotiate withrepresentatives of these peoples and obtain theirapprovals (Nenets, Yamal-Nenets and Khanty-MansiAutonomous Districts, Republic of Sakha (Yakutia)and Sakhalin Region). In practice, lack of appropriatelaws at federal level means that industrialcorporations can challenge these regionalprovisions or dictate their own conditions. It is muchsimpler for large corporations to pay specifiedamounts of money to regional and localgovernments, or, in some cases, to make paymentsto organizations that represent indigenousminorities, than to negotiate and seek specificagreements with those peoples. Companies try toavoid active cooperation with native peoples onissues such as joint environmental monitoring ofprojects, joint resource management, designverification, and training and employment of localinhabitants.Positive instances of energy companiescooperating with indigenous minority organizationshave been the exception rather than the rule to date.Example are: agreements on social and economicassistance to communities and reindeer farms in theNenets and Khanty-Mansi Autonomous Districts(made by the companies Northern Lights, LukoilKomi, LUKoil Western Siberia); a tripartite agreementon cooperation between the administration ofYamal-Nenets Autonomous District, the indigenousminority organization ‘Yamal – for our Descendants!’and the companies Gazprom, NOVATEK, Rosneft,Lukoil, TNK-BP; organization of the firstenvironmental council in Yamal District; andimplementation since 2006 of the Programme forAssistance to Indigenous Minorities in SakhalinRegion by representatives of local indigenousminorities together with Sakhalin Energy and theadministration of Sakhalin Region. However, all ofthese initiatives have been put together by regionaladministrations, companies themselves andindigenous minority organizations, without federalgovernment coordination. The same companies,which participate in these programmes, take acompletely different stance in regions whereregional government and minority organizations donot have a strong voice 2 .The issue of legitimate interaction betweeninitiators of energy projects and local populationsshould be resolved at federal government level.Leadership from federal government is essential if2O.A. Murashko (compilation). Environmental co-management of resource companies, local administrations and indigenous minorities,M. 200949

harmonious relationships, partnership andobservance of the rights of indigenous minorities totheir habitats and way of living are to become therule. Obligations of the state and business towardsindigenous minorities and local populations, duringmineral extraction projects and construction ofenergy facilities in areas of traditional habitat andresource use, need to be stated in federal law, whichshould contain a proper mechanism for protectingsmall ethnic groups, their habitats and traditionallifestyles, in accordance with the RussianConstitution.Climate change, the energy sector andindigenous minorities in the North of RussiaResearchers have found that the consequencesof climate change 3 create additional threats to thetraditional environment of native populations in theRussian North. These consequences could beparticularly dangerous in areas around energy facilities.A state programme for preventative and adaptationmeasures is therefore needed in order to helpindigenous and rural populations in northern regions todeal with anticipated climate change (Table 2.1.1).Table 2.1.1Anticipatedclimate change impactsImpact on traditional way of lifeand natural resource useby indigenous peoplesOptions for alternative employmentand lifestyle modernizationfor indigenous peoplesIncrease of load and accidentrisk on high-voltage power linesdue to temperature fluctuationsand increased frequency ofdangerous weatherphenomena.Soil movements in permafrostmelting areas create risks foroperation of buildings andfacilities (includingtransportation infrastructure,such as roads and airfields) andtrunk pipelines.More intense storms and coastalerosion, causing damage tocoastal facilities andinfrastructure, including oilterminals and pipelines.Increased access to new mineralresource deposits, encouragingarrival of new population insearch of jobs.Large reindeer herds, which are the mainlivelihood for half of the indigenouspopulation, will be most affected. Reindeerherding is already under pressure as a result ofmore frequent ice-crust formation, whichcauses hunger and death.Damage to infrastructure in settlements andaccidents at industrial facilities will furtherdiminish lands where traditional resource usecan be practiced, leading to impoverishmentof the local population.Arrival of new migrants, drawn by newmineral resource exploitation could furthermarginalize the local population, narrowingthe scope for traditional land-use practices(due to competition with new comers inhunting, etc.) and leading to changes intraditional lifestyle and diet.Adaptation options:- Migration to areas not spoiled byindustrialization and modernization oftraditional occupations;- Development of deep processing for theproducts of traditional land-usepractices;- Development of new businesses (folk artand marketing of traditional naturalproducts).Attempts at urban assimilation ofindigenous peoples will completelychange their lifestyle and diet, and willcause stresses.Negative impact of industrialization onthe local population could be minimizedthrough prophylactic public healthmeasures, adapting the education systemto take account of specific features ofindigenous minorities, and selection ofareas where traditional lifestyles can bepreserved.3Assessment report on climate change and its consequences in the Russian Federation, Roshydromet, 2008. Climate change impact on theRussian Arctic: analysis and solutions. WWF Russia, M. 2008, p.28, www.unfccc.int50 National Human Development Report in the Russian Federation 2009

Chapter 3Personal Incomes, the Energy Sector andthe CrisisOne of the three components of theHuman Development Index (HDI) is calculated byassessing levels of income – mainly wage incomeof employees – and differences between incomelevels. So analysis of processes that determineincome and employment trends is an integralpart of any human development report. Thepresent Report assesses main living standardindicators in the context of the continuingeconomic crisis and looks at main humandevelopment issues via impact of the energysector on the economy and living conditions. Thischapter, which deals with personal incomes,therefore offers estimates of how energy-relatedbusiness influences levels of income andinequality in its distribution.3.1. Incomes, employmentand poverty at various stagesof the economic cycleEconomies traditionally adapt to acrisis situation through reduction of incomesand business activity. However, each countryworks out its own adaptation model to copewith decline of GDP and industrialproduction, usually via reduction of the priceor quantity of labor, as well as reduction ofsocial expenditures and their restructuring inorder to target the poorest members ofsociety. How did the labor market andpersonal incomes react to the crisis and whatlevels of income security and employmenthad Russia attained on the eve of the crisis?Descriptive analysis of main living standardindicators, published by Rosstat (the FederalState Statistics Service), will help us findanswers to these questions.We begin by studying the evolution ofincome level and structure, with wages andpensions separated out (Figure 3.1). Russia’spost-Soviet development has beencharacterized by volatility of per capitaincomes, which have been pulled downperiodically by economic and institutionalcrises. The first such crisis (in 1992) resulted inthe deepest drop of real incomes. In the lastyears of the Soviet era personal incomestructure was much the same as in otherFigure 3.1Development of incomes, salaries and pensions compared with 1991 (1991=100%), December data100GDP in % vs. 1991Real cash incomesReal official wagesReal salaries (official and unofficial)Real pensions121.0118.692.476.20100 86 78 68 65 63 64 60 64 71 74 78 84 90 95 103 111 1171991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Source: Authors’ calculations based on official data provided by Rosstat.51

countries, which have undergone industrialmodernization and where household incomesdepend mostly (80%) on wages. But theprincipal difference in Russia was absence ofincomes from business and property. Incomesfrom these sources rose to 20% of all personalincomes in the first years of Russia’s marketeconomy and remain at that level now (Table3.1). Access to these sources of income wasthe main positive effect of markettransformations and led to acceptance ofreforms despite double reduction of realincomes. Business activity was at its maximumat the beginning of market reforms, when itbrought 16% of all personal incomes. Duringthe economic growth period, relative weightof business incomes tended to shrink and bereplaced by income from property, whichwere then heavily depreciated by the currentcrisis. Business and property incomes explainwhy total income growth exceeded wageincreases during the first years of economicrecovery.There was a clear decline of realincomes in 2008 (Table 3.2). In December2008 they were 88.4% of their level inDecember 2007, although the observablepart of real wages even rose slightly (101.8%of the December 2007 level) and pensionsrose considerably (109.5% to December2007). So the fall in real incomes was due tosignificant reduction of unofficial wages, andof business and property incomes. Thisstructure indicates that high-income groupswere hardest hit in the first months of thecrisis, mainly through loss of regular annualbonuses.Pensions, despite their growth in realterms, remain lower than in the pre-reformperiod, and, in the crisis environment,initiatives to raise pensions will compete forfinancing with efforts to maintain employmentand with targeted assistance for the poor. Thecorrect diagnosis would be as follows: the waythe crisis has affected Russia and the stepstaken to overcome it reflect the fact that, inRussia, the problem of poverty aggravation isassociated with low pensions. The outcome ofthis has already been seen at the political level:Russia is speeding up pension increases. Butthe problem, which is being tackled in this way,is not a consequence of the crisis: it is theproblem of disproportions, which wereignored during the period of economic growthand have become acute in the conditions ofhigh inflation, associated with the crisis. At theend of the period of main structural andinstitutional reforms (1992–1999) pensions,which are the main source of income for onethird of Russia’s households, had fallen moreTable 3.1Evolution of personal cash incomes in Russia, %1980 1990 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Cash incomes, total 100 100 100 100 100 100 100 100 100 100 100 100Wages 79.8 76.4 66.5 62.8 64.6 65.8 63.9 65.0 63.6 65.0 67.5 68.6Socialtransfers15.1 14.7 13.1 13.8 15.2 15.2 14.1 12.8 12.7 12.0 11.6 12.8Property incomes 1.3 2.5 7.1 6.8 5.7 5.2 7.8 8.3 10.3 10.0 8.9 6.6Incomes frombusiness2.2 3.7 12.4 15.4 12.6 11.9 12.0 11.7 11.4 11.1 10.0 10.0Other incomes 1.6 2.7 0.9 1.2 1.9 1.9 2.2 2.2 2.0 1.9 2.0 2.0Source: Social Situation and Living Standards in Russia, 2005, Statistical Digest/Rosstat – M, p.124; Russia in Numbers, 2009, Brief StatisticalDigest/Rosstat – M, 2006, p.11852 National Human Development Report in the Russian Federation 2009

than any other sources of income – to 27.5% oftheir level in 1991. Relatively rapid increase ofpensions during the years of economic growth(2000–2008) did not bring pensions back to thepre-reform level, although the pre-reform levelof overall income was regained in 2005 andwage levels were restored in 2006. Retiredpeople reacted to lower real pensions byfinding employment and at present a quarterof all pensioners remain economically active.The state has compensated low pensions byincreasing social assistance and benefits forpensioners: pensioners receive over 50% of allwelfare payments and 70% of benefits in kind(mostly subsidies for transportation, medicinesand housing & utilities). The priority given bythe social security system to senior citizenslimits availability of benefits to other groupswith high poverty risks, e.g. families withchildren.Development of income levels bymonths during the crisis period (Table 3.2)shows a measure of recovery from January2009, which is surprising in the context offalling GDP and industrial production.Incomes were only lower y-o-y (i.e. than thesame period of the previous year) in June2009. This is hard to reconcile with the fact ofthe crisis, and closer study indicates thatnegative effects of the crisis on personalincomes are being postponed. Why werepersonal income levels maintained despitethe fall of GDP? Mostly due to the followingfactors: near doubling of the minimum wage(since January 2009); wage reform (i.e.increase of wages) for those who are paidfrom the federal budget (also since January2009); payment in January-March 2009 ofbonuses, dividends and rewards for 2008,and faster growth of pensions. However,these factors could no longer support realpersonal incomes at highery-o-y levels after June, and a process of y-o-ydeclines began.Table 3.2Average per capita personal incomes and real disposable cash incomesYearMonthNominal cash incomesReal disposable cash incomesRubles %, y-o-y %, m-o-m %, y-o-y %, m-o-m20082009July 15674 124.5 102.2 105.9 101.4August 15979.6 126.0 102 107.6 102.1September 15946.7 123.6 99.8 105.2 98.4October 16059.6 122.3 100.7 103.5 98.5November 15543.4 109.6 96.8 93.9 97.1December 20586.9 104.4 132.5 88.4 129.4January 11178.8 104.6 54.3 92.2 53.8February 14973.6 115.7 134.0 102.3 134.5March 15761.6 116.9 105.3 103.4 103.0April 16909.6 114.2 107.3 101.4 106.8May 16078.4 111.0 95.1 100.3 95.2June 17648.6 115.1 109.8 98.8 103.4July 18188.1 116.0 103.1 94.6 97.0Note: Real disposable cash incomes are incomes less obligatory payments and adjusted by the consumer price index.53

Official wages stopped growing fromFebruary 2009, when effects of the previousyear’s bonuses ceased to be felt, and by July2009 they had fallen to 94.8% of their level inJune 2008 (Table 3.3). Real wages were andremain the principal means of covering livingcosts. At present about 65% of all householdsinclude people in employment: 30% ofhouseholds have a single member inemployment, 26% have two employedmembers and 6% have three or more 1 .Wide use of informal paymentschemes is a characteristic feature of theRussian labor market. According to Rosstat 2 ,about 40% of wages are hidden fromstatistics. Not all of these wages are illegal,because statistics do not include wages ofemployees in small businesses. Based onofficial employment levels in smallbusinesses and levels of official wagepayments in such businesses, our expertassessments suggest that about half ofunregistered wages represent illegalemployment.Another characteristic phenomenonin the Russian economy is wage arrears,which tend to grow exponentially in times ofcrisis, since payroll reduction is viewed aspreferable to job cuts in a context of fallingGDP. Wage arrears are on the increase in thecurrent crisis, but so far the amounts andnumber of employees affected areincommensurable with previous crises.According to Rosstat official data, total wagesoverdue as of July 1, 2009 were around 2% oftotal registered payroll. In 1992–1993 thisfigure was about 20% and in 1998 it peakedat 150% 3 .Table 3.3Average monthly nominal and real wagesYearMonthAverage monthly nominal wagesReal wagesRubles %, y-o-y %, m-o-m %, y-o-y %, m-o-m20082009July 17758 130.3 100.5 113.6 100.0August 17244 128.9 97.5 112.1 97.2September 17739 128.2 102.9 111.4 102.1October 17643 125.3 99.5 109.7 98.6November 17598 119.3 99.7 104.9 98.9December 21681 115.3 123.1 101.8 122.3January 17119 115.5 79.0 101.9 77.2February 17098 111.1 100.1 97.6 98.5March 18129 111.9 105.8 98.2 104.4April 18009 108.3 99.3 95.7 98.6May 18007 107.5 100.0 95.7 99.4June 19247 108.2 106.9 96.7 106.3July 18862 105.5 98.0 94.2 97.4Source: Rosstat, www.gks.ru1Author's calculations based on the data of the random National Survey of Well-being and Participation in Social Programmes (NOBUS),conducted by the State Statistics Committee (Goskomstat) of the Russian Federation in 2003 with 44,000 households selected.2Social Situation and Living Standards in Russia, 2008. Statistical Digest/Rosstat – M; Russia in numbers, 2009, Brief StatisticalDigest/Rosstat – M, 20093Zarabotnaya plata v Rossii: Evolyutsiya I differentsiatsiya (Salaries in Russia: Evolution and Differentiation). V.Gimpelson,R.Kapelyushnikov et al.; State University, High School of Economics – M, HSE Publishing House, 2007, p.6154 National Human Development Report in the Russian Federation 2009

Are wages now the main instrument foradapting the labor market to crisis conditions,and is the same adaptation model being usednow as was used (in the opinion ofR.Kapelyushnikov) 4 , in previous crises? Thecurrent situation on the labor market differsfrom that of 1990s when employment declinedmore slowly than GDP. In the 2000semployment growth lagged far behind rise ofGDP. T.Maleva and other specialists believe thattwo stages of the Russian labor marketdevelopment have already been completed: (1)moderate decline of employment and sharpdecline of wages (1991–1998); and (2)moderate recovery of employment and fastergrowth of wages (1999–2007) 5 .It is not yet clear how the situationwill develop in the current economic crisis,but a development framework can besketched using the expert opinions ofT.Maleva, V.Gimpelson, R.Kapelyushnikov,S.Roschin, T.Chetvernina and other leadinglabor market experts. In the current crisis thefollowing factors seem to favor application ofthe ‘traditional’ Russian model, whichmaintains employment levels by reducingwages:• Short duration of the crisis, which meansthat cost of dismissal will be higher than costof retaining the workforce;• Payroll flexibility (it is estimated that Russianpayrolls can be lessened by 15-40% bywithholding bonuses), which makesreduction of labor expenses through payrollreduction more legitimate and easier thandismissals;• Failures of the legal environment, so thatemployees find it difficult to enforce theirlegal rights when companies withhold orreduce wages, and government is able toexert pressure on companies to stop themcarrying out dismissals;• High inflation rates, which depreciate thereal value of wage arrears.However, there are several other factors,which seem to work against successfulapplication of the ‘traditional’ model in presentcircumstances:• Fundamentally different nature of thecurrent crisis, compared with previous crises(structural crisis in the early 1990s, cyclicalcrisis in 1998–1999);• Cost of dismissals may be lower in the longrun than cost of retaining labor;• Raising of the wage floor: the monthlyminimum wage was almost doubled fromJanuary 1, 2009 and now stands at 4330rubles;• Toughening of government policy on wagearrears and actual enforcement of this policy;• Lower inflation as compared with previouscrises: lower inflation increases debt risks forcompanies associated with delay in paymentof wages;• Restructuring of the informal labor market,including small-scale farming on privateplots, which has switched from payment byexchange to cash payment, anddisappearance of street markets, wherepeople could sell their produce;• Increased unemployment benefits andsocial support programmes for theunemployed.Available statistics (Table 3.4) suggestthat initial reaction of the labor market, when itbecame clear that the crisis would have majorimpact on Russia (October-December 2008),was ‘non-traditional’: real salaries continued torise (though more slowly than in September)and unemployment also rose. But this initialreaction was short-lived. When it became clearin early 2009 that the crisis would not endquickly, characteristic Russian labor marketmechanisms began to assert themselves.4R.Kapelyushnikov, Rossiyskiy Rynok Truda: Adaptatsiya bez restrukturizatsii (Russian Labor Market: Adaptation without Restructuring)-M, HSE Publishing House, 2001; Survey of Russia’s social policy: early 2000s, T.Maleva et al, Independent Institute for Social Policy –M, IISP, 2007; R.Kapelyushnikov, Konets Rossiyskoy modeli rynka truda? (Is this the end of the Russian labor market model?) A series ofpublic lectures, Polit.ru, 2009. http://www.polit.ru/lectures/2009/04/23/kapeljushnikov.html.5Survey of Russia’s Social Policy: Early 2000s, T.Maleva et al, Independent Institute for Social Policy – M, IISP, 200755

Employers are making full use of themain underemployment mechanisms: parttimework and unpaid or partly paid vacations.By June 2009 as many as 1.2 million peoplewere working part-time and a further 1.2million were on unpaid or partly paid vacation.Current legislation limits scope for employersto impose part-time work or unpaid vacationon employees, so many employers have foundnew ways of using these mechanisms withoutformally violating the Labor Code. The mostpopular approach is preparation ofagreements between employer and employeeon part-time work (used for 52% of all parttimeemployment) or on unpaid/partly paidvacations (used for 73.3% of all applications byemployees for unpaid vacation and proposalsby employers of vacation with partialpayment). So employers are seeking legalmeans to continue applying the Russian modelof labor market flexibility, i.e. keep theworkforce but cut the payroll.Unemployment has a special place inthe system of indicators that describe the labormarket, but the unemployed only became arecognized group in Russia after the end of theSoviet period. Total unemployment, defined asthe ratio of the unemployed to the totaleconomically active population, peaked duringthe 1998 crisis and fell to its minimum in thelast years of economic growth. Registered(official) unemployment in Russia is 3-4 timeslower than real unemployment due tounattractiveness of unemployment benefitschemes and widespread unofficialemployment.Unemployment started to grow from thefirst days of the current crisis (Table 3.4) andTable 3.4Economically active populationYearMonthEconomicallyactivepopulationEmployedOf whichUnemployedmln. %, y-o-y mln. %, y-o-y mln. %, y-o-yUnemployment, %Registeredunemployedmln.%, y-o-yOfficial unemployment, %July 76.3 100.9 72.0 100.9 4.3 100.4 5.7 1.3 89.4 1.7August 76.6 101.0 72.1 100.7 4.5 104.9 5.8 1.3 88.9 1.720092008September 76.4 101.0 71.6 100.4 4.7 111.4 6.2 1.2 88.2 1.6October 76.1 101.1 71.1 100.0 5.0 118.0 6.6 1.2 87.7 1.6November 75.9 101.1 70.6 99.7 5.3 124.6 7.0 1.3 87.1 1.7December 75.5 100.7 69.6 98.9 5.9 128.2 7.8 1.5 98.0 2.0January 75.1 100.3 68.6 98.2 6.5 131.2 8.7 1.7 110.1 2.3February 74.8 100.1 67.8 97.5 7.1 133.5 9.5 2.0 127.8 2.7March 75.2 100.1 68.3 97.3 6.9 140.4 9.2 2.2 141.9 2.9April 75.6 100.2 68.9 97.1 6.7 148.6 8.8 2.3 153.5 3.0May 76.0 100.3 69.5 97.0 6.5 158.4 8.5 2.2 158.3 2.9June 76.1 100.1 69.8 97.2 6.3 149.2 8.3 2.1 160.9 2.8July 76.3 100.0 70.0 97.3 6.3 144.9 8.3 2.1 163.0 2.856National Human Development Report in the Russian Federation 2009

comparison of month-on-month developmentof unemployment rates against the sameperiods in the previous year show thatunemployment growth cannot be explained byseasonal fluctuations. Unemployment reached alocal maximum in February 2009, and y-o-yincreases peaked in May 2009. Registeredunemployment entered a phase of explosivegrowth in early 2009 when levels ofunemployment benefit were raised, and y-o-yrates of growth of registered and totalunemployment became comparable in March.To date GDP and industrial production havefallen faster than unemployment has risen, butprevious crises show that such a time lag is to beexpected. The unemployment peak is still tocome. Depending on economic and budgetpolicies experts predict more tension on thelabor market in the fall of 2009 and early 2010.How have changing incomes, salariesand pensions affected income stratificationin society? Inequality tripled during thestructural crisis of 1992–1999, when realincomes were halved (Figure 3.2). Theeconomic growth period saw steady growthof the Gini Index and of the ratio betweenincomes of the wealthiest 20% of thepopulation and the poorest 20%. The maincontributor to such inequality is wagedifferences: the ratio of the 20% best paid to20% worst paid employees is 1.7 times largerthan ratio between the highest and lowest20% in terms of overall income (Figure 3.2).The wage ratio grew from 7.8 to 39.6 timesfrom 1991 and 2001, but then fell sharply to30.5 times. It should be noted that thesestatistics are only for large and medium-sizedbusinesses, which account for half of all thosein employment (54.3% in June 2009). Whatthese statistics show, therefore, is thatwidening of the income gap from 2002onwards was due to incomes from property,business activity, wages paid to employees ofsmall businesses, and informal remunerationschemes. Available data on differentiation ofobservable wages suggest that salarydifferentiation was most affected by majorredistributive processes within and betweenFigure 3.2Indicators of income and wage differentiation70Income (wage) ratio between 20% with highest and 20%with lowest incomes (wages)0.5080.480 0.4830.477 0.4810.4540.4670.4390.445 0.4470.456 0.4590.4470.4090.399 0.395 0.397 0.397 0.403 0.409 0.406 0.4100.422 0.424 0.416 0.4140.3170.381 0.375 0.38139.634.032.130.5 30.026.423.424.0 25.026.40.26024.9 25.322.115.113.5 13.0 13.5 13.9 13.9 13.9 14.0 14.5 15.2 14.9 15.316.8 16.9 16.1 15.87.84.50.6Gini Coefficient01991 1994 1995 1996 1997 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q32008Cash income ratio between 20% with highest and 20% with lowest cash incomes (left scale)Wage ratio between 20% with highest and 20% with lowest wages (left scale)Gini Coefficient for cash incomes (right scale)Gini Coefficient for wages (right scale)Q320090.0Source: Social Situation and Living Standards in Russia, 2007. Statistical Digest/Rosstat – M; p.136; Social Situation and Living Standards in Russia,2000. Statistical Digest/Goskomstat RF – M, p.130.57

various sectors. Inter-sectoral payrolldifferentiation is determined both bydistinctions in the economic status of varioussectoral groups with differing economicsignificance and by differing competitivenessof their outputs. Raising of minimum wagesand pensions led to growth in income levelsof the poor, so that income differencenarrowed in the third quarter of 2009,despite the crisis.Changes in incomes and inequalityhave caused changes in the poverty rate (Figure3.3), which has been subject to largefluctuations since market reforms began. In1992, after price liberalization, one third ofRussia’s population qualified as poor. There wassteady decline in the poverty rate after 2001and it had declined by half in 2007 comparedwith 2000. The current crisis has already led to0.9 p.p. growth of the poverty rate in Q1 2009compared with Q1 2008, representing anFigure 3.3Poverty rate in Russia4540355.95.34.85.04.5increase in the number of poor people in Russiaby 1.5 million.It is highly important to identify whichsocial groups are most vulnerable to the risk ofpoverty and tend to be particularly poor, andwhich groups make up the greatest share of thepoor. Specifics of the ‘poverty profile’ for Russiaare amply presented in the literature 6 and can besummarized as follows:• Risk of poverty is twice higher than thenational average for families with children(and for children as such, aged under 16).This risk of poverty increases in proportionto the number of children in the household,and single-parent families are more likely tobe poor;• Rural populations are more vulnerable topoverty;• Pensioner households (either a singlepensioner or couples) are twice less likely tobe in poverty than the national average;65Poverty rate, %302520153.33.83.12.83.53.72.62.1 2.11.61.3432Income deficit, %1051033.531.5 22.4 24.7 22.0 20.7 23.3 28.3 29.0 27.5 24.6 20.3 17.6 17.7 15.2 13.4 13.1 16.3 17.41992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Q12008Those living in poverty as % of total populationCash income deficit as % of total personal cash incomesQ120090Sources: Russia in Numbers. 2004; Statistical Digest / Federal Statistics Service, M, 2004; pp.99-100; Russia in Numbers. 2004; StatisticalDigest / Federal Statistics Service, M, 2004; p. 100; Social Situation and Living Standards in Russia, 2007. Statistical Digest/Rosstat –M, 2007, p.144.6(1) Poverty and Inequality in Russia: Correlation between Poverty and Inequality Indicators and the Method of Measuring HouseholdProsperity Indexes. Illustration based on NOBUS data / E.Teslyuk, L.Ovcharova. Gen. edit. R.Yemtsov – M, Alex, 2007, pp.17-19(2) Incomes and Social Services: Inequality, Vulnerability, Poverty. Edited by L.Ovcharova, NISP – M, HSE Publishing House, 2005 – p.348(3) Survey of Russia’s Social Policy: Early 2000s, T.Maleva et al, Independent Institute for Social Policy – M, IISP, 200758 National Human Development Report in the Russian Federation 2009

• The unemployed, people who areeconomically inactive, and recipients ofsocial and disability welfare are at high riskof poverty;• A large number of those who are poor are inemployment.Although the number of people inpoverty has halved, the structure of poverty bymain socio-demographic groups has remainedunchanged. The biggest share of the poor arestill people of working age, particularly youngpeople: the share of the young people amongthe poor is larger than that in the overallpopulation. The risk of being poor is also aboveaverage for children, while the elderly, bycontrast, are 16.8% of the total population(2006 data), but represent only 13.1% of thepoor (although their share has been growing inrecent years). Growth in the share among thepoor of people who are of working age buteconomically inactive offers indirect evidenceof marginalization of that group of thepopulation. Such a conclusion is confirmed byspecialized research, which suggests that thisgroup includes a large number of young maleswho are not studying, working or seekingemployment 7 . Changes in the educationalprofile of the able-bodied poor show that theshare of people with higher education hasdecreased from 20.7% in 2000 to 13.2% in2006 8 . The objective reality in the presenteconomic environment is that birth of a secondchild in families pushes consumer behaviortowards that, which characterizes poverty.3.2. Role of the energysector in incomesand inequalityEconomic activities related to theenergy industry are traditionally well-paid,with low levels of labor-intensity. A picture oftheir contribution to personal incomes inRussia can be obtained from employment andwage indexes for businesses associated withenergy production and transportation (Table3.5). The statistics base, which is used, hasfigures for all sectors of the economy, but onlycovers large and medium-scale enterprises,leaving small businesses out of account. Thebase therefore covers 53% of all employees (asof June 2009) and 43% of total wages paid inthe economy. Around 9.2 million employees ofsmall businesses, 3.8 million self-employed,and about 7.2 million employees withindeterminate legal status are not included.But there are only about 50,000 people inthese categories working in the energy sector,equal to just 3% of those working at large ormedium-scale companies in the sector, andstatistical reporting suggests that wages insmall businesses related to power productionand transportation are 1.5-2.0 times lowerthan wages at large and medium sizedcompanies in the sector. So impact of theenergy sector on the labor market andhousehold living standards can be adequatelystudied though salaries and employment atlarge and medium-scale enterprises in thesector.The average wage in all energy sectorbusinesses as of June 2009 was 1.8 timeshigher than the national average wage.Highest wage levels were in pipelinetransportation (3 times higher than thenational average), and wages of pipelineworkers increased by more than 1.5 times(159%) during the crisis period in real terms.In other energy industries nominal increaseof wages failed to keep pace with 11.7%inflation in the period between June 2008and June 2009, so that real wages decreased.Wage levels in June 2009 were 94%compared with a year earlier in the extractionindustry; 93.3% in production of coke and oil7Poverty and Well-being of Households in Leningrad Region. Based on random interviews with households in April 2005 – SPb., CelestaLLC, 2007 – p.2888Social Situation and Living Standards in Russia. Statistical Digest/Goskomstat of Russia – M, 2001, p.144; Social Situation and LivingStandards in Russia, 2007. Statistical Digest/Rosstat – M, 2007, p.14959

products; 99.3% in production,transportation and distribution of electricpower, steam, gas and hot water; and 97.7%in production and distribution of gas fuel. Sothe crisis had negative impact on wages ofpeople employed in production andprocessing of crude oil, but did not affectwages in other energy segments, wherewage levels even rose substantially in somecases.The rate of job losses in the energyindustry was lower than in the whole economyand there were even increases of employmentin two sub-sectors: production anddistribution of electric power, gas, steam andhot water; and pipeline transportation.However, reduction of head count in fuelextraction and also in production of coke andoil products was higher than the nationalaverage since the crisis began. So employmentand wages in the oil sector were negativelyaffected by the crisis, but proved immune to itin other energy sectors, making overallemployment and wage figures for the energysegment look better than for the economy asa whole.The next question is how the situationin the energy sector affects personal incomesthroughout the economy. There are a numberof indexes for assessment of impact of theenergy sector on employment, payroll, publicincomes and inequality (Table 3.6). Energyrelatedbusiness has limited importance forincomes and employment: only 2.5% ofemployees at large and medium-sizedcompanies work in the power sector and theyrepresent only 2.9% of the total payroll at alllarge and medium-sized Russian companies.Table 3.5Wages and employment in the energy sectorNominal monthly wagesSalaries in June 2009 Wages in H1 2009Job turnoverRubles% vs. June2008Rubles% vs. H12008% vs.nationalaverageThousand% vs. June2008Total 19247 108.2 17929 110.3 100 37643.8 96.2Extractionof fuel resources38141 105.0 38725 108.3 220 582.7 94.9Production of coke and oilproducts34022 104.1 37050 114.9 210 108.2 94.2Production, transportationand distribution of electricpower, natural gas, steam andhot water30089 110.9 27865 112.7 155 676.7 101.3Productionand distribution of gas fuel19926 109.2 19300 112.3 108 161.1 99.5Pipeline transportation 60067 178.0 40897 123.3 230 188.2 101.3Entire energy sector 35402 115.7 - - - 1716.9 98.460National Human Development Report in the Russian Federation 2009

Employment in the energy sector accounts foronly 2% of total employment incomes, soimportance of the energy sector for the labormarket, incomes and wages is quite limited.Some experts believe that high salaries in theenergy sector are the main reason for highdifferentiation in salaries and incomes, and it istrue that, as of April 2009, 32.2% of energysector employees were among the best-paid10% in the economy as a whole. No othersegment has such a high share of its employeesamong the economy’s best-paid workers (therunners-up are financial operations, with24.6%, and real estate including rentaloperations, with 16.4%). But this does notentail that income and wage differentials aredetermined by the energy sector, since thesector accounts for only 12.7% of all the bestpaid10% of employees in the economy. Forcomparison, real estate employees are 12.5%of the 10% best-paid, state administration andmilitary security are 11.1%, transport andcommunications 10.6%, and financialorganizations 7.6%. Education, health care andsocial services together take 13.6% of bestpaidjobs, surpassing the share of energy. Also,the energy sector has relatively low intrasectoralpayroll differences: wages of the 10%best-paid employees in the sector are 12.5times higher than those of the 10% of the leastpaid. In the financial segment this gap is 26.7times, and it is 15 times in both education andhealth care. All that can be realistically said,therefore, is the opposite of what some expertsthink: the energy sector operates againstincome inequality by not making any largecontribution to low-paid labor.To summarize impact of the energyindustry on incomes, employment andinequality: the segment provides a verylimited number of jobs, most of which arewell-paid. Due to its small number ofemployees and low intra-sectoral wagedifferentiation, the energy sector is not thedriving force for sharp inequality in incomes. Alarge part of incomes generated in the sectoris redistributed through the budget, otherbusinesses associated with the energy sector,dividends, and social packages and bonuses,which are not counted in the monthly wageand income reckonings. The reasons forinequality are not to be sought in theresource-oriented economy as such, but in theexisting system of state institutions forredistribution of incomes.3.3. Household spendingon housing utilitiesand social measuresto mitigate price risesfor such servicesand for electricityAs shown above, the link betweentrends in the energy sector and the standard ofTable 3.6Impact of the energy sector on employment and inequalityIndicatorValue1. Share of energy sector employees in total numbers of employed, June 2009, % 2.52. Share of wages received by energy sector employeesin total wages paid, June 2009, %2.93. Share of wages received by energy sector employeesin total personal incomes, June 2009, %2.04. Share of energy sector employees, who are among the 10% best-paid employees in the economy,in all of the 10% best paid, April 2009, %12.761

Figure 3.4Housing utilities in overall consumer spending ofRussian households, % (sampling survey ofhousehold budgets)1086%4203.74.35.1 5.2Source: Rosstat, www.gks.ru4.7Figure 3.5Housing utility expenditures in overallconsumer spending of Russian householdsby decile groups (decile breakdown by averageper capita disposable income), %*18.016.014.012.010.08.06.04.02.00.03.93.119801985199019920.91995199719985.24.619992000year год1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Source: Incomes, expenditures and consumption of households, basedon random sampling of households (digests, 1999-2008)*Note: Consumer expenditures of households in this decile group aretaken as 100%living of Russian households is not to be soughtin the field of employment and wages. The keyinteraction between households and theenergy sector is via spending by the former onhousing utilities (government sector rents,electricity, water and gas bills, which are usuallycharged monthly in a single itemized bill). Webegin with some international comparisons, forwhich spending on housing utilities aregrouped together with household spending on6.27.27.78.38.78.27.620012002200320042005200620072008firstsecondthirdfourthfifthsixthseventheighthninthtenthWholepopulationfuel. As of 2005 9 (the most recent year for whichstatistics are available) such expenditures were9.4% of actual final consumption of Russianhouseholds, compared with 17.9% in Latvia,17.3% in Italy, 15.0% in Hungary, 16.0% in USA,15.3% in Great Britain and 19.2% in Sweden. SoRussian household expenditures on housingutilities are rather low, even compared withcountries where the per capita income level issimilar. In countries with higher per capitaincome levels the shares of housing utilitiesexpenditures are also high. This probablyexplains the poor technical, technological andinstitutional state of Russia’s housing utilitiessector. Even if Russia succeeds in overcomingnegative effects due to high levels of corruptionin this sector, it will be impossible to achieve abreakthrough in quality of housing utilityservices without larger payments byhouseholds. Increase in the share of householdexpenditures spent on housing utilities will alsoencourage the general public to rationalizetheir relationship with the state and businesswith respect to production of and payment forthese services.How has household spending onhousing utilities developed? Available data areshown in Figure 3.4. They show that decline ofpersonal incomes during structural reforms(1990–1995) was accompanied by reduction ofthe housing utilities share in total householdexpenditures. Low prices for housing utilitieshelped people to cope with fall of their incomesby nearly half, but lack of investment hadnegative impact on maintenance of theservices. Starting from 1994 housing utilitiesprices skyrocketed. By 1995 their share inhousehold budgets had returned to levels atthe end of the Soviet period and the growthcontinued. Housing utility price growth pausedfor the 1998 crisis, but then resumed. Thehousing utility share in household budgetsdeclined in the last two years of economicgrowth, but the current crisis is likely to reversethat trend.9Social Situation and Living Standards in Russia, 2008. Statistical Digest/Rosstat – M, 2008,p.48262 National Human Development Report in the Russian Federation 2009

The share of household expenditurestaken by housing utilities varies greatlydepending on income levels, livingconditions and regional specifics (housingutility price formation and social securityprogrammes of regional government). Theshare of housing utility expenditures inbudgets of poor household are as much asdouble the average, even though housingconditions of the poor are usually worse thanaverage and despite social programmes thataim at reducing the share of housing utilitiesin spending by such households (Figure 3.5).Regional differences in housing utility tariffsare also quite significant. In June 2008 theprice of hot water for households was 23.52rubles per person in the Republic ofIngushetia, while it was 544.01 rubles inKamchatka Region, and 100 KWh of electricpower in the Chukotka Autonomous Districtcost 345 rubles compared with 45 rubles inIrkutsk Region.Faster growth of housing utility pricescompared with incomes poses the biggest threatto budgets of single pensioners and singleparentfamilies with children living inaccommodation with full services, particularly insmall towns, where housing utility prices are thehighest. Our calculations show that averageshare of housing utility expenditures in budgetsof such households is 15.5%.It is important to grasp how householdand government spending on housing utilitieshas been balanced in the past. Transition tomarket principles in provision of housing utilityservices required changes to institutionalregulation of the sector. In the plannedeconomy, housing utility pricing was merelysymbolic and the wages of a Soviet employeewere not designed to cover acquisition ormaintenance of a dwelling, which was theresponsibility of the state. Creation of a marketeconomy meant that the huge gap betweenexpenditures of households on housing utilitiesin the Soviet-era and their real cost had to beclosed. By 1997 average regional and federalstandards for coverage by households ofFigure 3.6Sources and amounts of housing utility fundingin 2007, %67.0 33.0H&U costs paid by the public, %Budget funding: H&U benefits for specific groups of households, %Budget funding: subsidies, %Budget funding: compensation of the difference between economicallyjustified and actual H&U prices, %Calculation basis: Statistics Digest No.9 (149), FSGS – M, 2008 pp.76-77; data taken from Rosstat website http://www.gks.ru/scripts/db_inet/dbinet.cgi?pl=1812003, accessible since January 16, 2009.housing utility costs were 38% and 35%,respectively, of the real costs of housingutilities. By 2005 the federal standard had beenraised to 100% of ‘economically justified’housing utility tariffs, but actualimplementation has been slower. As of 2007housing utility tariffs had reached ‘economicallyjustified’ levels in 7 regions, while they wereabove 90% of the level in 48 regions, and below90% in 30 regions. So the state is stillsubsidizing the housing utilities sector, andprices for households will have to rise fasterthan inflation in coming years in order toachieve 100% payment by households for theservices they receive.This transition requires social supportprogrammes to be put in place forhouseholds, which cannot afford such extracosts. How do such programmes function inRussia? The latest available data are for 2007when total housing utility payments bygovernment were 260 billion rubles or 33% ofthe total cost of housing utilities (Figure 3.6),so that households were meeting two thirdsof housing utility service costs out of theirown pockets.Budget funding for the housing utilitiessector can be divided into two components:1. Compensation of the differencebetween real costs of housing utilities and pricespaid by households;15.35.712.063

2. Benefits and subsidies, to assisthousing utility payments by households.In 2007 compensation of the differencebetween real housing utility costs and pricespaid by households amounted to 12% of thetotal real cost of housing utilities or 36% of allbudget funds allocated for the sector. Thiscompensation represents subsidization of allhouseholds regardless of their incomes, butmostly benefits households, which enjoy betterliving conditions (i.e. wealthier households).However, compensation of the differencebetween real housing utility costs and pricespaid by households has been declining inrecent years and has ceased to be the mainsubsidization instrument. The biggest share offinancial support for housing utilities is now inthe form of direct assistance to individuals whomeet certain criteria (various categories ofdisability, etc.) to help them meet their housingutility bills. In 2007 such assistance represented15.3% of all housing utility costs (46.4% of allbudget funds allocated for housing utilities).Other direct assistance, specifically to poorhouseholds, was only 5.7% of housing utilitycosts (17.3% of all budget expenditures onhousing utilities).It is worth giving a brief account ofhow direct assistance for payment of housingutilities operates in Russia. The country hashad a programme of housing subsidies since1994. According to the initial regulations,subsidies are provided to households whosejustifiable housing bills exceed 22% ofaggregate household income. The number ofrecipients rose to a peak of 15.2% in 2003,suggesting that every seventh householdrequired social support. Research intoTable 3.7Main parameters of social programmes related to housing utilities2000 2001 2002 2003 2004 2005 2006 2007Families receivinghousing utility subsidies,thousands3212.4 3963.4 5251.3 7092.6 6801.5 6063.6 5457.7 4560.9% of all families 7.7 9.1 11.4 15.2 13.7 11.9 10.6 8.8Average monthly subsidiesper family, rubles80 124 237 361 435 550 675 641Number of people inhouseholds with memberswho receive housing utilitybenefits, thousands46015.1 48810.7 49795.1 44011.7 43913.3 37615.6 39513.3 38846.4Number of people,receiving housingutility benefits,thousands [sub-setof previous line]29914 28151.5 29156.4 27860.3 30171.5 29416Average monthlybenefit supportper recipient,rubles32 47 67 98 126 178 216 259Source: Calculations based on Rosstat data, Central Statistics Database, http://www.gks.ru/dbscripts/Cbsd/64 National Human Development Report in the Russian Federation 2009

subsidization practices in the regions 10showed that without subsidies people wouldstop paying for housing utilities and thesector would have to be financed directlyfrom the budget. Nevertheless, theprogramme has undergone constantmodifications, regional standards for cost ofservices have become increasingly varied,and rules for provision of subsidies havebecome increasingly strict, so that the scaleof subsidies has diminished in comparisonwith household expenditures. This can beseen from development of the averagesubsidy per family (Table 3.7). Since 2004there has been a reduction of budgetspending on housing subsidies for the poorand narrowing of the group of households,which are recipients. This has been obtainedmainly by raising the allowable share ofhousing utility expenses in householdbudgets to the federal standard of 22% ofaggregate family income, as well as byintroduction of flexible regional standards forhousing utility costs.Secondly, there is a system of benefits,now called ‘measures for social support withregard to payments for housing and communalservices’. These are a legacy of the Soviet era and,unlike subsidies, their recipients are defined byfalling under certain definitions (disability, etc.)and not on the basis of need. Previously thebenefits were provided as discounts on housingutility tariffs. The discount was 100% of housingutility costs for people meeting certaindefinitions, while others (the most numerousgroup) received 50% discount, and other groupsreceived less. Monetization of benefits, broughtin by Federal Law No.123 in 2005, had littleeffect on the housing utility benefit system:some regulations on provision were altered (e.g.non-extension to other family members) andFigure 3.7Coverage of social supportprogrammes relatedto housing utilities40,035,030,025,020,015,010,05,00,031,47,719,3 19,033,4 34,39,111,420,630,4 30,515,2Source: Calculations based on Rosstat data, Central Statistics Database,http://www.gks.ru/dbscripts/Cbsd/there was partial monetization in certainregions, which led to reduction of the numberof recipients (Figure 3.7).What is the outlook for social supportmeasures in the crisis context? As explainedabove, housing utility tariffs will continue togrow, so that larger amounts of social supportwill be necessary. The government isconsidering the possibility of giving federalsubsidy entitlement to households, whichspend over 15% of their income on housingutility, lowering the threshold from current22%. But preliminary studies show that such astep would require 300 billion rubles ofadditional funding, which is unaffordable forthe budget 11 . The threshold remainsunchanged to date, although regionalgovernments are free to set lower thresholds,covering the difference out of their ownbudgets. The system of housing utilitybenefits (‘measures for social support…’described above) will be monetized, so thatpeople who qualify for them will pay theirhousing utilities in full but will receivecompensatory cash payments. In general,26,319,5 20,3 19,513,711,927,7 27,510,621,2 20,72000 2001 2002 2003 2004 2005 2006 2007Share of households with members who receive housing utility benefits, %Share of people receiving housing utility benefits, %Share of families receiving subsidies, %8,810World Bank project, ‘Improvement of targeted social assistance programmes and employment support to fight poverty’, carriedout in 2006-2007 by specialists from the Institute for Urban Economics (Moscow), Independent Institute for Social Policy (Moscow),and the Urban Institute (USA) in five regions of the Russian Federation: Tver, Tatarstan, Tomsk, Kalmykia and Karachaevo-Cherkessia.A.Ya.Burdyak, who worked on field studies in Tver and Kalmykia, analyzed the housing subsidies programme and efficiency ofadministrative spending.11Interview with the Minister for Regional Development, Victor Basargin, Rossiyskaya Gazeta, Federal Issue, April 28, 2009http://www.rg.ru/2009/04/28/basargin.html65

affordability of rising prices for housingutilities will continue to be ensured throughthe system of social support.Attraction of investments remains thekey problem of the housing utility sector.Federal Law No.210, ‘On basic principles fortariff regulation in housing and communalservices’, passed in 2004, took transparencyand predictability as its guiding principles. Butamendments to the Law in 2005 allowedfederal regulation of housing utility tariffgrowth through limiting indexes in order tocurb inflation, making housing utilities moredependent on the budget and swelling debtsof housing utility providers. Positive changesin the sector slowed down in 2006 and the rateof breakdowns in the sector rose 12 (based ongovernment statistics and calculations byS.Sivayev, the Institute for Urban Economics).Maintenance of the limiting indexes is thebiggest obstacle to long-term direct andtransparent tariff regulation and the start offull-scale investment programmes.To conclude this review of householdspending on housing utilities, the fact thatRussians spend a relatively small share of theirincomes on these services should entail scopefor price growth. However, the real situation isthat the existing system of housing utilitypayments already stretches personal incomecapacities.3.4. Household consumptionof electricityWhat are the trends and what impact isthe crisis likely to have on use of electricity in thehousehold sector? Economic growth sawincrease of overall power consumption in Russiaby 16% from 2000 to 2007, while household userose by only 9% in the same period (Figure 3.8).The share of power consumed by the householdsector fell as a result from 12.3% in 2000–2001 to11.5-11.6% in 2004–2007, so that growth of itspower use in absolute terms looks insignificant.Growth of personal incomes andchanges in the structure of consumerexpenditures have boosted the construction,retail, public catering and other servicesegments in Russia. Places where economicgrowth is concentrated now have a newlifestyle model, involving power-intensiverecreation outside the home, so that differencesFigure 3.8Annual power consumption by households, million KWh1200000100000080000060000040000020000002000 2001 2002 2003 2004 2005 2006 2007Consolidated power consumptionHousehold power consumptionSource: Calculated using National Energy Statistics12Economy of the Transition period. Essays on economic policy of post-communist Russia. Economic growth 2000-2007 – M, Delopublishing house. Academy of National Economy, 2008.66 National Human Development Report in the Russian Federation 2009

in power use between regions now depend oneconomic development and householdincomes as well as climate conditions. While thenational average share of power use byhouseholds in 2000–2007 was 11.9%, figures forMoscow, St.Petersburg and Krasnodar Territory(where Black Sea resorts are concentrated) weremuch higher at 23.5%, 19.9% and 22.2%,respectively. The household share in Rostovregion, which also has a Black Sea 13 coastline,was also high at 18.7%. These regions should beviewed as trendsetters, with service economiesand high population density. By contrast, thelowest household shares in power use are inmain raw-material regions of Siberia, where theeconomy is industry-focused: KrasnoyarskTerritory, 5.8%; Kemerovo Region, 7.3%; IrkutskRegion, 7.5%. The household power share isalso low (8%) in Russia’s main oil producingarea, Tyumen Region with its autonomousdistricts. Large and relatively well-developedregions with diversified economies andregional capitals with over one millioninhabitants are in a middle position, eitherequal to or slightly below the national average:Samara Region, 12%; Sverdlovsk Region, 10%;Chelyabinsk region, 9.8%; Republic of Tatarstan,9.7%. Two regions in the European part ofRussia, with cities of more than one millionpeople and a mixture of initial processing 14 andimport-substitution industries – NizhnyNovgorod and Volgograd – are on oppositesides of the national average with indicators of13.1% and 9.3%, but are closer to the ‘middleclass’regions. Moscow Region (13.8%) andLeningrad Region (9.8%) are in roughly thesame situation.Strong growth of power consumptionby the housing sector makes installation ofnew generating capacity an urgent task insome regions. The share of powerconsumption by households in MoscowRegion has risen from 12.2% to 17.0% (Figure3.9), closely approaching the four regions,which have shown highest shares ofhouseholds in total power (the cities ofMoscow and St.Petersburg, Krasnodar Territoryand Rostov Region). Peak loads related tohousehold consumption are becoming aserious problem for these regions.The trends, which emerged during theperiod of economic growth, will remaindominant. The 10% increase of householdpower tariffs planned for 2010 will raise theshare of household spending on housingutilities in a context of declining real incomes,but the impact for low-income groups will bemitigated by social support. Better-offFigure 3.9Share of households in total power consumption in Moscow and Moscow Region25.023.6 23.0 23.9 23.9 23.8 22.823.4 23.920.015.014.012.5 12.2 12.3 12.514.9 15.117.010.012.3 12.3 12.1 11.8 11.5 11.6 11.5 11.65.00.02000 2001 2002 2003 2004 2005 2006 2007Russian Federation Moscow Region MoscowSource: Calculated using National Energy Statistics13Classification of Russia’s regions is in accordance with the Special Atlas of Russia’s Regions, N.Zubarevich,http://atlas.socpol.ru/typology/index.shtml.14Industries producing semi-products: metallurgy, chemistry, forestry and paper-milling.67

households with modern, high-tech powerconsumption lifestyles will not drasticallychange their power consumption habits.Housing construction will continue, althoughsocial housing will be given priority in the crisiscontext, and more ample housing will continueto drive household demand for electric power.Decline of industrial production as a results ofthe crisis will also raise the share of householdsin overall power consumption.3.5. Summaryand recommendationsSumming up this analysis of incomes andemployment in the context of energy sectordevelopment and the continuing economiccrisis, we see a number of points with specialimportance for future economic transformationin Russia.Firstly, rapid development of theresource-oriented economy, which providesthe country’s tax base and high incomes for avery small group of people, has not favoredcreation of enough ‘good’ jobs, which wouldoffer an economic base for expansion of themiddle class – the main driving force forevolutionary modernization. Rapid economicgrowth was accompanied by growth ofincome and salary inequality. Meanwhile,government attitude towards the labormarket has been focused on the issue ofunemployment, rather than on creation ofefficient employment. So job quality andproductivity have been left out of account andthe self-regulating mechanism, by whichimprovement of education levels shouldproduce good jobs, has not been operatingeffectively.Secondly, deficits of goods and services,which had stimulated development of smallbusiness despite lack of access to credit, meansof production, legal protection, etc.,disappeared in the last years of economicgrowth. Absence of development banks,leasing and insurance companies, and othersupports for small business turned jobs in thesmall-business sector into ‘bad’ jobs, gearedtowards survival rather than modernization anddevelopment.A poor institutional environment andresource-oriented economy have been unable toproduce educational, professional, and sociodemographicresources that could generateefficient, innovative employment – the type ofemployment, which would ensure that workersand their families can buy essential goods andmeet their needs for housing, education andhealthcare.Old targets focused on greater prosperityneed to be reformatted as new targets that aimto create an economy with diversified, effectiveemployment, shifting emphasis fromprogrammes of support for the unemployed andassistance for the poor to creation ofdevelopment institutions, which could bear themajor costs and risks of creating and operating‘good’ jobs.The study of prosperity (income) levels,which are one of the three components of theHuman Development Index (HDI), throughenergy sector issues led us to an analysis ofindexes, which determine the role and place ofthe energy sector both in generating householdincomes and meeting the consumption needs ofhouseholds.The energy sector is the basis of Russia’sresource-oriented economy, but incomesgenerated in this sector are only sufficient to:• provide a high standard of living for itsemployees and promote the developmentof associated consumer markets;• form the tax base for the country’s budget,which guarantees a high standard of livingfor the bureaucracy and associatedconsumer markets;• develop public support programmes in theform of small-scale per capita assistance toa large number of ordinary people. Thissupports a dialog between governmentand the broad general public, but efficientemployment for the majority of people hasno place in this scheme.68 National Human Development Report in the Russian Federation 2009

Electricity prices for households haverisen faster than incomes, increasing the shareof household expenditures on utilities,particularly among poor households. Rapidgrowth of urban agglomerations in a contextof decline and, later, moderate growth ofindustrial production has increased the shareof households in energy consumption,particularly consumption of electric power.Energy saving has therefore grown inimportance, particularly for households.However, most energy wastage is beyond thecontrol of households, and housing utilityproviders are the most wasteful part of theeconomy. Households in Russia actuallyconsume less power per capita than indeveloped countries, despite very limitedavailability of power-saving technologies.69

Box 3.1. Education for the power industryEducation of new specialists for the powerengineering industry is of great significance fordevelopment of Russia’s innovative economy.Creative engineers, developers and designers arethe people who must bring advancedtechnologies to Russia’s power industry and otherindustrial sectors to make them more competitive.Engineering universities are not only suppliers ofhuman resources; they also develop newtechnologies, production processes and promisingnew segments in the power industry and othersectors.We will first try to assess the scale andstructure of training provided by the Russian highereducation system to meet the needs of Russia’spower engineering industry (Table 3.1.1). In the pastdecade the number of graduates with a degree in‘Power engineering and electrical equipment’(specialization No. 140000 in the higher educationcurriculum) has increased almost threefold inabsolute terms, and the share of this subject in thetotal number of technical graduates has increased by3%. However, power engineering has not beenspared by the general decline in the share ofengineering graduates among all graduates of theRussian higher education system. The share of powersector graduates in all higher-education graduatesdeclined by 0.6 percentage points from 1995 to 2006.Hardly any private universities offer coursesin power engineering (just 0.6% of all graduates in thesubject in 2006 were from private universities).However, the number of students majoring in powerengineering at state high schools on a paid basis issteadily increasing, which testifies to popularity of theprofession. The share of students with statescholarships majoring in power engineering andelectrical equipment fell from 73% in 2003 to 57.7% in2006.So the trends revealed by analysis ofstructural changes in power engineering education atRussia’s higher education schools are the same as forall engineering professions 15 :• Steady increase in the absolute number ofengineering students and graduates;Table 3.1.1Total graduates, engineering graduates, and graduates in power engineering and electricalequipment (PE), 1995-2006 161995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006Total graduates(thousand)396 415 458 501 555 635 720 840 977 1077 1152 1255PE share in totalgraduates, %2.99 2.74 2.48 2.11 2.08 2.09 2.09 1.91 1.87 2.30 2.31 2.31Total engineeringgraduates (thousand)157 161 160 160 172 191 207 230 252 233 252 275PE share in engineeringgraduates, %7.55 7,08 7.07 6.62 6.70 6.97 7.27 6.98 7.25 10.61 10.57 10.54PE graduates (thousand) 11.8 11.4 11.3 10.6 11.5 13.3 15 16.1 18.3 24.8 26.7 29* Education in Russia:2007. Statistics Bulletin. M., GU-VHSE, 2007.15See.: I. Dezhina, I. Frumin. Engineering education in Russia and its link with innovative activities// From knowledge towealth; integrating science and higher education for the development of Russia. M., 2006, p. 278-318. //16It is noteworthy that prior to 2004 the Russian National Profession Classifier made a distinction between powerengineering and electrical equipment, which were recorded as two different professions. The share of power engineeringgraduates in total graduates in both specializations rose from 59% to 63% in 1995-2003, and it can be assumed that thistrend continued after 2003.70 National Human Development Report in the Russian Federation 2009

• Steady decrease in the percentage ofengineering students and graduates in all highereducationstudents and graduates;• Only state universities offer training in the field.However, there are a number of importantquestions, the answers to which help to obtain anaccurate picture of prospects for the powerengineering industry in Russia:1. Does the power industry really need 29,000engineers every year?2. Does the quality of education of these newengineers meet current and forecast needs of theindustry?There are serious questions marks over thequality of students, who are being prepared forcareers in the power industry. Analysis of universityadmissions in 2009 shows that all types ofengineering higher education in Russia areexperiencing a serious crisis: up to 50% of thoseadmitted to higher education schools had scoredonly three out of five for mathematics and physicsin the five-point system, which is used to assessRussian school pupils (a score of three is equivalentto ‘satisfactory’ or a C-grade). It is unlikely that thesestudents will be capable of acquiring the necessaryprofessional competencies 17 .Power engineering and electrical equipmentis currently among the most popular engineeringspecializations, attracting relatively strong applicants.The average school-leaving exam score of studentsapplying successfully for state scholarships to studypower engineering and electrical equipment is 64.1.However, the average score for applicants who obtaina scholarship in humanity subjects is 76.4, and ineconomics and management it is 71.4. Clearly, thebest school leavers have limited interest inengineering professions 18 .As can be seen from the table, the quality ofstudents admitted to study power industryspecializations is as dubious as for other engineeringprofessions. It should be noted that the minimumadmission requirements at Moscow universities 19correspond to a weak 3 (weak C-grade): a score of48.1 in the school-leaving exam for a statescholarship and 42.7 for admission as a tuitionpaying student (Table 3.1.2).There is much stratification both within singleuniversities and between different universities.Comparing admission scores for state-funded places,the threshold for courses within the powerengineering and electrical equipment group was 57,to study nuclear reactors and energy installations atMIFI, while the admission score to study nuclear andparticle physics at the very same school was only 42.And the admission score for plasma powerinstallations at MAI was just 33 20 .The higher education process itself is alsoriddled with problems. In the spring of 2009, researchwas carried out at a number of engineeringuniversities across Russia to find out whether theTable 3.1.2Average score achieved at 2009 school-leaving exam among applicants to study power engineeringand electrical equipment at Moscow and Siberian universities 21State scholarshipsState scholarship studentsTuition paying studentsavailableAverage score Admission score Average score Admission scoreMoscow Siberia Moscow Siberia Moscow Siberia Moscow Siberia Moscow Siberia2382 1040 64.1 68.8 48.1 58.9 53.6 49.9 42.7 41.717State exam and university admissions. Average score of applicants admitted to Moscow universities on the basis of state exam results,August 2009. M. GU-VHSE, 2009, page 12.18State exam and university admissions. Average score of applicants admitted to Moscow universities on the basis of state exam results,August 2009. M. GU-VHSE, 2009, page 69.19These include: Moscow N. Bauman State Technical University (MGTU), Moscow Power Engineering Institute (MEI), Moscow Physics-Engineering Institute (MIFI), Moscow State Institute of Steel and Alloys (MISIS), Moscow Aviation Institute (MAI), Moscow State RailUniversity (MIIT), Moscow A. Kosygin State Textile University, Moscow State Industry University, Moscow State Engineering EcologyUniversity, Moscow State Applied Bio-Technology University.20State exam and university admissions. Average score of applicants admitted to Moscow universities on the basis of state exam results,August 2009. M. GU-VHSE, 2009, pages 45-46.21State exam and university admissions. Average score of applicants admitted to Moscow universities on the basis of state exam results,August 2009. M. GU-VHSE, 2009, page 73.71

educational process met the demands of potentialemployers and students 22 . Power engineering wasamong the fields studied. The findings are quitedisturbing. Almost a quarter of students nearingcompletion of their education said that they wouldlike to adjust their specialization but could not do so,because the field they were majoring in is toonarrowly defined and their schools provide no flexiblemechanisms for changing specialization betweenadmission and graduation. Some 80% of students saidthat all the courses in their study programme weremandatory.The research also found that students aregenerally expected to be passive recipients ofknowledge. According to the survey results, 95% ofstudents nearing completion said that lectures werethe primary mode of instruction, 20% said theynever participated in a discussion or projectworking in a small group, and a third had neverprepared their own presentations. In most cases theinstructor was the primary source of information,with few students trying to search for informationon their own. Only 20% of students surveyed hadparticipated in projects of their instructors, 33% ofthe students nearing completion had never doneprojects of their own, 55% had not implementedprojects as part of a group, 55% had not preparedany presentation on a completed project, 85% hadnever been involved in projects for real customers,60% had never read books on their subject in aforeign language.Results of the education process are verifiedmainly by oral and written examinations and throughoral defence of course papers. Tests in class are usedvery seldom, while 60% of surveyed students hadnever had to write an essay.Links between universities and potentialemployers are very limited. Some 63% of studentsnearing completion knew either very little or nothingat all about working conditions in Russian companiesfor graduates with their specialization (though 90%had been through some kind of work experience), andonly 32% had been given any information about whatto expect in their future jobs by their universities. Only37% had met with representatives of their potentialemployers, while 15% said that they had never beenintroduced to any technical, economic, or corporatenews of relevance to their profession. Finally, only35.9% of graduates with engineering degrees(including those with degrees in power engineering)find work in their field after graduation 23 .Based on the above, we can justifiablystate that:• Engineering universities and engineeringspecializations have to a large extent lost theirprestige in comparison with other types of highereducation. They seem willing to accept lowqualitystudents in order to fully use their intakequotas;• Narrowly defined specializations andimpossibility of fine-tuning individual trajectorieslead to a situation where a significant part of thetechnologies taught at university are obsolete incomparison with what graduates will have todeal with once they enter the job market.Students themselves are often frustrated by theimpossibility of tailoring the education, whichthey receive, to their individual preferences.• The passive role assigned to students in theeducation process, lack of hands-on experienceof working on projects alone or in groups orworking for real customers, lack of demand forinitiative, ambition and creativity, and lack ofawareness of the international technologicalframework tends to make graduates incapable ofinnovation, and suited only for roles astechnicians rather than engineers.To conclude, we will try to point out the mainrespects, in which Russian technical higher education(including power engineering) has deteriorated, andpropose some steps that need to be taken in order torectify the situation.22An integrated assessment of education standards for students approaching graduation and of employment by aerospace companiesof graduates from specialized higher education schools. The research was carried out by United Aircraft Manufacturing Corporation aspart of work to design a system for supporting education of students and employment of graduates in the aerospace industry. See also:Maria Dobryakova, Isak Froumin. Higher engineering education in Russia: incentives for real change // International Journal ofEngineering Education. 2010, spring (forthcoming).23V. Gimpelson, R. Kapelushnikov, T. Karabchuk, Z. Ryzhikova, T. Bilyak. Choosing a profession; what did they learn and where were theyuseful? M., GU-VHSE, 2009, page 18.72 National Human Development Report in the Russian Federation 2009

1. The number of graduates with engineeringdegrees far exceeds real demand in the economy. Thesituation is exacerbated by the fact that these largenumbers are achieved by significantly loweringadmission standards. There need to be far stricteradmission thresholds, and state funding of tuitionshould be on a per student basis.2. Universities are no longer making a cleardistinction between creative engineers and simpletechnicians. Both spent the same amount of timestudying and are often taught using the exact sameprogrammes. The existing engineering professions, inwhich universities offer training (including powerengineering professions), are often defined toonarrowly. We believe that universities must shift assoon as possible to two-stage training, where the firststage offers very broad bachelor degrees (for thosewho plan to continue their education majoring in anarrower field) and applied bachelor degrees fortechnicians, and where the second stage offersmaster’s degrees for creative engineers specializing inspecific fields.3. Engineering universities do not allowstudents to choose between courses. This reducesstudents’ interest in the process of acquiringknowledge and their motivation to seek a job in theirchosen field. The introduction of credits and modulesbased on ECTS, and transition to third-generationstate standards will offer more scope forindividualizing education, though it is difficult topredict how universities will make use of these newopportunities.4. Education at most engineering universitiesis not organized in a way that makes students workalone and in groups, participating in their instructor’sprojects and in projects for real customers.Modernization of the education process along theselines is a crucial part of reform of the engineeringeducation system, including power engineering.5. A broad professional horizon is anessential part of the education of a future engineer.But at present the absolute majority of engineeringstudents are only acquainted with Russianachievements in their field, and the focus is ontheoretical knowledge, which does not always helpstudents to develop the practical skills they will needin the present market. The situation is exacerbated bythe fact that teachers themselves are oftentheoreticians, far removed from the practicalchallenges of the industry about which they teachand therefore barely able to navigate through theknowledge and competencies relevant to themodern economy. Until students know about thelatest trends in their chosen field, not only in Russiabut in the rest of the world, and until they start doingreal-life projects during their studies, no sector of theeconomy will be supplied with personnel who canmeet the challenges of innovative work.6. To date interaction between universitiesand employers has failed to make the educationprocess more relevant to the challenges of thecontemporary economy and to ensure universityemployercooperation in preparing students for futurejobs. Engineering universities must realise that theyare a key element for implementation of stateeconomic policy. Effective training of new specialistswill only be possible if universities create appropriateinformation systems as well as formal and informalinterfaces, through which their graduates can movemore easily into the job market.73

Chapter 4The Energy Sector and Public HealthBurgeoning demand for energy in thelate 20 th and start of the 21 st centuries has ledto a dramatic increase in crude oil & gasproduction, which, in turn, led to increasingdischarge of pollutants into the environment.Volumes of waste water created by theelectricity industry have been growing since2004, and atmospheric emissions from fuelfiredpower stations is growing faster than theirelectricity output. Decline of pollution levels inthe metallurgy and chemical industries hascaused the share of the fuel & energy sector inoverall pollution to rise by almost 10% in recentyears. Share of the sector in total industrialpollution is 56%, including 58% of solid wasteand 23% of waste water.Problems from use of coal top theagenda when assessing environmental impactsof the fuel & energy sector. Current nationalstructure of primary fuel use reflects theprolonged ‘gas pause’: the share of coal in thenational fuel balance is only 18%, while that ofoil is 21% and natural gas dominates with ashare of 52%. Annual consumption of coal bythe power industry is rising more slowly inRussia than in the rest of the world at present,but large increase in the share of coal in thenational energy balance is expected, reflectinghuge Russian deposits of coal, especially in theindustrially developed Kuznetsky Coal Basin(‘Kuzbass’) in Kemerovo Region. The NationalEnergy Strategy up to 2020, approved by theRussian government in 2003, calls for increasein the share of coal in the country’s energybalance from 19% to 20%. Greater use of coalshould be accompanied by application of newcoal processing technologies, which will enableit to be burnt more efficiently. Coal, as the mainalternative to natural gas, is the biggestfeedstock in US and Chinese power generating(50% and 80% of all fuel-fired inputs,respectively), and its share in Poland is as highas 96%. Such intensive coal use is possiblethanks to introduction and development of anumber of environment-friendly and efficientcoal combustion technologies.Coal extraction in Russia is growing fasterthan had been expected and rose by over 20%between 2000 and 2008 (from 258 to 314 milliontonnes). Further growth to 373-430 milliontonnes is expected by 2020. Coal will be the mainalternative to natural gas in the future,particularly in Siberia, where proximity of theKuznetsky and Kansko-Achinsk coal basinsreduces transport costs by several times.Development of the Yuzhno-Yakutsk basin inEastern Siberia is also proceeding rapidly. Growthof coal extraction is partly driven by depletion ofprofitable natural gas deposits and high exportvalue of gas.Growing power production and plannedincrease of the share of coal in the nationalenergy balance could aggravate public healthand environmental problems. Consumption ofcoal by power stations grew by 2.7% in 2008alone due to reduction in use of natural gas 1 , andfurther large increases of coal burning areplanned. It is too early to judge whether modernenvironmental requirements will be met, butWHO and European Commission directivesought to be taken into account as well as Russianenvironmental rules. Wide public discussion ofthe issues is desirable in regions affected bypower-station emissions.Russia’s Energy Strategy makesdevelopment of clean coal combustiontechnologies a condition for increase of coal useby power stations and other industrial facilities.Transition from direct coal burning to use of coalwaterfuel (CWF, made of various quality coals,including waste from coal concentrationprocesses) 2 will be an important part of thisprocess.The Energy Strategy sets generalindicators for development, but it does notcontain specific targets for reduction of pollution,suggesting that commitment to cleantechnologies may be less than complete.1I.S.Kozhukhovskiy, Situation Analysis and Development Forecast / Report presentation at the conference, The Power Industry – Risksand Growth Limits in Times of Recession – March 24th, 2009, http://www.e-apbe.ru/actions/09_03_24_Vedomosti_Kozhukhovsky.pps# .2A.P.Starikov, V.D.Snizhko, The ways of solving environmental problems at a modern coal-mining facility / Ugol – 2008, No.9 – pp.66-6774National Human Development Report in the Russian Federation 2009

As well as requiring better fuelcombustion technologies, sustainabledevelopment of the energy sector also needs totake account of sustainable developmentcapabilities and environmental capacity ofspecific geographical regions. Attention must bepaid to the specific conditions, in which fuel oiland coal combustion is to be increased, includingstate of the environment and public health inlocations, where investment projects are to beimplemented. Top management of the recentlydismantled power monopoly, Unified EnergySystems (UES) understood this: Anatoly Chubaisthe CEO of UES, referred to replacement ofnatural gas by fuel oil as “technological,economic and environmental barbarism” 3 . In2006 increased burning of fuel oil led to increaseof atmospheric emissions by 11%.Environmental pollution occurs rightalong the chain from extraction, transportation,processing of fuel resources to production ofheat and power. The victims are people living insmall settlements adjacent to generatingfacilities, but also populations in cities, whereemissions by the energy sector and industrialfacilities are compounded by rapidly increasingtraffic emissions.4.1. Environmental pollutionin areas of fuel resourceextraction and transportationExtraction of fuel resources is one of themain causes of atmospheric pollution,contributing 27.1% of all stationary emissionsand exceeding emissions by the metallurgysector 4 . Main sources of emissions in fuelextraction are in the Khanty-Mansi AutonomousDistrict, Yamal-Nenets Autonomous District,Komi Republic, Kemerovo and OrenburgRegions (Table 4.1). Coal-mining cities and coalburningindustries are the leaders in solidatmospheric emissions: coal-mining Vorkuta(33,700 tonnes per year), Cherepetskaya powerstation in the town of Suvorov, Tula Region(33,500 tonnes per year). Vorkuta is also amongthe biggest emitters of hydrocarbons andvolatile organic compounds, together with fourcities in Kemerovo Region (Novokuznetsk,Mezhdurechensk, Leninsk-Kuznetsky andProkopyevsk), and two cities in the KomiRepublic (Ukhta and Inta).4.1.1. Extractionand transportationof crude oil. Pollutionof drinking water sourcesdue to pipeline accidentsRussia’s oil deposits are spread aroundthe country: in the Baltic, Timan-Pechora,Barents-Karsk, Okhotsk, Caspian, Yenisei-Khatanga, North-Caucasus, Volga-Urals, Lena-Tunguska, Lena-Vilyui, West-Siberian, Anadyr-Navarin and other oil & gas provinces. Totallength of oil pipelines owned by Transneft (theTable 4.1Total atmospheric emissions in extraction of fueland energy resources, 2007TerritoryKhanty-MansiAutonomous DistrictEmissions, thousand tonnesper year2085Kemerovo Region 798Yamal-NenetsAutonomous District789Orenburg Region 453Komi Republic 392Tomsk Region 246Samara Region 173Nenets AutonomousDistrict1363Environmental Aspects of Power Industry – Environmental Policy of RAO UES and its implementation – Conference speech, June 16 th ,20074Annual digest of ambient air emissions in cities and districts of the Russian Federation in 2007, R&D Institute for ambient air protection,St Petersburg, 2008, 204 p.75

oil pipeline monopolist) and its affiliatedcompanies is 48,700 km (as of June 2006).The threat of pollution exists at everystage of oil production, from geologicalsurveying to field construction, accidents atconstruction sites, and during fielddevelopment and transportation of crude oil.Pollution of drinking water sources byhydrocarbons poses a particularly seriousthreat to public health: if an oil well ‘drowns’,due to bad sealing or for other reasons, oil canpenetrate water horizons used for drinking orbathing. Oil products have already beendiscovered in fresh water at the Samotlor oilfield at depths of 180-200 meters, threateningthe water supply for the city ofNizhnevartovsk 5,6 , and the Voy-Vozh oil field hasbeen found to affect quality of drinking waterin underground water sources used for needsof the nearby town (oil products and phenolswere detected) 7 .Many pipelines are in a poor state ofrepair. More than 38% of crude oil pipelines and47% of oil product pipelines have been inoperation for over 30 years, and a further 75%and 80%, respectively, are over 20 years old 8 .Data published 11 years ago showed 40,000accidents at fields in Western Siberia alone 9 andit is natural to suppose that number ofaccidents will have risen as output levelsincreased in recent years. Oil field developmentin Khanty-Mansi Autonomous District haspolluted 70-80,000 hectares of land 10 , and theVozeysky oil pipeline accident in the KomiRepublic caused pollution over 60 km 2 . Largequantities of hydrocarbons may havepenetrated sources of drinking water as a resultof these accidents.It is almost impossible to findinformation regarding spillages on internetsites of oil companies, but media reportssuggest numerous accidents involving oilpipelines. There are reports of average 1900accidents each year at oil fields in Khanty-MansiAutonomous District 11 where principal aquifershave been polluted by constant leakages 12 . Theshare of water samples in the District, which failto meet sanitary norms, is as high as 53% 13 . Thesituation is comparable in Tomsk Region, wherepipe corrosion and intensified development ofoil fields have led to a spate of pipelineaccidents. Soil and ground water are pollutedby oil products and highly mineralized water;samples from northern rivers in Tomsk Region,where oil field development is concentrated,show levels of oil products and phenolexceeding maximal allowable concentration aswell as presence of hydrogen sulfide andmethane 14 . These toxins may also be present indrinking water. Until recently pollution ofdrinking water by oil products was not viewedby the medical community as a serious threatto health, but more detailed study has revealeda threat from strata water, which is also carriedin oil pipelines, and consists of a mixture ofcalcium-chloride mineralized water with5N.Ya,Krupinin, On environmental conditions in Nizhnevartovsk Region//Ways and means of reaching a balanced environmental andecological development in oil producing regions of Western Siberia // NDI works, Vol.1, Nizhnevartovsk, 1995, pp22-29.6I.V.Korabelnikov, A.I.Korabelnikov, Ecological and sanitary aspects of oil field drowning during oil extraction // Newsletter of the StPetersburg State Medical Academy -2005 – No.1(6) pp.83-85.7State Report: On environmental conditions in the Komi Republic in 2000, Ministry of Natural Resources and Environment of the KomiRepublic, RGUN-TSARIKS RK, Syktyvkar, 2001, p.1958V.V.Bushuyev, A.A.Troitskiy, Russia’s Power Strategy up to 2020 and reality. What next?, Teploenergetika, 2007, No.1, pp/2-8.9N.M.Davydenko, Environmental problems of Russia's Northern oil & gas producing regions, Novosibirsk, Nauka, Siberian establishmentsof the Russian Academy of Science, 1998, p.22410A.P.Sadov, P.P.Krechetov, S.S.Varuschenko, Environmental problems of hydorbarbon extraction enterprises // Environmental andindustrial security, 2008, No.12, pp.116-119.11Digest: Environment of Khanty-Mansi Autonomous District – Yugra, in 2003, Khanty-Mansiisk, 200412T.Ya.Kochina, G.I.Kushnikova, Pollution of geological environment with oil products - Environmental and medical impact // Hygieneand Sanitation, 2008, No.4, pp.23-2613N.G.Kashapov, A.A.Kazachikhin, Hygienic assessment of water procurement in the Khanty-Mansi Autonomous District – Yugra//Hygiene and Sanitation, 2008, No.5, pp.32-3414Environmental Monitoring. Environmental situation in the Tomsk Region in 2007, / Department of Natural Resources andEnvironmental Protection of Tomsk Region, OGU Oblcompriroda, Tomsk, Graphika, 2008, p.2476 National Human Development Report in the Russian Federation 2009

Box 4.1. The village of Kolvain Ussinsk DistrictA major pipeline accident in 1994caused oil pollution of the river Kolva.Immediately after the accident oil concentrationin the river was 0.15-0.40 mg/l, compared withmaximum allowable 0.05 mg/l. Dangerouslyhigh levels of phenols and chlorides were alsoregistered. A detailed medical study of childrenin the village of Kolva in 1997 found seriousdysfunctions of urinary and gastrointestinalsystems. The kidneys are particularly vulnerableto effect of polluted drinking water. The urine ofchildren in the village also contained abnormallyhigh levels of phenol, indicating oil productmetabolism in the body. After the accidentpeople in Kolva stopped eating fish, whichprovided vital nutrients (magnesium,microelements (some of them toxic ones) andradioactive nuclides. Oil phenols, whichpenetrate drinking water, are particularlydangerous, since they can produce cancerouschlorine-organic compounds when such waterit chlorinated.There has been very littleepidemiological research into impact of oilspills on sources of drinking water and publichealth in Russia, but research was carried outon impact of the Usinsk oil spill in the KomiRepublic (Box. 4.1).4.1.2. Coal extractionCoal production in Russia plummeted inthe 1990s, but output (including open-castmining) has begun to recover since 2000.Discharge of untreated waste water into surfacewater bodies has increased by 83% and untreatedatmospheric emissions are up by 62% 17 . Coalmining is concentrated in areas, which already faceenvironmental difficulties due to operation of thecountry’s largest metallurgy and chemicalphosphates, specific amino-acids andunsaturated fatty acids). Dietary imbalances andlack of plant products (vegetables, fruit, berries)weakened immunity levels. Statistics showshigher incidence of illnesses of the digestivesystem among both adults and children in Kolva,compared with populations in other parts ofUsinsk District. High incidence of gastritis isspecific to children in the village 15 .Contamination of the environment withoil products also impacts the traditional lifestyleof indigenous peoples, which is based onfishing. An oil tanker accident near the Osinkiarchipelago and the coast of the Onegapeninsula in Arkhangelsk Region upset bioresourcesin the White Sea. Impact on localfishing communities, which depend on theseresources, has not been measured 16 .enterprises. Over 50% of Russia’s coal is mined inKemerovo Region (Kuzbass), and other large coalmining facilities are located in KrasnoyarskTerritory, Komi Republic, the Republic of Sakha(Yakutia) and some other regions.Pollution in populated areas is due tooperation of underground mines and open pits,and also to liquidation of unfeasible coalproduction facilities. Kemerovo, where coalmining is the dominant industry in eight cities,is the best-researched region. The atmospherein Kemerovo’s cities is polluted by particulatematter, and drinking water is contaminated bymetals. Locally produced food has excessiveconcentrations of lead, cadmium, mercury, andarsenic. Comparative environmental analysis ofKemerovo’s mining towns found highest levelsof air pollution in Belovo, followed byProkopyevsk and Osinniki, and then Kiselevsk,Berezovskiy, Leninsk-Kuznetskiy, Anzhero-Sudzhensk and Mezhdurechensk. Public healthproblems in these cities reflect adverseindustrial factors and air pollution, whichaccounts for 5.8-14.3% of newly diagnosed15B.A.Revich, Hot spots of chemical pollution and public health in Russia, M, The RF Public Chamber, 2007, p.19216A.A.Nenashev, Environmental aspects of oil and oil product transportation in Arkhangelsk Region // Human Ecology, 2005, No.12, pp.37-4117A.A.Kharitonovskiy, Yu.A.Tolchenkin, The status and primary vectors of environmental protection in the coal industry // Coal, 2008 No.2,pp56-5977

Box 4.2. Ambient air pollutionand public health in coal-miningcities of the Kemerovo RegionProkopyevsk (population 213,200) 19 isa large coal mining center. It used to have 17mines and 5 coal concentrate plants. The coalindustry produces up to 82% of all emissionsin the city. Ambient air within city limits hashigh concentrations of nitrogen dioxide (3times the Russian legal limit); benzopyrene (3.8times), and particulate matter (2.1 times) 20 .Children living in the worst polluted citydistrict had an abnormally high rate ofrespiratory diseases. In Leninsk-Kuznetskiy(population 105,400) there is a proven excessillnesses and 4-19% 18 of mortality. KemerovoRegion saw a 19.4% increase rise in diseaseincidence and 19.7% increase in mortality in1993–2006 (Box 4.2).People living in mining cities have tocope with unemployment and labor marketdifficulties in addition to environmentalpollution, raising stress levels and putting morepressure on public health.Liquidation of underground miningfacilities also endangers drinking water sources,and preventive steps were taken at 51 mines,which closed in 1994–1998, in order to protectwater sources 22 . Technical wear of equipment,and inadequate repair and reconstruction workon waste treatment facilities leads to methaneand carbon emissions from underground mineworkings and rising levels of ground water 23 .Closure of unprofitable workings in PermTerritory, another Russian coal mining region, ledto atmospheric pollution by mine dust and coalash, as well as worsening of drinking waterof premature deliveries, fetal deaths, childhealth anomalies and infant disease comparedwith the regional average 21 .Pollution in Kemerovo’s cites is alsocaused by dust rising from polluted soils,which makes land reclamation highlyimportant. According to the regionalDepartment of Natural Resources andEnvironment, there are more than 180,000hectares of unreclaimed land in Kemerovo,which is 10 times more than the nationalaverage As much as 20-27% of all land inKiselevsk and Prokopyevsk is unreclaimed.Coal mining companies sometime try to avoidresponsibility for land reclamation.quality. Pollution in the region causedaggravation of bronchial asthma among children,forcing increased spending on treatment 24 .Owners of ageing coal-powered powerstations are trying to reduce environmentalimpact by full or partial changeover to naturalgas, which lowers emissions of solids, sulfphurand nitrogen dioxides, and lowers ash and slagwaste, but this approach looks unpromisingbecause increasing natural gas prices make gasgeneratedpower uncompetitive. Investments toupgrade outdated facilities also lack feasibility asa way of solving environmental issues, due toshort residual life periods. The proposal, instead,is that all fuel oil and coal-dust boilers, which aretransferred to natural gas, should undergo workto reduce nitrogen oxide emissions. Such work(reduction of excessive air input, offstoichiometriccombustion, simplified two-stagecombustion) does not require capitalinvestments and, if properly executed, does notworsen boiler performance. Boilers that will18V.A.Zenkov, Hygiene problems in Kuzbass mining towns, abstract of a thesis for a Doctor of Medicine degree, 2000, p.4219Russia's Regions. Main social and economic indexes of Russian cities. 2008. Statistical Digest / Rosstat, M. 2008, 378 p.20Report on the sanitary and epidemiological situation in Kemerovo Region in 2005, Kemerovo, 200621Yu.F.Kaznin, A.S.Krasnov, Health status of pregnant women and new-born children in cities with developed coal industry //Environmental issues of the development of Kuzbass coal deposits, Novokuznetsk, 1991, p.43.22A.Ye.Agapov. Analysis of work during liquidation of unfeasible coal mines and open pits in 2008 // Coal, 2009, No.3, p.3-6.23V.A.Zenkov, E.A.Lodza, Sanitary and epidemiological support for restructuring of the Kuzbass coal industry // Public health and humanenvironment, 2001, No.9, pp. 32-3424S.V.Farnosova, Hygiene assessment of the combined influence of social and industrial factors on contraction and course of childbronchial asthma (based on data from depressive coal mining regions in Perm Territory), abstract of a thesis for a Doctor of Medicinedegree, Perm, 200878 National Human Development Report in the Russian Federation 2009

continue to use solid fuel for a long period oftime (mainly coal power stations in Siberia andeastern Russia) require a different approach.Choice of the reconstruction option should bebased on the expected period of service 25 .Combustion of coal in fluidized-bed boilers willenable use of low-grade and high-ash coals.Improvement of fuel quality – enrichment,pelletizing and other approaches – is also anoption.Any project for construction orreconstruction of coal-fired power plants shouldbe approached with great caution, takingmaximum account of existing environmentalconditions and proposed new environmentalstandards of WHO, the European Commissionand other international organizations.Installation of coal-fired combined heat & powerplants (CHPs) near cities has already elicitedprotests: planned construction of a CHP nearZheleznogorsk in Krasnoyarsk Territory isopposed by local people who fear pollution of airand underground water 26 .In the north-western Kaliningrad Region,local people have voted against construction of aCHP using coal from Kemerovo near the town ofSvetly 27 .There is an investment program fortransferring large fuel-fired condensing powerplants (CPPs) and CHPs from coal to naturalgas. The stations concerned are:Verkhnetagilskaya (generator #12), Kashirskaya(generator #3), Troitskaya, Serovskaya, andKharanorskaya. However, plannedchangeovers of Shaturskaya-5, Ryazanskaya,Novo-Bogoslovskaya, and Verkhnetagilskayafrom coal to gas have been delayed.Cherepetskaya,Novocherkasskaya,Astrakhanskaya, Omskaya stations will burnmore coal and proposals have been made forconstruction of large coal-powered CPPS andCHPs in Murmansk, Tambov, Rostov, Volgograd,Sverdlovsk, Irkutsk, Kemerovo, Novosibirsk,Omsk, Tomsk, Sakhalin Regions, the Republicsof Mordovia, Buryatia, and Udmurtia, Trans-Baikal and Khabarovsk Territories.There is currently a freeze onconstruction of thermal power plants (TPPs,which are smaller coal-fired power stations),including the Medvezhyegorskaya,Novgorodskaya, Kaluzhskaya, Petrovskaya andAbagurskaya projects, in favor of expansion ofexisting TPPs (Smolenskaya, Reftinskaya,Yuzhno-Uralskaya and Kemerovo). This isundoubtedly positive from an environmentalviewpoint. Commissioning of a coal-poweredunit at an existing TPP takes 3-4 years, whileconstruction of greenfield stations requires 5-8 years. So that mass development of coalfiredgeneration will not go ahead in Russiabefore 2020–2025 at the soonest. Applicationof modern coal combustion technologies maybe feasible by that time.4.1.3. Oil & gas pipelinesand threats of highlydangerous infections dueto climate warmingin Arctic regionsGlobal warming, particularly in Arcticregions, brings a threat of deformation inpermafrost zones. The total permafrost zone isexpected to shrink by 10-12% in the coming 20-25 years and its border will move by 150-200km to the north-west 28,29 . Risk of damage toinfrastructure located in the permafrost zonehas been assessed using a permafrost hazardindex, which is highest in Chukotka, the coastalarea of the Karsk Sea, in Novaya Zemlya and inthe northern part of European Russia. Globalwarming creates a real risk of damage to burial25A.G.Tumanovskiy, V.R.Kotler, Possible environmental solutions for heat & power plants // Teploenergetika, 2007, No.6, pp. 5-1126www.eprussia.ru/epr/98/7259)/27www.rambler.ru/news/0/0/1103450528O.A.Anisimov, M.A.Byelolutskaya, Assessment of the impact of climate change and permafrost degradation on infrastructure innorthern regions of Russia // Meteorology and Hydrology, 2002, No.6, pp. 15-2229O.A.Anisimov, A.A.Velichko, P.F.Demchenko, A.V.Yeliseev, I.I.Mokhov, V.P.Nechayev, Climate change impact on the permafrost in thepast, present and future // Atmosphere and Ocean Physics, 2004, No.1 (volume 38), pp. 25-3979

Table 4.2Main carcinogenic and non-carcinogenicsubstances in refinery emissionsSulfur dioxideВеществоNitrogen dioxideNitrogen oxideManganese andManganese compoundsKeroseneSaturated hydrocarbonsС 12 -С 19 (per commonhydrocarbons)Hydrogen sulfideBenzolSootCarcinogenicsubstancesImpactsRespiratory system,mortalityRespiratory system, bloodRespiratory system, bloodRespiratory system, centralnervous system (CNS)LiverRespiratory system, organsof vision, liver, kidneys, CNSRespiratory systemImpactsHaemopoietic systemRespiratory systemareas for cattle, which died of anthrax.Construction of new or repair of old oil & gaspipelines close to such areas adds to the threatof infection of human populations. There areover 200 such areas in the Republic of Sakha(Yakutia) alone 30 .4.2. Oil & gas refining territoriesWhile coal extraction and processing areusually located next to each other, oil & gas fieldsare typically located thousands of kilometers awayfrom the places where outputs are processed.4.2.1. Oil Refineries –Impact on Public Healthand EnvironmentRussia currently has 28 large oil refineries,over 80 small-scale refineries and 20 more smallscalefacilities under construction. Theserefineries process crude oil into gasoline,kerosene, fuel oil, diesel and jet fuel. Many largerefineries are located inside cities with high levelsof pollution: Angarsk, Achinsk, Volgograd, Kirishi,Komsomolsk-on-Amur, Kstovo, Moscow,Nizhnekamsk, Novokuibyshevsk, Omsk, Rostovon-Don,Ryazan, Syzran, Tomsk, Ufa, Khabarovsk,Yaroslavl, etc. These cities have other majorsources of pollution in addition to oil refining.The refining process has significantenvironmental impacts, and localities aroundFigure 4.1Average annual Benzol concentrations in ambient air,Omsk (Roshydromet station No.26), mkg/m 33112010080604020025,569,260,651,230,5401101007831191511 131993 1995 1997 1999 2001 2003 2005 20078 8Russian limit(100 mkg/m 3 )WHO recommendedlimit (5 mkg/m 3 )New WHOrecommended limit(1.7 mkg/m 3 )30B.M.Kershengoltz et al., Dangerous infections in the Republic of Sakha (Yakutia) // Climate Change Impact on Public Health in the RussianArctic, United Nations Office in the Russian Federation, 2008, pp. 24-2531Atlas: Ambient air and public health in Omsk Region, Omsk, 200880 National Human Development Report in the Russian Federation 2009

Box 4.3. Ambient air pollution andpublic health in NovokuibyshevskNovokuibyshevsk (Samara Region) is acity of 112,000 people with an oil refinery and anumber of other petrochemical and chemicalproduction facilities. The city has a centralizedwater supply system, fed by ground water.Depreciation of the municipal water pipelinesystem (150 km long in total) is 70%. The existingmonitoring system does not provide adequateinformation on the state of ground water,particularly near sources of pollution, and it isimpossible to forecast negative impacts onground water, develop preventative actions, orlocalize and eliminate sources of pollution. Somewater drawing facilities are located close to therefinery. Monitoring found significant quantitiesof oil products in ground water within theperimeter of the refinery, as well as in thetownships of Russkiye Lipyagi and ChuvashskiyeLipyagi. Water for drinking and household usedoes not meet existing hygiene norms. Drilling,extraction, transportation and storage of crude oilgenerate oil and drilling sludge, and wastewatersfrom oil extraction and processing facilitiespenetrate ecosystems, polluting them with oilproducts and other chemical compounds. This hasmany of the facilities listed above have hadserious pollution problems in the past. Emissionscontain a wide range of toxic organic substances,the most hazardous of which are carcinogenic,including benzol, carbon dust, formaldehyde andbenzopyrene (Table 4.2).Benzol pollution in the atmosphere isvery hard to estimate. The problem is that thedetection method used by the Russian StateHydrometeorological Service (Roshydromet)has minimum sensitivity of 20 mkg/m 3 ,reflecting Russia’s daily upper limit of 100mkg/m 3 for benzol concentrations in air.However, the WHO recommends a muchalready led to salination and loss of soil fertility,and contamination of vegetation. Oil productshave been detected in soils at allotments and incrops (onions, strawberries and oats) that aregrown there. Oil product concentrations in soil inthe city are up to 200 mkg/m 3 compared withprovisional limits of 15 mkg/m 3 32 set by theNatural Resources Ministry.Risk assessment shows that the biggestcarcinogenic threats are from atmosphericconcentrations of 1.3 butadiene, benzol,formaldehyde, chloroform, acetaldehyde andsome other substances, while the main noncarcinogenicthreats are from nitrogen oxides,gasoline, etc 33 . Novokuibyshevsk is worse affectedby diseases of the CNS, sensory, respiratory anddigestive systems among children than othertowns and cities in the Region and only 8.5% ofchildren, who have been examined, were rated ashealthy 34 . Child health abnormalities are due toother industries located in the city as well asimpact of refining operations. Order No.295 of theState Environmental Committee(Goskomekologiya), dated May 25 th , 1999,confirmed the Report of a State EnvironmentalCommission, which rated Novokuibyshevsk as anenvironmental emergency area.stricter annual norm of 5 mkg/m 3 and this maybe further reduced to 1.7 mkg/m 3 due to thecarcinogenic effect of benzol and acceptablerisk criteria. This new recommendation is basedon the individual risk of leukemia throughoutlife (70 years). The low concentrations,recommended by WHO, cannot be detectedusing methods available in Russia, but weatherstations sometimes detect benzolconcentrations as high as 290 mkg/m 3 . Benzolconcentrations are constantly monitored by 74stations in 23 cities, but the results fail to showreal pollution levels or to specify zones withhazardous levels of carcinogenic risk .32Atlas: Ambient air and public health in Omsk Region, Omsk, 2008N.M.Tsunina, Hygiene assessment of the environment of the territorial industrial complex // Hygiene and Sanitation, 2002, No.4, pp.15-1733Priorities in main environmental protection actions in Samara Region based on cost-efficiency of health risk reduction., M., 1999, 209p.34G.A.Makovetskaya, T.Yu.Savirova, O.N.Gerasimova, The role of the environmental factor in child health // Environment and human health.Thesis at the 2 nd practical science conference, Samara, 1995, pp.61-6281

Box 4.4. Gas exploration andprocessing – public health risksAstrakhan Region has large discoveredreserves of natural gas with high content ofhydrogen sulphide (H 2 S), so the Astrakhan GPCproduces sulphurous gas emissions. Gas pipelineaccidents during initial stages of operationreleased untreated gas into the atmosphere,killing several workers. Releases of untreated gassometimes still occur due to well blow outs. Gasand condensate processing at the GPC alsoproduces pollutants. Concentrations of H 2 S in airhave fallen over time thanks to improvement ofindustrial processes, reduction of accidentalemissions, commissioning of a Sulphrentreatment unit and environmental measures.Children living near the GPC have developmentabnormalities, psycho-emotional problems,functional disorders of the cardiovascular system,visual system, CNS, ear, nose & throat, and areWe will take monitoring data fromOmsk, where several oil refineries are located,as an example of benzol pollution. Figure 4.1shows benzol concentrations in ambient air ofthe city’s northern district for the past 15 years.During that period the concentration hasseriously exceeded WHO recommendationsand this situation has not yet been fullyrectified.Oil refinery operations pollute theatmosphere, and they also affect ground water,soils, and crops. This is illustrated by data fromNovokuibyshevsk (Box 4.3).4.2.2. Impact of gas processingfacilities on air qualityand public healthThe most comprehensive studies ofenvironmental pollution by natural gasmore prone to illness than children in a controlarea 35 . Local people used to complain of badsmells from sulfurous compounds in theatmosphere. Pollution levels around the GPC havebeen considerably reduced more recently.Staff of the Orenburg Medical Academyhave found acute toxicity from sulphurouscompounds at the Orenburg gas condensatefield (the largest in Russia) due to accidents atthe field’s processing plant or along pipelines.Schoolchildren who live in communities closeto the extraction, primary processing,transportation and gas production area, andalso near to the Orenburg Gas Processing Plant,suffer from external respiratory disorders, higharterial blood pressure, difficulties withconcentration, and low scores on psychophysiologicaland physical developmentindexes compared with other children living inOrenburg Region 36,37 .production and processing and its impact onpublic health have been carried out in Astrakhanand Orenburg Regions (Box 4.4). Children aremost at risk. Installation of modern treatmenttechnologies enables large reduction ofemissions, as demonstrated by the Astrakhan GasProcessing Complex (GPC).There have been several protests bylocals against construction of liquefied naturalgas (LNG) facilities due to concerns aboutpossible accidents at the plants or spillages fromLNG tankers at sea.4.3 Public health risks related topower and heat generationElectricity, gas, steam, heat, and hotwater are all essential for householdinfrastructure in Russia. They are produced35A.I.Plotnikova, Clinical and immunological specifics of child health in the area affected by the Astrakhan GPC, abstract of a thesis for aDoctor of Medicine degree, Orenburg, 199436V.M.Boev, S.V.Perepelkin, G.N.Zheludeva, N.P.Setko, L.A.Barkhatova, Hygiene aspects of air pollution by sulphur compounds // Hygieneand Sanitation, 1998, No.6, pp.17-1937I.L.Karpenko, V.V.Utenina, N.D.Osadchaya, S.V.Perepelkin, V.V.Shkunov, Hygiene assessment of physical and psychophysiologicaldevelopment of children living in the area affected by emissions from the Orenburg Gas Extraction Complex// Hygiene and Sanitation,1998, No.6, pp40-4382 National Human Development Report in the Russian Federation 2009

either by large power generating facilities (CPPsand CHPs), or by small boiler facilities, oftenlocated among residential buildings. In Russiacoal is used by 143 thermal power plants (TPPs),while the number of small boiler-housesrunning on coal is unknown, but must run intotens of thousands. Public health risks fromthese operations are determined by manyfactors, but mainly depend on fuel type, heightof chimney stacks, local climate, and proximityto residential areas. In Russia coal is used forpower generating purposes mostly in Siberiaand the Far East, often in territories with astrongly continental climate, which limits selfcleansingin the atmosphere (Table 4.3). Inthese conditions even small-scale emissionscan cause air pollutants to accumulate andreach high concentrations. In Abakan, Barnaul,Blagoveshchensk, Gorno-Altaisk, Krasnoyarsk,Kyzyl, Chita, and Ulan-Ude up to 70% of all heatgenerating facilities use solid fuel andemissions by power-generating units accountfor 50-60% of all air pollution from stationarysources. The average concentration of solidparticles in the air of cities in the eastern partof Russia is 30% higher than in European Russia(143 and 100 mkg/m 3 , respectively).Presence of coal-fired power plants withobsolete technologies in depressive regions withlow HDI and high levels of air pollution (Table 4.3and Appendix 4.1) adversely affects the social andeconomic situation. Six out of ten Russian regionswith lowest HDI are mainly reliant on coal for fuel(Republic of Buryatia, Amur Region, JewishAutonomous District, Trans-Baikal Territory, Altaiand Tyva Republics) and life expectancy theredoes not exceed 60.9 years, which is 4.4 yearslower than the national average.The role of air pollution in mortality hasbeen assessed in Ulan-Ude, where emissions bya coal-fired heat & power station have led tosevere pollution of ambient air with solidTable 4.3Fuel-fired power stations and boiler facilities ofUES by the share of coal in fuel inputs(consumption of fuel equivalent as per Rosstatrecording form RAS-T2), 2007Share of coal intotal fuel, %Up to 2020-50Over 50RegionVologda, Ivanovo, Kaliningrad, Kirov,Kurgan, Moscow, Ryazan, TomskRegions, Republic of Karelia, KomiRepublic, Republic of UdmurtiaArkhangelsk, Murmansk, Tula,Chelyabinsk, Sverdlovsk, RostovRegionsAmur, Irkutsk, Kemerovo, Magadan,Novosibirsk, Omsk, Sakhalin Regions,Altai, Trans-Baikal, Krasnoyarsk,Primorsky, Khabarovsk Territories,Chukotka Autonomous District,Republic of Buryatia, Republic of Sakha(Yakutia), Republic of Tyva, Khakassiaparticles. Researchers using risk assessmentfound that mortality associated with solidparticle pollution was 17% of total mortality 38 ,while the national average is about 2%.According to Roshydromet data, approximatelythe same level of ambient air pollution is foundin Chita, Blagoveshchensk, Magadan, Yuzhno-Sakhalinsk and some other Siberian and FarEast cities.Russian coal-fired power units haverelatively low capture, transportation, storageand utilization of carbon ash and slag, andrelatively high pollutant emissions. Emissionsof fine suspended solids and SO 2 by manyRussian coal-fired generating units are about 10times higher than at coal-fired power stationsin the European Union 39 . Fine particles38A.B.Boloshinov, L.V.Makarova, Assessment of the adequacy of industrial ambient air monitoring systems for the purpose of assessingpublic health risks / Assessment of health risks caused by adverse environmental conditions, experience, challenges and solutions.Records of the All-Russian practical science conference (October 23-25, 2002, Angarsk), part 1, p.7939D.A.Krylov, E.D.Krylov, V.P.Putintseva, Estimates of ambient air emissions of SO2, NOx, solids and heavy metals from operation of coalpoweredheat & power plants using coal from the Kuznetsk and Kansko-Achinsk basins // Nuclear Power Bulletin, 2005 No.4, pp. 32-3683

(between 10 and 2.5 microns) are particularlyhazardous to human health, and WHO istightening limits on maximal allowableconcentrations. Mortality from air pollution isusually associated with solid particles. Aspecialist in dust pathologies, B.T.Velichkovskiy(Member of the Russian Academy of MedicalScience), dust particles make body cellsrequired more oxygen, leading to ‘respiratoryexplosion’, but the extra oxygen consumed isused neither for energy, not for tectonic needsof the cells. Fine suspended solids inside thehuman body cause excessive production ofchemically active free radicals, provokingaseptic inflammation of respiratory organs.Such inflammations cause chronic diseases ofthe respiratory organs, particularly amongchildren and the elderly, including pulmonaryhypertension or pulmonary heart conditions,and account for up to 80% of all deaths frombroncho-pulmonary pathologies 40 .4.3.1. Large generating companiesPower generation facilities producingelectricity and heat, which used to beBox 4.5. Cherepetskaya condensingpower plant: ambient air qualityand modernization plansCherepetskaya CPP, which burns highqualitycoal from the Kuznetsk Basin (Kuzbass),is a source of ambient air pollution in the townof Suvorov (population 28,000) in Tula Region.The station’s boilers emit carbon, sulphur andnitrogen oxides, a series of aromatic polycyclichydrocarbons, vanadium pentoxide, coal ash,fuel-oil ash, which contain a number ofmicroelements, some of which are toxic. Coaldust is emitted from coal delivery areas duringloading-unloading procedures although theareas are equipped with aspiration traps.Design documentation for two new powerincorporated in RAO UES, are now owned by anumber of nationwide and territorialgeneration companies. In 2005 the Board of UEScommitted to implementing an environmentalpolicy, which would reduce emissions andwaste water discharges. However, the policy didnot include any analysis of the environment andpublic health situation in areas where CPPs andCHPs are located, though the effect of emissionson public health depends to a large extent onmicroclimate, self-cleansing abilities of theatmosphere, presence of other hazardousindustrial facilities, the social and economicsituation, and some other factors specific to thelocation of each generating facility. As statedabove, coal-fired generators represent thebiggest threat to the environment and publichealth. Of all Russia’s large CPPs, 16 arecompletely or partly coal-fired. Coal alsorepresents nearly 100% of fuel inputs atApatitskaya, Intinskaya, Vorkutinskaya-2,Severodvinskaya CHPs, Cherepetskaya CPP, andthe experimental CHP in Rostov-on-Don. Morethan 30% of inputs are coal atNovocherkasskaya, Cherepovetskaya,Vorkutinskaya-1 and Kumertau CHPs, and alsogenerating units envisages up-to-datecirculating fluidized-bed coal burningtechnologies, which dramatically reduce toxicpollution, as well as an electrostatic filteringunit with 99.7% efficiency rating and a flue-gasdesulphurization (FGD) unit with a 90%efficiency rating. After its reconstruction,Cherepetskaya CPP will be the first generator inRussia to use the latest coal burningtechnology. It is unfortunate that the existingsystem of air quality monitoring fails to measurepollution by particularly toxic fine particles, butcomparison of total concentration of particulatematter around the Plant with WHO 40 safetynorms indicates that ambient air quality up to4 km from the station is unsatisfactory.40B.T.Velichkovskiy, Pathogenic impact of peak increases of mean daily concentrations of particulate matter in populated areas. Hygieneand Sanitation, 2002, No.6, pp. 14-1641European air quality recommendations / Translation from English, M. Ves Mir Publishing House, 2004, 312p.84 National Human Development Report in the Russian Federation 2009

Box 4.6. A city at riskNovocherkassk (population 177,000)was rated by the State Environmental ExpertiseCommittee as an environmental problem zonein 2000. The city climate is characterized byfrequent periods without wind and long-lastingfogs, aggravated by temperature inversions,making Novocherkassk particularly susceptibleto air pollution. Mean annual concentrations ofthe main pollutants – formaldehyde, particulatematter, benzopyrene – have exceeded Russianmaximal allowable concentration by 3.0, 1.2 and10.1 times, respectively. Maximum short-termconcentrations were higher than allowablelevels by 8.2 times for CO, 5.4 times for NO 2 , 3.9times for H 2 S and formaldehyde, 4.4 times forparticulate matter, and 2.9 times for SO 2 andat the Ryazan and Kashira-4 CPPs. Emissions atseveral CPPs rose in 2008.Environment quality in areas where theseplants are located varies significantly. In somecases (Novocherkasskaya, Rostov-on-Don,Ryazanskaya, Tom-Usinskaya) emissions aredeclining thanks to use of coal with lower sulphurand ash content, improvement of ash traps, andintroduction of fluidized-bed combustiontechnology. This technology will also be used intwo new power units to be built at theCherepetskaya Plant (Box 4.5).Most large generating plants arelocated near small settlements and high stackssend emissions far away from localcommunities, but a number of plants arelocated inside cities, where negative impactfrom power generating is often combined withpollution by other local industrial facilities,including pollution of drinking water. This haslong been the case at Novocherkassk (RostovRegion), where high levels of pollution fromparticles and carcinogenic benzopyrene arecaused by a CPP and by the world’s largestelectrode plant (Box 4.6).Unlike CPPs, CHPs are usually locatedinside towns or cities and therefore pose aphenol. The highest registered mean monthlyconcentration of benzopyrene was 35.2 timeshigher than the permitted maximum 42 .Emissions by Novocherkassk PowerPlant will decline to some extent thanks tointroduction of circulated fluidized-bed coalburning technology. Impact of polluted air onpublic health in the city is combined with highlevels of water pollution due to merger of theSeverniy Donets river with the Don riverupstream from collectors, which supply thecity with water: the Severniy Donets is pollutedby discharges from chemical facilities inUkraine. Water supplied to households istreated with chlorine and presence ofcarcinogenic chlorine compounds is aboveallowable concentration.greater threat to local populations than theformer (Appendix 4.1). Most coal-fired CHPs arelocated in the Urals, Sverdlovsk andChelyabinsk Regions, as well as in KemerovoRegion, Perm Territory, Irkutsk, Chita Regionsand some other regions of Siberia and the FarEast. CHP-22 (Dzerzhinskiy, Moscow Region)still uses coal, but installation of newelectrostatic filters, which trap of up to 99% ofsome pollutants, reconstruction of the coalstorage area (now underway) and a number ofother environmental measures havesignificantly reduced the plant’s threat topublic health. NO 2 remains the main toxin inPlant emissions, but high levels of thiscompound are mostly localized outsideresidential areas.CHP-9 in Perm used to burn coal, but wasswitched to natural gas due to the threat posedto a city district. A court has ordered reduction ofemissions at the Kemerovskaya CHP.4.3.2. Health risks fromcoal burning in citiesThe share of coal in the fuel balance ofsmall heat & power generating facilities,42State Environmental Expertise Committee Report, February 22, 200085

operated by housing utilities, is only 13%, butheat & power plants and boiler facilities areoften located adjacent to residential areas,causing a health risk. More of these facilitiesmay now be switched from natural gas to coal.The most detailed research into impact of suchdecisions on the environment and publichealth has been carried out in the city ofNovgorod, which is currently supplied by CHP-20 and by municipal and industrial boilerfacilities. Increase of the share of coal in thecity’s energy balance, including coal burning atthe CHP would greatly increase air pollutionrisks. Mortality caused by particulate matter(PM 10 ) and SO 2 emissions could almost double;disturbances of the lower respiratory passagesamong children would triple and bronchitisamong children would rise by 15%; incidenceof acute bronchial asthma would rise by 35%,and carcinogenic risks due to soot emissionswould be 30% higher than at present. Theauthors therefore believe that the proposedinvestment project for reconstruction of themunicipal heating system and changeover ofCHP-20 to coal is hazardous for the localpopulation 43 . Implementation of thisdangerous project has currently beenpostponed.Researchers of the KrzhizhanovskiyEnergy Institute and the Kurchatov Institute(Russian Scientific Center) have carried outcomparative analysis of health risks fromemissions produced by burning varioustypes of coal 44 . Economic damage caused bysuch emissions was estimated for severalTPPs in European Russia (Kashira, Ryazan,Shatura). Impact is shown in volume termsas units of specific pollutants (1 kg or 1tonne) and per unit of generated power(1 KWh or 1 MWp.a.). Impacts werecalculated based on specific emissionindexes shown in Table 4.4.Table 4.4Emissions of TPPs using various types of coal (g/KWh) 45,46TPP Coal Ash, total SO 2 NO x ** SolidsMoscow brown 240 54 2.2 10.0Donetsk hard coal 100 22.0 2.8 4.0OperatingKansko-Achinsk brown 30 2.6 1.5 1.2Ekibastuz 250…420 11.5 3.6 10.0…17.0Kuznetsk hard coal 80 3.3 2.5…3.7 0.8…3.3***Planned* Kuznetsk hard coal 80 0.7 2.0 0.4…0.8* Technical requirements for new TPPs** For comparison: emissions of gas-fired TPPs are 0.4g/KWh***Particle trapping index (96-99%)43S.L.Avaliani, V.A.savin, A.A.Golub et al. Additional benefits from implementation of the Kyoto Protocol. Velikiy Novgorod // ClimateChanges – the Russian View / Chief Author V.I.Danilov-Danilyan, M., TEIS, 2003, pp.355-38144M.A.Kulikov, E.I.Gavrilov, V.F.Demin, I.E.Zakharchenko, Health risks caused by power plant emissions // Teploenergetika, 2009 No.1,pp.71-7645V.F.Demin, A.P.Vasilyev, D.A.Krylov, Procedures and methods of comparative assessment of environmental risks from various methodsof electric power generation // The challenges of assessing surface and ground water pollution by the fuel & energy sector: coll. of sci.pap. / OJSC Gazprom; VNIIGAZ LLC, M., 2001, pp135-14546D.A.Krylov, E.D.Krylov, V.P.Putintseva, Estimates of ambient air emissions of SO 2 , NO x , solids and heavy metals from operation of coalfiredheat & power plants using coal from the Kuznetsk and Kansko-Achinsk basins // Nuclear Power Bulletin, 2005 No.4, pp. 32-3686 National Human Development Report in the Russian Federation 2009

In order to assess impact of theseemissions on public health the authors usedeconomic impact parameters from materialsof the Coordination Council of the RussianMinistry for Atomic Energy, which are usedfor risk assessment in the nuclear sector 47(Table 4.5).As shown in Table 4.6 economic impactfrom coal burning is quite high compared withimpact from gas burning. Commissioning of newcoal-fired generating facilities will increase thenegative impact on public health.The authors of this interesting researchconclude that public health impact from plannednew coal-fired TPPs is 2.5 times lower than thatof units that are already operating, but muchhigher than impact of gas-fired stations(Table 4.7).4.3.3. The hydropower sectorTable 4.5Economic parameters of risk assessmentHealth riskReduction of lifeexpectancyImpact unitCost perimpact unit,rubles1 man-year 600.000Chronic bronchitis 1 disease 1.500.000Days lost due to illness 1 day 1.000have impact on health. There is also a dangerof migration by infected animals anddischarge of toxic chemical substances andindustrial waste.The hydro-electric sector istraditionally regarded as the most acceptablesource of power generating as regards impacton public health. However, health risks fromconstruction of giant water dams have beenlittle studied. Such construction projectscause high levels of stress among localpeople, who must choose whether to live nextto the facility or move away. Such stress mustTable 4.6Mean specific values of public health impact per tonne of pollutants 444.4. Summaryand recommendationsDevelopment of the energy sector inRussia must take account of both the existingsituation in various regions and newenvironmental directives of WHO, EU andother international organizations. Many fuelproduction and power generating facilities arePollutantLife expectancy lossMean specific impact in natural units, gChronic bronchitis,N illnesses / m.t.Morbidity rate,N days / m.t.Mean specific impactβ, 10 3 rubles/tonne.MR CR OR MR CR OR MR CR OR MR CR ORParticles 0.08 0.03 0.026 0.020 0.010 0.006 8.5 3.0 3.0 90 36 25NO x 0.16 0.07 0.018 0.037 0.020 0.004 19.0 7.0 2.1 170 80 19SO 2 0.11 0.04 0.013 0.025 0.012 0.003 13.0 5.0 1.4 120 47 13N illnesses – number of chronic bronchitis cases; N days – number of days lost to illness; MR – Moscow Region; CR – Central Russia;OR – Omsk Region47I.L.Abalkina, V.F.Demin, S.I.Ivanov et al., Economic parameters of risk assessment for calculating damage to public health due to varioushazards // Risk assessment challenges, 2005, Vol.2, No.2, pp 132-13887

Table 4.7Mean values of public health impact, Rubles/KWh 44PollutantPlants in Moscow RegionPlants in Central RussiaOperating Planned Operating PlannedPowered by Kuzbass coalSolids 0.30 0.05 0.12 0.008NOx 0.50 0.33 0.24 0.160SO 2 0.40 0.08 0.16 0.034Total 1.20 0.56 0.52 0.202Powered by natural gasNOx 0.07 - 0.03 -located in populated areas with high levels ofpollution and some are in locations, whichhave been declared environmental emergencyzones. In the past human populations wereconcentrated along rivers, in favorableenvironmental conditions. Nowadays,however, Russia exploits vast fuel deposits,and the country is covered by a network of oil& gas pipelines, so that the workingpopulation often lives and works ininhospitable areas.It is hard to obtain accurate informationabout levels of pollution in areas where the fuel& energy industry is mainly concentrated. Thearchaic system used by Roshydromet does notallow measurement of ambient air quality inaccordance with parameters used by developedcountries or recommended by WHO. There areno hygiene norms for ambient air concentrationsof particularly hazardous fine particles, but evenif such norms are adopted by the relevantgovernment agency (Rospotrebnadzor) onlyMoscow and St.Petersburg have a system, whichcan carry out such measurements. There isalmost no information on concentrations of oilproducts, phenols and other toxic substances indrinking water in areas where oil spillages andpipeline accidents have occurred. The situationis no better as regards measurement of ambientair pollution with carcinogenic benzol: existingmethods of measurement are not preciseenough.Assessment of fuel & energy sectorimpacts on public health is a difficult task. Ourestimate is that air pollution accounts for up to3% of mortality in the urban population, ofwhich 15-20% is contributed by the fuel andenergy sector. In some areas, where airpollution is high due to presence of coal-firedpower generators, that share could be as highas 30-40% of all mortality due to air pollution.Changeover to coal of CHPs, which have shortstacks and are located inside residential areas, isunacceptable unless up-to-date coal burningtechnologies are used.More efficient coal burning andreduction of its impact on the environmentand public health are increasingly important.The share of coal in Russia’s fuel balance isexpected to rise significantly in the near futuredue to large coal deposits, particularly in theheavily industrialized Kuzbass. Increasedimportance of coal in the country’s powerindustry must be accompanied byintroduction of new, environmentally friendlytechnologies.Future development of the fuel & energysector must take account of social and economicconditions of the Russian population. Sectorgrowth depends on modernization of power88 National Human Development Report in the Russian Federation 2009

generation facilities through safer fuelcombustion technologies and with due accountof sustainable development and environmentalcapacity of adjacent territories. Projects forincrease of fuel oil or coal burning must considerspecific environmental conditions and publichealth in the towns or cities concerned.Compliance with new internationalenvironmental standards (and not only Russianstandards) for populated areas should becomeobligatory. Wide-scale public discussion ofenvironmental issues in areas affected by powerplant emissions is also required.Health risk assessment and riskmanagement plans should become prerequisitesfor any decisions to expand the fuel and energysector. Construction and/or expansion decisions,which lack the required environmentalsubstantiation, could lead to further worseningof living conditions and public health.89

Chapter 5Energy-efficient Russia5.1. A more productive energysector is a preconditionfor human developmentEnergy efficiency in the economy can bemeasured by various indicators: energy intensityof GDP (energy consumed per unit of GDP);energy productivity (GDP per unit of energyconsumed); or an energy efficiency index (aspecial complex index measuring energyintensity changes due to improved efficiency inspecific sectors of the economy anddistinguishing the contribution of each tostructural changes).Energy intensity of GDP is the mostcommonly used indicator, but the most telling isenergy productivity, which is similar to laborproductivity. It goes up when energyconsumption for providing a specific energyservice is reduced, e.g. a compact luminescentlamp consumes 4-6 times less energy per unit ofluminous flux than an incandescent lamp, and aRussian stove consumes 3-4 times less fuel perheat unit than an open fireplace.Increase of energy efficiency meanslower energy intensity of GDP and higherenergy productivity. Reduction of energyintensity can be achieved by technologicalimprovement (re-equipping), changes in theload parameters of industrial equipment, andby structural shifts in the economy, i.e. changesin the share of segments with different energyintensities due to their development atdifferent speeds. The energy efficiency index israrely used due to complexity of its calculation,but it shows the role of the technology factormore vividly.There are three laws of transformation forthe energy base of human development: the lawof relative stability of the share of energy supplyexpenditures for all end-users in gross product orGDP (exceeding threshold limits of this sharecauses economic slowdown); the law of growthin quality of energy used; and (following fromthese first two laws) the law of improved energyefficiency or of improved energy productivity.Human development has for centuries beenaccompanied by increase of energy productivity.In the last century and a half this indicator hasrisen by about 1% every year 1 and even faster inthe recent past.5.2. Russia is now a leaderby rate of reduction of energyintensity, but it is still oneof the most energy intensivecountries in the worldEnergy intensity of Russian GDP fell byalmost 5% each year in 2000–2008, which ismuch faster than in many other countries. Butenergy intensity of Russia’s GDP in 2006 was still2.5 times higher than the world average and 2.5-3.5 times higher than in developed countries(Figure 5.1) 2 .High energy intensity of Russian GDP isnot the price paid for a cold climate, but thelegacy of a centrally planned economy, which isstill lingering after 17 years. It is interesting tonote that energy efficiency in Tsarist Russia was3.5 times higher than in Germany, 3 times higherthan in France and Japan, 4.4 times higher than inthe UK and USA and 3.5 times higher than theworld average.Four fifths of growth in demand forenergy in 2000–2007 was met by rising energyefficiency. Structural changes in the economyand growing utilization of production capacitiesin the process of ‘recovery growth’ wereimportant factors in reduction of energyintensity. Transition to investment growth in2005–2007 greatly reduced input from thesefactors. Introduction of new technologies hasonly given 1% annual reduction of energyintensity, which is comparable with the results1In the USA and Great Britain in 1850-2005 energy intensity of GDP declined by about 1% annually and in France by 0.5%, in Canada in 1920-2005 it declined by 0.7% annually. In 155 years energy productivity in the USA has risen by 5 times and in the UK by 4.6 times.2Russia’s CENEf (Center for Energy Efficiency) estimates that energy intensity of Russian GDP declined by 4.5% in 2008, but the decline mayslow down to 2-3% per year during the economic crisis in 2009-201090 National Human Development Report in the Russian Federation 2009

achieved in developed countries. So Russia hasnot been able to significantly reduce itstechnology gap with developed countries since1990. The speed of technology upgrading needsto rise by 2-2.5 times in order to reduce theenergy efficiency gap.Resource support by the federalgovernment in 1992–2008 for improvement ofenergy efficiency was completely inadequate forthe challenges faced. Some steps for greaterenergy efficiency were taken after passing ofFederal Law No.35, ‘On energy saving’, dated April3, 1996. But the issue of energy efficiencyreceived less and less attention after the 1998crisis and government policy was reduced tofragmentary actions. The administrative reformof 2004 almost completely excluded energyefficiency from the scope of responsibilities of thefederal government. Current statutes governingfunctions of federal executive bodies onlymention energy efficiency as a responsibility ofthe Ministry of Economic Development. Somepositive examples of federal government actionin this field are: changing heat technologystandards in construction (2003) andimplementation of an energy efficiencyprogramme by the Ministry of Education in1999–2005.Enduring energy intensity of Russia’seconomy entails major risks:• Lower energy security and slower economicgrowth;• Threat to Russia’s geopolitical role as anenergy supplier on international markets(Figure 5.2);• Difficulties in implementation of nationalprojects;• Inability of Russian industry to competeinternationally;• Faster inflation;• Increasing burden of housing utility costs onmunicipal, regional and federal budgets,reducing their financial stability;• Obstacles to overcoming poverty;• Threats to the environment.Russia’s future prosperity depends onreduction of energy intensity. So the attitude ofFigure 5.1Energy intensity of Russian GDP compared withother countries in 2000 and 2006t. of oil equivalent / USD 1000 (PPP in 2000 prices)1.401.201.000.800.600.400.200.001 11 21 31 41 51 61 71 81 91 101 111 121 131 141Number of countriesSource: Calculations based on IEA dataFigure 5.2The ‘gas scissors’: forecast extraction andconsumption of natural gas up to 2050million m 3120000010000008000006000004000002000000Gas productionGas exportGas consumption20002005201020152020202520302035204020452050Source: Calculated by CENEfRussia 2006Russia 2000Most probable production rangeLeast probable production rangeConsumption: the ‘innovation’scenario with rapid growth ofenergy efficiencyConsumption: the ‘innovation’scenario with modest growth ofenergy efficiencyProduction at existing fieldsfederal government towards energy efficiencyneeds drastic revision. There needs to be a newfederal law on energy saving and efficiency aswell as a system of legal acts to ensureimplementation. The federal government mustdevelop and implement a policy for greaterenergy efficiency. The government shouldcreate an integrated system to manage theprocess of energy efficiency, assigningresponsibilities and ensuring efficientinteraction between federal, regional and localexecutive government, businesses and thegeneral public.Almost the sole means of managingenergy efficiency, available to the federalgovernment in recent years, has been energyprices. A much wider range of instruments isneeded, including design of a state programmefor increasing energy efficiency, and setting of91

targets for regional and municipal energyefficiency programmes. There should be asystem of mandatory requirements for energyefficiency of equipment, buildings and facilities,and proper metering of energy production,transportation and consumption. Mechanismsof support for energy efficiency activitiesshould be designed, as should a procedure andcriteria for subsidizing regional and localbudgets in order to promote their energyefficiency programmes. The state could alsoprovide methodological and educationalsupport, as well as energy efficiency training foremployees.Energy consumption statistics requireimprovement through creation of unified fuel &energy balances at both national and regionallevels, and a multi-level system of indicators isneeded to assess performance of federal,regional, and local government as well asbusiness in raising energy efficiency.Russia’s regions have been pioneers inmany aspects of energy efficiency. Laws onenergy efficiency have been enacted in 43regions, many regions have medium-termenergy saving programmes, 75 regions havefunds and agencies working on energy savingand 53 regions have imposed constructionstandards, which include energy efficiency andenergy saving requirements. Moscow and theRepublic of Tatarstan have led the way, butthere has been much less progress in someother regions. Lack of interest in energyefficiency from federal government in recentyears has had negative effect on regionalinitiatives.Reduction of budget spending forprovision of energy to northern territories is animportant objective. A programme is required formodernization of energy supply systems andintegration of renewables in remote areas inorder to create a sustainable, economically andenvironmentally efficient, and reliable energysupply system in such areas.A package of priority measures forincreasing energy efficiency of regionaleconomies should be designed and enacted assoon as possible, as should energy efficiencyprogrammes at regional level, with specificobjectives for each economic sector andspecification of main mechanisms, actions andresources for each task. These programmesshould include specific sub-sections: onreduction of budget sector expenditures throughenergy efficiency measures; on use of meteringof energy consumption; on interaction andcoordination of regional energy efficiencyactivities with similar programmes of localgovernment, large resident corporations, andgovernment-regulated organizations; and onmechanisms for assisting small and mediumsizedbusiness to reduce energy costs inoperation of existing facilities and design of newprojects.5.3. Russia can reduce energyconsumption by 45%Estimates suggest that Russia couldimprove its energy efficiency by 45%compared with 2005 (Figures 5.3 and 5.4).Technological progress makes the resource forincreasing energy efficiency renewable. Fulluse of the potential for electrical energysavings could reduce consumption by 340billion KWh, or by 36% from the 2005 level.More efficient use of thermal energy andreduction of losses in heating networks couldsave up to 844 million GCal, or 53% of heat usein 2005. Reducing energy intensity of theRussian economy would also be equivalent togiving the country a natural gas field biggerthan any, which it actually possesses. Potentialfor reducing natural gas consumption is now240 billion m 3 , or 55% of the consumption levelin 2005, much exceeding gas exports by Russiain 2005–2008.The capital investments needed to fullyutilize energy efficiency potential are USD 324-357 billion, while investments needed fordevelopment of the fuel & energy sector areestimated at over USD 1 trillion. Gain of a singleunit of energy through expansion of production92 National Human Development Report in the Russian Federation 2009

equires 2-6 times more capital investment onaverage than gain of the same unit of energy byincreasing energy efficiency. In many casesenergy efficiency gains do not require anyinvestments at all.If Russia exported all of the oil, gas andoil products, which it would save by realizingits energy efficiency potential, the countrywould obtain additional annual revenues ofUSD 80-90 billion, as well as keeping GHGemissions well below the threshold level of1990 until 2050, even assuming strongeconomic growth.Energy saving potential is like oildeposits: they may be huge, but they are of nouse until wells are drilled and a field isconstructed. The obstacles to energy efficiencyin Russia can be divided into four groups:1) Lack of motivation;2) Lack of information;3) Lack of funding and long-term investments;4) Lack of organization and coordination.Strong government policy is needed toovercome these obstacles, and the time hascome to move from words to deeds. Energyefficiency must be made the priority of energystrategy and must be viewed as the maincontribution of the energy sector to economicgrowth.5.4. Nationalenergy efficiency targetsRussian Presidential Decree No.889, ‘Onmeasures to improve energy andenvironmental efficiency of Russia’s economy’(June 4, 2008) sets a goal of reducing energyintensity of GDP by 40% in 2020 compared with2007, i.e. reducing energy intensity of GDP by4% each year. This is a higher rate than Russiais achieving at present.The national objective for energyefficiency could be summarized in quantitativeterms as follows: reduce energy intensity of GDPby 40% in 2020 compared with 2007; and saveabout 1000 million tonnes of fuel equivalent inFigure 5.3Potential for energy efficiency improvementin Russiamillion tonnes of fuel equivalent1000900800700600500400300200100017 17 17Reduction of secondarygas flaring330603Consumptionin 2005353196385Consumptionassumingefficiencyimprovement byend-users,but not by thefuel & energysectorSource: CENEf estimate for the World Bank235476613457243431403-420an economic development scenario based oninnovation. Any more ambitious targets for 2020are unrealistic. The savings would be equal to thewhole of Russia’s production of primary energyin 2008. Achievement of this goal will requirecreation of a specialized ‘energy efficiencyindustry’ in Russia.Reduction of energy intensity of Russia’sGDP by 40% in 2007–2020 would require totalelimination of the gap between energyintensity of industries producing main goodsand services in Russia and globally, orimplementation of a tougher schedule forenergy tariff increases from 2012 than is nowenvisaged by the innovation scenario: inflationadjustedtariffs would have to rise by at least13% annually until 2020.2313130385Consumptionassumingefficiencyimprovementby all sectorsElectricity production (indirect)Electricity production (technology)Heat production (indirect)Heat production (technology)Fuel productionand processing (indirect)Fuel productionand processing (technology)AgricultureConstruction and industryTransportationService industry buildingsResidential buildingsOtherSavings from replacingall equipment with bestavailableConsumption by the fuel& energy sectorFinal energyconsumptionFigure 5.4Breakdown of Russia’s energy efficiency potential(million tonnes of fuel equivalent)Source: CENEf estimation for the World Bank93

Regional energy efficiency policy shouldfocus on reduction of energy intensity of grossregional products. A multi-level system ofindicators for all energy consumption sectorswould enable control, analysis and monitoring ofthe process both nationwide and at regional level.5.5. The governmentshould set an example:improving energy efficiencyin the budget sectorThe budget sector (education, health,armed forces, etc., but not state-ownedcompanies) is fairly energy intensive: itFigure 5.5Rating of educational facilitiesin Ekaterinburg by specific heatconsumption for space heatingGcal/m 2 /year1.41.21.00.80.60.40.20.01 22 43 64 85 106 127 148 169 190 211Thousand m 2Worse than average Average BestSource: CENEf based on data of the Fuel and Energy Authority of theEkaterinburg Regional Administrationconsumes about 40 million tonnes of fuelequivalent annually or 4% of national energyconsumption. Utility expenditures of all Russianbudget-funded organizations exceeded 180billion rubles in 2007 and estimates for 2009 areover 260 billion rubles. These expenditures are2% of the consolidated budget and 5-10% ofregional and local budgets. High energyconsumption in the budget sector is caused bydepreciation of most facilities, which needmajor repair work. Lack of metering and controlequipment means that budgets often pay forutilities, which they either did not receive or didnot need.Steps to install energy-savingmanagement at budget-funded facilitiesbegan in 1999 with introduction of limits onelectricity use. However, the system wasabandoned in 2004. Energy saving potentialin the budget sector is 15 million tonnes offuel equivalent, or 38% of currentconsumption, as shown by the yellow and redlines in Figure 5.5.Russia already has considerableexperience of raising energy efficiency ofbudget-funded facilities, but an unwieldyprocedure for accumulating budget funds, thathave been saved, makes it hard to use thesavings for modernization of those samefacilities. In order to create motivation, ownersof these facilities (federal, regional and localTable 5.1Targets for reducing fuel and electricity intensity of GDP in the Concept for Long-term Social andEconomic Development of the Russian Federation up to 2020, and estimates up to 2030 (%)Energy intensity ofGDPElectrical energyintensity of GDPScenario 2007 2012 2020Reduction in2007-20202030Reduction in2007-2030Inertia 100.0 83.7 70.6 29.4 59.2 40.8Energy and rawmaterials100.0 83.1 67.0 33.0 53.6 46.4Innovation 100.0 82.4 59.6 40.4 42.1 57.9Inertia 100.0 88.1 81.4 18.6 77.1 22.9Energy and rawmaterials100.0 88.7 80.1 19.9 70.7 29.3Innovation 100.0 87.9 72.5 27.5 56.5 43.5Sources: Presidential Decree No.889 (June 4, 2008), ‘On measures to improve energy and environmental efficiency of Russia’s economy’, andthe Memorandum, ‘ On scenarios for long-term social and economic development of the Russian Federation’, (Ministry of EconomicDevelopment, July 2008).94 National Human Development Report in the Russian Federation 2009

government) should set targets and goals forenergy efficiency, basing payments forconsumed, produced and supplied energy onmetering data. The government should supportcreation and development of partnershipsbetween the state and private businesses toinstall professional management of budgetfundedreal estate.Part of the budget funds saved byincreasing energy efficiency should remainwith the budget organization, whichachieved the savings. Business proposals tosupply energy equipment should be assessedwith respect to operating costs throughoutservice life.5.6. Raising energy efficiencyin the housing sectorEnergy use per 1m 2 of residential spacewas almost unchanged in 2000–2007. Measuresto standardize energy consumption in newhousing projects reduced the amount of energyused for heating by 35-45% in new buildingscompared with old ones. Walls and roofs ofresidential buildings have degraded due toinadequate repair over time. Measurements forhousehold apartments show that Russiansconsume 40-60% less hot water than envisagedby official standards, i.e. the same amount as inthe EC or Japan.Household energy consumption hasbeen determined by two opposite trends:increasing energy efficiency of large importedhousehold appliances (refrigerators, washingmachines, etc.) has amounted to ‘importedenergy efficiency’; but a growing number ofsmall household appliances (computers, airconditioners etc.) has canceled out the savingsdue to efficiency of large equipment.The energy saving potential of Russia’sresidential buildings exceeds 76 million tonnesof fuel equivalent, or 55% of their total energyconsumption (see the yellow and red zones inFigure 5.6). If energy saving potential iscalculated using the ‘passive building’ concept,Figure 5.6Rating of 86 high-rise residential buildingsin Moscow equipped with heat metersby specific heat consumption for space heatingGcal/m 2 /p.a.0.80.70.60.50.40.30.20.100 3 10 20 31 47 60 76 81 85Number of residential buildingsEnergy inefficientAverageEnergy efficientSource: Calculated by CENEf based on the data of A.Naumov,Assessment of heat consumption for heating and ventilation purposesin residential areas, AVOK No.8, 2007the figure increases by 36 million tonnes of fuelequivalent. Analysis has shown that reduction ofrelative heat consumption by new buildings doesnot increase construction costs.Some 11 billion KWh could be savedeach year merely by replacing 450 millionincandescent lamps now used by the housingsector with luminescent lamps. That is onlyslightly less than annual energy consumptionin Lipetsk Region. Replacing old refrigeratorswith modern models would save at least 10billion KWh. The total saving together withreplacement of lamps would equal annualoutput of the Kalininskaya Nuclear PowerPlant.In order to reach the national target,residential energy use per m 2 needs to declineby 22% before 2020. To achieve this thegovernment should enhance current rules forenergy efficiency in new buildings, requiringfurther improvements in energy efficiency ofbuildings. New technology and productionshould be developed to enable construction ofcomfortable and energy efficient housing,which uses two or more times less primaryenergy. Russian construction standards should95

e adjusted to match best internationalpractice.Volumes of major repair work onresidential buildings declined by four times in2007 compared with 1990 and by almost seventimes compared with 1970. In the 1970s–1980smajor repairs were carried out on 3% of totalhousing stock each year, but the indicators hadfallen to 1.2% by 1990 and to a mere 0.2% in2007. This is an unacceptably low level, whichfails to improve average specifications of theentire housing stock, and only partiallycompensates degradation of the heat insulationqualities of buildings. The major repair rateshould be raised to 3-4%, and relative energyuse for heating should be reduced by at least30% after such repairs. The Housing UtilitiesReform Fund should make allocation of federalbudget funds for major residential repairconditional on installation of meteringequipment and minimum 30% reduction ofrelative energy consumption after repairs arecompleted. Ageing buildings, which require 2-3times more energy than the housing averageand 3-5 times more energy than new buildings,should be demolished and replaced.The government should organizemonitoring and energy efficiency rating ofresidential buildings using special ‘energypassports’. Incentives could be created forenergy saving in the housing sector throughstandard, ‘result-oriented’ contracts forresidential building management. At the sametime households need to learn to manage themanagement companies: whatever theprocedure for selecting the managementcompany, it should not be entrusted with allbuilding management functions, ensuringthat households are in charge of the companyand not the reverse. Managing companiescould act as energy service companies, sellingspecific levels of ‘comfort’ (i.e. specifictemperature, humidity, lighting, elevatorservices, etc.) to households, rather thanvolumes of energy resources. Savings onutilities from improved energy efficiency ofnew and repaired houses should either bepaid to households or used for moreupgrading work on residential buildings. Thisrequires that metering instruments should beinstalled and used for fair billing of utilities.Availability of information is another keyfactor for correct energy efficiency decisions.Markings on household appliances andinsulation materials will help consumers to makethe right choice.Efficient use of energy depends on basictraining in relevant methods. Libraries of bestpractice are needed, offering lists of managerialsolutions. There should also be a network ofenergy efficiency consulting centers to helphouseholds make energy choices. The mediamust be responsible for encouraging people toadopt new energy-efficient behavior. ‘Energysavingdays’ could be held at national andregional levels.Those on low incomes suffer most fromlow energy efficiency, and these people needspecial help. Provision of such help will alsoreduce subsidies and welfare now paid to helplow-income families pay for utilities. The ‘WarmHouse’ and ‘Cheap Light’ programmes should beimplemented in all households and communitieslocated in isolated northern regions of thecountry.5.7. Improvingenergy efficiencyof heating systemsIn over a century of development Russia’sheating supply system has grown to become thelargest in the world. In 2006 Russia accounted for44% of world production of centralized heat.Centralized heating takes 320 million tonnes offuel equivalent or 33% of all primary energyconsumed in Russia, which is equals to totalconsumption of primary energy in such countriesas Great Britain and South Korea. The heatingmarket is one of the largest single-productmarkets in Russia. Despite this, Russia does nothave a federal management institution oruniform development policy for its heating96 National Human Development Report in the Russian Federation 2009

networks. In 2007 government budgets at alllevels spent 99 billion rubles on household sectorheating.Consumption of heat did not rise in2000–2008 despite the growth of Russian GDP,although it stabilized after the fall of the 1990s.Increased demand for heating due to newhousing construction compensated reductionof heat consumption by existing users, asmetering instruments and heat-savingmeasures became more widespread. Contraryto trends in the rest of the world, Russia’s CHPssaw a reduction in their share of the heatmarket.Efficiency of heat production anddistribution changed little in 2000–2007.Production costs of many small boiler facilitiesare much higher than recommended levels.Relative consumption of electricity forproduction and transportation of heat is alsoabove recommended levels at many suchfacilities. Losses in 70% of heating networks(mostly small networks) are 20-60% (Figure 5.7).However, Russia has improved its heating systemefficiency in recent years by use of newtechnologies, and this trend needs to becontinued.Potential efficiency increases in heatutilization and transportation are estimated at840 million Gcal, which is 58% of totalconsumption of heat produced by centralizedsystems. Potential improvements to productionefficiency at boiler houses are estimated at 15million tonnes of fuel equivalent or 8.4% of2005 consumption. Heat load of 70% of Russia’sheating networks is beyond the range of highlyefficient operation and even beyondacceptable efficiency limits. These systemsrequire full or partial decentralization. Potentialfor cutting heat losses in networks bydecentralization, upgrading and heat saving byconsumers is 212 million Gcal. Efficiency of heatproduction and utilization needs to be greatlyincreased in order to achieve national energyefficiency goals.Compulsory inclusion of energyefficiency targets in all developmentFigure 5.7Rating of 230 Russian heat utilitiesby distribution lossesHeat loss ratio (%)10090807060504030201000 20 40 60 80 100 120 140 160 180 200Number of municipal heat utilitiesAgeing of heatingnetworks and pooroperating standardsSource: CENEfExcessive centralization ofheating servicesAcceptable lossesin municipal heatingnetworksprogrammes for household utilities could be agood way of increasing efficiency of heatingsystems. Movement towards energy efficiencywill also require: development of municipalenergy and heating plans; modeling of theheating market and implementation of models,which encourage competition; changing theprinciples of heating network managementthrough different planning approaches;organization of heat energy accounting throughmeter installation; changing operating methodsof municipal heating networks by conversion ofmunicipally owned enterprises into privatebusinesses; a more efficient tariff system; andcreation of ‘smart’ heating systems.5.8. Raisingenergy efficiencyin industryIn 2007 processing industries consumed44% of all energy used in Russia. Primary energyintensity of industrial production (per GDP unit)fell by 35% in 2000–2007, and end-user intensityin industry was down by 39%. But, despite thesetrends, growth of energy consumption in Russiain recent years has been largely due to industry.Energy intensity of several industrialcommodities has decreased more slowly than97

Figure 5.8Gap in energy intensity of specific typesof products in Russia, comparedwith international best practiceKg of fuel equiv./tonne8007006005004003002001000Rolled productsSource: CENEfElectrical furnacesteelRussia 2000Russia 2007ClinkerAverage consumption outside RussiaFeasible minimumoverall energy intensity of industry (the indicatorhas remained the same or even increased forsome commodities). Changing energy intensityof many goods was determined by change inproduction capacity load. However,improvements were achieved thanks toequipment and technology upgrades at someenterprises.Despite reduction of energy intensity in2000–2007 Russian industry still uses much moreenergy than world leaders, with serious impacton competitiveness (Figure 5.8). Contracts withenergy suppliers place all the risks with industrialconsumers, who must often pay for ‘unused’energy.The national target for reducing energyintensity of GDP requires reduction of energyintensity of Russia’s industry by at least 33% by2020. Potential for increasing energy efficiencyin industry (not including the fuel & energysector) is estimated at 59 million tonnes of fuelequivalent. Including own needs and losses inthe fuel & energy sector the figure rises to 138million tonnes of fuel equivalent, which ismore than annual energy consumption inPoland, Holland or Turkey. Energy-intensivesectors represent 42% of potential energysavings in processing industries and 20% ofCardboardPaperPig ironCellulosetotal energy saving potential in finalconsumption sectors.Cooperation between the state andleading Russian industrial enterprises couldsignificantly speed up realization of energysaving potential and neutralize negative effectfrom rapid growth in the share of energy costs.Russia has almost no experience of partnershipsbetween government and the private sector inenergy efficiency, but there is plenty ofinternational experience. Voluntary agreementsbetween government and corporations toincrease energy efficiency and reduce GHGemissions or pollution are desirable, as well asmechanisms for coordinating governmentenergy efficiency policy with cost cuttingprogrammes of large national corporations,including agreements on energy efficiencytargets.Assistance to industrial companiesduring the crisis should be made conditional ontheir having an energy efficiency plan.Businesses need help in integrating energyefficiency goals into existing standards andmanagement systems. The chief energyengineer at an industrial facility should alsobecome an energy manager, capable ofhandling a wide range of both technical andeconomic issues. Energy managementstandards should be developed and introducedat Russian industrial enterprises.Industrial systems engineered withregard to energy efficiency criteria are moredurable, increase overall productivity andreduce energy costs. A special informationcampaign will help Russian businesses todetermine and utilize their energy efficiencypotential. Energy management and energyaudit manuals will be needed, current practices,which sometimes penalize employees forsaving energy, must be changed, and contractsfor energy supply to industry should bemodified. Part of the savings should be used toprovide incentives to the chief energy engineerin his work and to further promote energysaving. Development of standardized bankingtechnologies to finance energy efficiency98 National Human Development Report in the Russian Federation 2009

enhancement is also important. Energy servicebusiness in industry should be supported, andpartnership between business and technicaluniversities for development of energy savingprogrammes should be promoted.The government could provide fundingfor enterprises, which invest in energyefficiency programmes. Saving of one milliontonnes of fuel equivalent in industry requires 6-9 times less funding than expansion of fuelproduction to produce the same amount.Saving of one million tonnes of fuel equivalentin industry saves the same amount of fuelequivalent throughout the national economy,as well as releasing extra quantities ofexportable oil &gas. These factors are sufficientreason for official support to be lent to energyefficiency programmes in industry.Support could be in the form of partialcompensation of loan interest, or federal budgetsubsidies for projects reducing consumption ofnatural gas, thermal or electric energy byinstallation of efficient equipment or use ofsecondary energy resources. Special fundingpackages could be used to implement modelprojects for promoting energy efficiency atindustrial facilities with minimal risks:replacement of electric motors, lighting systems,ventilation, water and steam supply networks,refrigeration equipment, upgrading ofcompressed air systems, etc. Other instrumentsinclude tax and customs preferences, guarantees,accelerated depreciation of energy efficientequipment, and investment tax credits.5.9. Increasing efficiencyin the electricity segmentEnergy losses at power stations inproduction of electric and heat energy accountfor 15-16% of all primary energy losses. In2000–2007 the fuel efficiency coefficient atRussia’s power stations declined from 58% to56%, mostly because of shrinkage in the shareof CHPs on the heat market. The averagecoefficient at Russian stations in 2000–2007Figure 5.9Generation efficiency ratingof Russian thermalpower plants in 2007Consumption of fuel equivalent for electricity production(kg of fuel equivalent/KWh)250022502000175015001250100075050025001 51 101 151 201 251 301 351 401 451 501 551Source: CENEfNumber of power plants (pcs.)Fuel efficiency < 40% Fuel efficiency > 40% Fuel efficiency > 57%was 36-37% (Figure 5.9) and fuel consumptionper 1 KWh of electric energy during the sameperiod declined by only 1.5%. Only 1.5% of allenergy generated in Russia met the IEA’s upperefficiency limit, while 7% of all Russianelectricity was generated at stations whoseproductivity indexes were below 30% and 2billion KWh was generated at stations withindexes below 20%. Average energyconsumption for heat production at powerstations has decreased slightly from 156 kg offuel equivalent per tonne in 2000 to 154 kg in2007. Losses in energy grids in 2007 were 105billion KWh or 10.5% of all energyconsumption.Potential for increase of energyefficiency in production of electric energy atthe 2005 output level is 64 million tonnes offuel equivalent. This figure would increase to133 million tonnes if all consumersimplemented the energy savings, of whichthey are capable. Russia needs to invest USD106 billion to increase energy efficiency of itsfuel-fired power stations.Attainment of the national goal ofreducing energy intensity of GDP requiresreduction of fuel consumption at Russianpower stations by at least 11% to 286 g of fuelequivalent/KWh by the year 2020.Requirements for minimal levels of energy99

efficiency need to be include in investment andproduction programmes of energy suppliersand of government-regulated organizations.Minimum fuel efficiency requirements for newpower stations should be included ininvestment contracts: the minimum level forgas-fired stations should be raised to 60% by2015–2020, and the minimum for new coalfiredstations should be 48%. The share ofRussian heat output supplied by fuel-firedpower stations should rise to 44% in 2006–2010and 51% in 2020, while losses in electricity gridsshould be reduced to 7-8%.Government tariff policy in the past fewyears has helped to promote energy efficiency,but there is still room for improvement ofpricing processes to stimulate energy saving,and introduction of a carbon tax or a tax onharmful emissions is worth considering.Anticipated tariffs in 2010 will raise the ‘market’share in energy efficiency potential to 70%, andfuture introduction of heavy penalties foremissions or of a carbon tax could raise theshare to 92%. Energy tariffs should increasetogether with the ability of consumers to pay,and this ratio should be set in a way thatencourages energy efficiency. There needs tobe improvement of forecasting procedures forestimating future energy balances, takingaccount of expected outcomes of energysaving activities, as well as improvement ofmodeling of energy markets and relationshipsbetween market players. Tariff plans shouldoffer economic motivation for raising of energyefficiency.Long-term tariff regulation parametersshould enable inclusion of mandatory energysaving activities and actions for increasingenergy efficiency of consumers in investmentbudgets, as well as allowing governmentregulatedconsumers to use the savings achievedby their energy saving activities over a period ofat least five years.It is important to assess possibility andadvisability of introducing increased emissiontaxes and a carbon tax. Funds raised from suchtaxes and from sales of GHG emission quotas,including those received as ‘green investments’could be used to finance government actionsfor increasing energy and environmentalefficiency.A part of energy suppliers’ investmentprogrammes should be supported throughbuying out of inefficient energy capacity andextra energy from consumers. The situation wherethe main task of the energy supplier is to sell asmuch energy as possible needs to be replaced bya situation where the main goal is to provideessential energy services (comfort, lighting,transport, etc.). Such a system could use so-called‘white certificates’, proving certain energy savingachievements and based on existing practicessuch as the emissions market or the ‘greencertificate’ system, which are used in an increasingnumber of countries. Buying of electric capacityfrom inefficient consumers (which use it duringpeak periods for lighting or electrical heating)would cost only USD 20-60 per KW, whileconstruction of new generating capacity wouldtheoretically cost USD 700-1,500 per KW, but, inactual Russian conditions, would cost USD 2,000-4,500 per KW, i.e. a hundred times more.It is important to improve the energysupply system to remote regions. Althoughdiesel power stations in remote areas producerelatively small quantities of electricity, this isthe most expensive energy in the world andsignificant budget subsidies have to be spenton it. A programme of modernization andintegration of diesel power stations withrenewable energy sources is highly importantfor minimizing budget expenditures at all levelsand ensuring a sustainable, effective andreliable energy supply.5.10. Energy efficiencyin Russian transport networksTransport was in second place afterindustry by increase of energy consumption in2000–2007. The share of privately ownedautomobiles in total passenger transport hassharply increased, which has greatly reduced100 National Human Development Report in the Russian Federation 2009

energy efficiency of the transport system. Sometransport companies, including JSC RussianRailways, are implementing energy savingtechnologies. But unit energy costs in manytransport sectors grew in 2000–2007. This wastrue for pipeline transport of oil & oil products,electric traction on railroads, subway trains,streetcars, trolley buses, as well as dieseltraction. Achievement of national energytargets will require significant reduction ofenergy intensity in the transport segment.Russia could reduce energyconsumption in the transportation segment by55 million tonnes of fuel equivalent,representing 28% of all energy consumed bytransport in 2005, through the following steps:improvement of the database and datacollection methods for energy consumption bytransport; integrated planning of transportoperations; improving the quality of publictransport services and providing betteropportunities for multimodal public transport(i.e. combining private and public transportwithin a single trip); introduction of a tax onpurchase of private cars with large engines;providing incentives to drivers who buyenergy-efficient vehicles; further strengtheningof efficiency standards for fuel and emissions;introduction of fuel efficiency markings forautomobiles; encouraging changes in behavior;introduction of utilization schemes for oldvehicles; more rapid renewal of the vehicles onRussian roads through financial stimulation forutilization of old automobiles; anddevelopment of energy saving technologies.5.11. Summaryand recommendationsRussia is a world leader in reducingenergy intensity of GDP, but still remains one ofthe most energy-inefficient countries.Reduction of energy intensity was mostlycaused by structural factors and thetechnological gap with developed countriesremains. This gap cannot be allowed to remainFigure 5.10Comparison of specific fuel consumptionby new gasoline-fired passenger automobilessold in 2006-2007RussiaCroatiaSwedenHungaryFinlandEstoniaGermanySlovakiaNetherlandsGreat BritainGreeceIrelandSpainDenmarkNorwayCzech RepublicFranceItalyPortugal0.0 5.0 10.0 15.0Liters/100 kmHybrid or SMART car Consumption up to 7 liters/100 km Consumption above 7 liters/100 kmSource: ODYSSEE database for all countries, except Russia. Russian dataprovided by CENEfindefinitely if Russia means to approach thelevels of prosperity of developed countries in acontext of increasing global competition anddepletion of resources, which could maintainthe country’s orientation to resource exports.The only way forward, therefore, is via adramatic increase in productivity, includingenergy efficiency.Potential for energy efficiencyimprovements in Russia is greater than in almostany other country in the world, amounting to45% of all energy consumption. This potential isthe main energy resource for future economicgrowth. However, until now the federalgovernment has been sluggish in promotingenergy saving activity, failing to encourage bestuse of this resource.Russia’s goals for increasing energyefficiency of the national economy are: toreduce GDP energy intensity by 40% in 2020compared with the level in 2007; and to achieveenergy savings of around 1000 million tonnesof conditional fuel. These are realistic goals, butthey require development and implementationof a wide range of energy saving measures,including:101

• Creation of an integrated energy efficiencymanagement system;• Enactment of legal measures, definingmechanisms of state regulation;• Creation of a system for statisticalmonitoring and registration of energyefficiency levels in all industrial sectors,together with informational andeducational systems to support energysaving activities;• Implementation of regional and local energyefficiency programmes, as well asprogrammes for increasing energy efficiencyof state and municipal organizations, as wellas of government-regulated entities;• Creation of necessary and sufficientconditions for partnership between the stateand private businesses in targeted energyefficiency agreements for energy intensivesectors, and in implementation ofreproducible energy saving projects;• Creation of a budget funding system tostimulate energy saving projects,development of renewable energy sourcesand environment-friendly productiontechnologies;• Creation of a tariff policy, capable ofpromoting energy saving;• Stimulating R&D work in environmentfriendlytechnologies;• Creation of new behavioral and motivationalstereotypes for rational and environmentallyconscientious utilization of energy andnatural resources by the general public.102 National Human Development Report in the Russian Federation 2009

Box 5.1. Programme of the Ministry of Education and Scienceof the Russian Federation: ‘Integrated Solutions for SavingEnergy and Resources to Promote Innovative Developmentin Various Sectors of the Economy’Russia’s largest consumers of energy in thefederal government sector are the Ministry ofDefence, the Ministry of Education and Science, theFederal Penitentiary Service of the Ministry of Justice,the Ministry of Healthcare and Social Development,and the Ministry of Internal Affairs. The largestgovernment sector consumers at regional and locallevel are educational and healthcare facilities.Spending by budget-financed organizationson utilities in 2007 exceeded 180 billion roubles andthe figure for 2009 is expected to be in excess of 260billion roubles. The share of utilities in total expensesof the budget system is 2%, but as much as 5-10% ofregional and local budgets have to be allocated forutilities. In 2009 almost 8 billion roubles were spenton energy supplies for and maintenance of Russia’sbudget-financed facilities (including those in localgovernment ownership). In order to cover theseexpenditures Russia has to export at least 45 milliontonnes of oil each year at a price of USD 50 per barrelor 65 billion cubic metres of natural gas (assumingthat half of revenues from oil & gas export are taken bythe budget).At least 500 billion roubles would be neededto modernize all of Russia’s budget-funded facilities,including measures to make their use of utilities moreefficient. The budget system is unable to allocate sucha sum for this purpose. However, the amount ofmoney needed for such modernization could besignificantly reduced if mechanisms wereimplemented, by which the savings would be used tofinance the modernisation. Strain on the budget couldalso be reduced through partnerships between stateorganizations and private firms, by which part of thefinancing costs would be met by the private sector.Russia has considerable experience inimproving the energy efficiency of budget-financedfacilities. Measures by the Ministry of Education andScience (prior to 2004 the Ministry of Education) areparticularly worthy of note, and represent the first andso far the only consistent policy effort by a Russiangovernment ministry to improve the energy efficiencyof institutions under its control.In 1999 the Ministry of Education developedand implemented a five-year energy savingprogramme to create a system for effectivemanagement of energy use at educationalinstitutions. Under this programme, an infrastructurefor implementing a single energy-saving policy at alleducational institutions across Russia was created onthe basis of leading universities. The emphasis was onspecific energy-saving measures at federaleducational institutions.In 2000–2005 more than 1000 educationalinstitutions in various regions of Russia, including thecities of Moscow and St.Petersburg, implemented theprogramme, by which energy consumers establishedbusiness accounting systems, began introducingequipment and mechanisms for regulating heatconsumption, and developed and implementedintegrated low-cost measures for reducing energylosses at higher education and vocational trainingfacilities. An automated research and informationsystem was created for accounting and control overenergy consumption at educational institutions,which were under the control of the Ministry ofEducation (more recently through the Ministry’ssubsidiary organisation, the Federal Agency forEducation).Energy certification of facilities owned byeducational institutions in 2000–2005 as well assystematization of energy consumption accountingand analysis, installation of energy saving equipmentand more efficient energy use enabled the educationsector to reduce its energy consumption, achievesavings in energy consumption per student, and saveconsiderable amounts of money by paying less forelectricity and heat. Educational institutions weregiven only one year to achieve payback of funds,which had been provided in order to implement theenergy-saving programme. A regional statisticscollection network was set up to monitor actualconsumption of and payments for electricity and heatby educational institutions. This made it possible tocalculate average energy consumption per studentand compare the declared energy consumption limitswith actual consumption. Prototypes of newequipment and technologies were developed to helpreduce consumption of electricity, heat and naturalgas by educational institutions.103

The Ministry of Education and Science hasdeveloped a further target programme, to beimplemented in 2009–2010, which aims to developintegrated solutions to saving energy andresources for innovative development in varioussectors of the economy. The programme, which isbacked by Presidential Decree No. 889, ‘Onmeasures to improve the energy andenvironmental efficiency of the Russian economy’(June 4, 2008), is part of a larger federal targetprogramme for development of education in2006–2010, approved by the Russian governmentin its Resolution No. 803 of December 23, 2005(based on a decision by the Science CoordinationCouncil of the Ministry of Education and Science).The 2009–2010 programme is intended to mobilizethe know-how of scientific organizations, highereducation institutes and specialized privatecompanies in order to improve energy efficiency ofbuildings and structures, which are theresponsibility of organizations that are subject tothe Federal Education Agency.The programme is to be partly financed bynon-budget funds provided by educationalinstitutions themselves at a ratio of 1 rouble from thebudget to at least 1 non-budget rouble. Theprogramme is unique in its breadth of approach,spanning the whole range of energy-saving measures,from energy consumption research, estimate of theenergy savings, which are achievable for educationalinstitutions, to developing infrastructure forimplementation of energy-saving projects andmonitoring of results.In 2009 a package of measures wasdeveloped for energy saving and greater energyefficiency at educational institutions reporting to theFederal Education Agency. These measures are beingfinanced by the Federal Programme for Developmentof Education in 2006–2010. They target four mainareas:1. Developing a programme of specific energysavingmeasures to be implemented by educationalinstitutions in 2010;2. Developing modern laws and regulations tohelp save energy and improve energy efficiency;3. Establishing organizational structures (regionalenergy-saving centers) at leading universities toprovide informational, methodological andeducational support for energy-saving measures;4. Creating a system for training and retraining ofpersonnel in energy-saving and improvement ofenergy efficiency.The goal of the first item on the list is todevelop a set of measures that will give energysavings of up to 25% in buildings and structures runby educational institutions, which report to theFederal Education Agency, reducing utility bills(including those paid from the federal budget) whileimproving energy efficiency, and maintainingsufficient comfort levels inside buildings andstructures without increasing their environmentalfootprint. Such energy saving measures include:• Modernizing internal and external lightingsystems, introducing energy-saving and up-todatelighting equipment.• Upgrading the heat supply system in lecture hallsand dormitories.• Purchasing automated systems for monitoringand managing fuel &energy consumption andputting them into operation.• Installing energy efficient windows and walls toreduce heat loss from buildings;• Modernizing energy consumption systems byoptimizing consumer loads, introducingfrequency drives and automatic regulation ofventilation and air conditioning units;• Purchasing and installing metres on cold water,hot water and natural gas supply systems;• Purchasing autonomous generators foreducational institutions located in areas withfrequent power outages.The second area focuses on developing andtesting energy audit methods for educationalinstitutions, refining standard energy-savingmeasures, and developing economic mechanisms foreducational institutions that would allow them tostimulate energy saving and refinance some of theirenergy-saving costs using the money saved throughreduction of energy consumption. Regulations shouldbe developed on use of performance contracts andrevolving funds by educational institutions.The goal in the third area is to set up anetwork of energy saving centres at the country’sleading universities to carry out R&D and provide104 National Human Development Report in the Russian Federation 2009

educational and informational support on issuesrelated to fuel & energy efficiency. Completion ofinfrastructure projects will enable progress to a systemof energy-service companies with links to energysavingcenters at major universities. These energyservicecompanies will then provide integratedenergy-saving services (energy audit, preparation ofdraft business plans, financing and implementation ofenergy-saving measures).The goal in the fourth area is to create asystem for training and professional development ofprofessors and instructors (as well as technicians ofthe engineering services of educational institutions)to develop their understanding of efficient fuel &energy use.A total of 16 universities, 4 regional energysavingcenters and 7 R&D enterprises participated inimplementation of the programme in 2009, and 100higher education institutions in 7 of Russia’s federaldistricts underwent energy audits. Each of theseinstitutions was given an energy certificate andrecommended a set of energy-saving actions. Anintegrated programme of energy-saving actions forhigher education institutions reporting to the FederalEducation Agency was developed with a budget of1195.7 million roubles for 2010. Implementation ofthese energy-saving actions will enable educationalinstitutions to achieve annual savings of 382.1 millionroubles from reduced energy consumption.A network of energy-saving centers wasestablished in all of the seven federal districts, basedon 36 leading universities. The following universitieswere assigned the role of coordinatingimplementation of energy-saving programmes in thefederal districts: Pacific Economic University, IrkutskState Technical University, Ural State TechnicalUniversity, Nizhny Novgorod State TechnicalUniversity, Moscow Power Engineering Institute(Technical University), St.Petersburg State EnergyUniversity, and North Caucasus State TechnicalUniversity.A new industry methodology for conductingenergy audits of educational institutions wasdeveloped and published. This methodology was sentto 500 higher education schools. A methodologymanual on saving energy in buildings and structureswas prepared. It contains recommendations on howto implement standard energy-saving actions atbudget-funded facilities, including educationalinstitutions.The coordinating universities set up a systemfor energy-efficiency training and retraining oftechnicians at other higher-education energy-savingcenters and for engineers working in theirmaintenance departments. Curricula and trainingprogrammes were developed for undergraduate andgraduate students as well as professionaldevelopment programmes for instructors, all focusingon efficient use of energy resources. In the third andfourth quarters of 2009, some 350 people from 86higher education schools in Russia received energysavingtraining.In July through October 2009, seminars wereheld at the coordinating universities in federal districtsto share experience of developing and implementingenergy-saving programs at educational institutions. Anational conference on energy saving at educationalinstitutions was held at R.E. Alexeev Nizhniy NovgorodState Technical University on October 28 and 29, 2009.The conference was attended by representatives ofhigher-education schools from 38 regions of Russia.These projects in 2009 cost a total of 93.2million roubles and created the conditions forsuccessful implementation in 2010 of an integratedenergy-saving action programme at the 100educational institutions, which underwent energyaudits and for which energy-saving programmes weredeveloped.105

Box 5.2. Opportunities for use of carbon market instruments to raisepower efficiency of the Russian economyThe Kyoto Protocol to the United NationsFramework Convention on Climate Change (UNFCCC)is an international environmental agreement, in whichRussia has a claim to global leadership. Russia issuccessfully implementing the institutionalrequirements of the Protocol and is far ahead of itsquantitative commitments with regard to GHGemissions in 2008–2012.Between 1990 and 1999 GHG emissions fellin all segments of the Russian economy due to declineof economic activity. There was some growth ofemissions in both production and consumptionsegments during the period of economic growth from2000 to 2008, but overall GHG emissions in 2008 werestill 34% lower than in 1990.Russia has more reserves for reducingemissions with only modest expenditures in the nearfuture than any other developed country. This couldattract massive domestic and foreign investments indevelopment of the energy sector, metallurgy,housing utilities, forestry and other sectors, throughthe establishment of workable national procedures forapproval and registration of joint implementationprojects described in Chapter 6 of the Kyoto Protocol.Russia has a great deal to gain from implementation ofthe latest technologies in power production andutilization and views the carbon market as aninstrument for attracting such technologies andknow-how into the Russian economy. As of November2009 over 100 joint implementation projects havebeen prepared in Russia. These projects have thepotential for reducing emissions by over 200 m.t. inCO 2 equivalent between 2008 and 2012.Another way of attracting much-neededinvestments is the utilization of ’green’ investmentscheme (GIS), which was first proposed by the Russiandelegation at the 6th Conference of Parties UNFCCC(Hague) in 2000. GIS is an innovative financialmechanism, based on a voluntary country’s obligationto reinvest income from sales of national quotas insupport of energy efficiency and renewable energydevelopment projects.Experts estimate that the unused portion ofRussia’s GHG emissions in the first budget period ofthe Kyoto Protocol (2008–2012) could amount toabout 5-6 billion m.t. in CO 2 equivalent, depending oneconomic development rates and energy savingscenarios. Clearly, there will not be sufficient demandto absorb such a large volume in the first budgetperiod and, even in the most optimistic scenario,Russia will only be able to sell a small portion of itsreserve through the GIS. However, this could beenough to stimulate significant foreign investments.Environmental protection expenditures inRussia are less than 0.5% of GDP, which is less than inother developed countries. Implementation of the GIScould catalyze an increase of environmentalinvestments in both the state and private sectors. GISin Russia could become the locomotive for deepmodernization of the environment managementsystem, providing additional economic advantagesand institutional innovations.In 2010 we anticipate preparation of anumber of pilot GIS operations, based on theGovernment Directive No.884-r, dated June 27, 2009,which calls on the Ministry of Economic Development,the Ministry for Foreign Affairs and Sberbank (thenational savings bank) to hold negotiations withrelevant national authorities of interested countrieson participation in GHG emissions trading projects.This Directive assigns Sberbank as the authorizedorganization for implementing pilot GHG tradingprojects in pursuance of Article 17 of the KyotoProtocol.Section 13 of Article 3 of the Kyoto Protocoloffers the possibility of carrying over unusedemissions quotas from the first budget period tosubsequent budget periods. Russia, Ukraine, Polandand other Eastern and Central European countries willhave a significant surplus of GHG emission quotas inthe first budget period and would like these surplusemissions to be carried over. However, the procedurefor registering and carrying over the accumulatedsurplus of national quotas to subsequent periodscould become a stumbling block in the negotiations,as it affects the interests of all main groups ofcountries.Russia’s unused GHG emission quotas couldnot only be used as an additional instrument forextensive development, but as a resource to helpfinance transition of the main sectors of Russia’seconomy to energy-saving and resource-savingdevelopment. It also seems practical to explore thepossibility of creating an international financial106 National Human Development Report in the Russian Federation 2009

mechanism for using national quota reserves toensure that developed countries assume and fulfilladditional obligations. The idea would be possiblewaiver by Russia and the Ukraine of their right to usea large portion of their forecast reserve to increasetheir quotas in the subsequent period, in exchange forguaranteed amounts of financing for GHG emissionreduction projects. These reductions could be fullyaccounted, or accounted at a certain discount, bythese countries when they assume quantitativecommitments for reductions in the next period. At thesame time the United States, Canada and othercountries with relatively high emission reduction costscould use the mechanism in order to assume tougherreduction commitments while keeping theirexpenditures within limits. The idea of exchangingquota reserves for environmental investments couldbe included in the new international agreement onclimate change for the period after 2012.Increasing numbers of experts are of theopinion that Russia needs to start work on a nationalGHGs cap-and-trade system, which should becompatible with international carbon market systems.The target is to create incentives for businesses toreduce emissions and to increase energy efficiency byflexible and cost-efficient methods.A regional carbon market has been inoperations in the EU since 2005, and most leadingcountries (the USA, Japan, Australia, New Zealand) arealso preparing to introduce national carbon markets.The EU is calling for creation of a global carbon marketamong OECD members by 2015.The Copenhagen Accord includes a pledgeby developed countries to provide USD 30 billion todeveloping countries in 2010–2012 for preparationand adaptation to global climate change. Russia, asa member of the G8, has declared its readiness to bea donor. It is worth considering the stance taken byPoland, which plans to make the level of itsdonations depend on the amount of income itreceives from selling a part of its national GHGemissions quotas.The immediate task is to determine thepriorities, forms and mechanisms of Russia’s financialinput to the new global financial climate initiatives.There may be scope for partner countries, whichrequire Russian aid, to use Russian donor assistance.Russia could propose a financial aid programme tohelp Trans-Caucasian and Central Asian countriesadapt to and cushion the impact of global climatechange. A regional carbon market initiative could alsobe considered.107

Chapter 6Opportunities for Renewable Sourcesof Energy6.1. Changing structureof the global energy balanceThe International Energy Agency (IEA) hasdefined several key vectors for operation of theworld energy sector in order to meet goals ofsustainable development: more efficient use ofenergy resources; reducing energy intensity of theworld economy; ensuring energy security; and alsocreation of a new viable and independentrenewable power industry that can play a key rolein making the fuel sector more environmentfriendly and in increasing the share of clean energyin the global fuel & energy balance.The IEA forecast shows a global shift ofthe energy balance towards greater energyefficiency, large-scale use of renewable energysources, development of advanced CO 2 capturetechnologies, and changeover of the transportindustry to new types of fuel. These changes willhelp to diversify national fuel & energy sectorsand reduce emission of greenhouse gases.Renewable energy is the energygenerated from natural resources such assunlight, wind, water (including wastewater),tides and wave power of oceans, seas and rivers.It also includes geothermal energy obtained fromnatural subterranean heat sources and low-gradeheat energy that comes from the earth, air andwater, using a special transfer medium. Anotherrenewable on the energy menu is biomass, whichis primarily plant matter grown to produce heat.For example, forest residues (such as dead trees)Figure 6.1may be used as biomass. Biomass also includeswaste from consumption and production, butnot hydrocarbon waste materials from variousmanufacturing and power/heating facilities.Renewable energy technologies are also used toutilize biogases such as pit gas and landfill gas.Heightened interest in renewables isconnected with ever growing energyconsumption and the need to reduceemissions of greenhouse gases. Fossil fuels arenon-renewable. They are limited in supply andwill one day be depleted. The production anduse of fossil fuels raise environmental concerns.So production of energy using renewables is anincreasingly attractive option.Developed countries have been joinedby developing nations, such as China and India,in intensive development of renewables. Thesetwo countries boast the fastest growing marketsfor renewable energy in the world.The share of renewable electricity (withouthydro-generating) in gross electricity consumptionin countries of the European Community (EU-15)grew by 4 percentage points in 10 years (Figure6.1), representing electricity output of 130 TWh.The market share of renewables has topped 2% inthe last two years (2006–2008), showing thesubstantial increase in total renewable electricitygeneration in western European countries. In somecountries the renewable energy share in grosselectricity consumption exceeds 10% (Iceland andDenmark, 29%; Portugal, 18%; Philippines, 17%;Spain, Finland and Germany, more than 12%;EU-15 electricity generationin 1996 by energy sources, %EU-15 electricity generationin 2006 by energy sources, %EU-15 electricity generationin 2008 by energy sources, %Renewableenergy sources(without HPPs)2%Hydro powerplants13%Renewableenergy sources(without HPPs)6%Hydro powerplants10%Renewableenergy sources(without HPPs)8%Hydro powerplants10%Nuclearpower plants36%Fuel-firedpower plants49%Nuclearpower plants31%Fuel-firedpower plants53%Nuclearpower plants29%Fuel-firedpower plants53%Data provided by Energy Information Association108 National Human Development Report in the Russian Federation 2009

Figure 6.2Share of electricity generated from renewables (excluding HPPs)in total electricity generation by countries (2008)C a n a d aU S AR u s s i aC h i n aMexicoEgyptIndiaThailandФилипиныBrazilKenyaI n d o n e s i aEuropeC h i l eAustraliaArgentinaIcelandNorwaySwedenFinlandShare of renewables (excluding HPPs)in total national electricity generation (2007)SpainFranceGermany0-1% 5-10% 15-20%1-5% 10-15% More than 20% No renewable generationGlobal power generationby various types of renewable56,7%Bio-power plantsWind power plantsGeothermal power plants27,5%Solar power plants0,5% 15,2%Source: Data of the Energy Information AssociationAustria, 11%; the Netherlands, more than 10%).Brazil and Mexico are also rapidly developingdomestic renewable sources of energy, the shareof which in their electricity generation (excludinghydro-generating) exceeds 4% (Figure 6.2).World electricity generation fromrenewable energy resources (excluding hydrocapacities above 25MW) is heavily dominatedby biomass power plants (56%). These areinstallations burning a variety of biomass,including forestry and agricultural waste,solid domestic waste, biogas and biofuels,landfill gas, etc. The wide variety of differenttypes of biomass means that this resource isavailable in every country to a greater oflesser extent.Wind power accounts for nearly 28% ofall the electricity generated from renewables.Wind installations are most popular in developedwestern European countries and several USstates. India and China have entered the top fivecountries by total installed wind capacity inrecent years 1 .The share of geothermal in renewableelectricity production is about 15%. Usablegeothermal resources are site-specific. Solarenergy provides less than 1% of the world'srenewable electricity generation. The low sharereflects high cost of solar power equipment andmaterials.Different renewables play more or lessimportant roles in various countries. Denmarkis the world leader for wind power. Biomass isone of the most important renewable energysources in Germany, followed by photovoltaicsolar installations. Iceland and the Philippines1As of 2007, Germany had the biggest installed wind power capacity, overtaking the USA. Spain is in third place, followed by China, Indiaand various western European countries (link reference:http://www.gwec.net/fileadmin/documents/PressReleases/PR_stats_annex_table_2nd_feb_final_final.pdf)109

are among countries now producing mostelectricity from geothermal sources.Energy security and environmental balancein economic growth are priorities for Russia today,and renewable energy technologies are one way ofachieving progress towards these goals.6.2. The strategic significanceof renewable energy in RussiaThe reasons for development of renewableenergy worldwide go beyond the goal of reducinggreenhouse gases. By using renewables Russia andother countries will be able to improve their energybalances and move towards a new stage ofcivilization characterized by ‘minimum use ofcarbon-based fuels’, creating new impulses forindustrial development. The world is attempting tobuild a new low-carbon economy.According to Leonid Vaisberger 2 , acountry is defined by the type of business, inwhich it specializes. A country, which producesrelatively simple products, finds itself in a moreprimitive environment and experiences slowergrowth compared with countries that moveforward to more sophisticated products. Russia’smajor problem is that the country is ‘stuck’ at thestage of raw material exports, and is thereforebecoming ‘stuck’ with low-grade technology,leading to stagnation. In high-tech industries, allparticipants add their value and thereby obtainprofit. High-tech industry presupposes moreequal income distribution than the process ofexporting locally produced raw materials.Power industry development usingrenewable energy technologies requiresproduction and maintenance of high-techequipment and materials. So renewable energygeneration facilitates diversification of theRussian economy and, in particular, of the fuel &energy sector.In addition to economic aspects, it isimportant to analyze social benefits ofimplementing renewable energy projects inRussia, the most prominent of which are newemployment opportunities and higher standardsof living.The official unemployment rate inRussia topped 6% in 2008 with the highestrates observed in the Southern Federal Districtand regions of Siberia and the Far East.Unemployment is most acute in rural areas,which account for nearly half of the country’sunemployed, although the rural population isonly 26% of the country’s total population.Renewable energy will create additionalemployment, as renewable technology is morelabor intensive (calculated per unit of output).Workforce will be required at every stage of theprocess, from research &development and testingto manufacturing, installation of equipment andplant operation and maintenance 3 . The biggestpotential for job creation is use of biomass, whichcould help the employment situation inagriculture and forestry (Table 6.1).Income inequality is one of the mostacute social problems in Russia. Rural incomesare much lower than in cities, and livingconditions in rural areas are much worse than inurban areas. Electricity supply is unreliable inmany rural districts (a number of ruralsettlements have no electricity and manyhouseholds lack access to a centralized watersupply), so that daily tasks such as cleaning thehouse, laundry, washing the dishes, cooking, etc.,require much time and effort.Renewable technologies can enhancethe quality of life for rural people, since thesetechnologies are the most efficient way, andoften the only way, of ensuring a dependableelectricity supply. Electrification gives light, useof electric appliances (reducing time spent onhousehold tasks), access to communications(radio, television, telephone, Internet) andmodern medical assistance. Rural electrificationcan also facilitate water supply and increase theefficiency of agriculture.2Internet TV, Channel 5, ‘Open Studio’ program, “Is Russia addicted to raw materials?” (Interview)3With the exception of small hydro power plants and solar photovoltaic cells, which create the maximum of additional jobs at the R&Dand construction stage, but require minimum workforce for operation and maintenance.110 National Human Development Report in the Russian Federation 2009

One of the major benefits of renewableenergy is that it reduces greenhouse gasemissions, by reducing combustion of fossil fuels.The Russian energy sector, particularlythe electricity generating sub-sector, isresponsible for the biggest share of man-madegreenhouse gas emissions in the country (60%and 25% respectively). Most emissions aregenerated by burning of fossil fuels such as oil,natural gas and associated gas, coal, peat andoil shale, and their derivatives. The Russianenergy sector is also responsible for particulateemissions from extraction, storage,transportation, processing and consumption ofoil, gas and coal, as well as emissions from gasflaring and other combustions of fuels withoutuseful application of the energy produced.Most renewable energy systems onlycontribute to GHG emissions during theirconstruction and produce zero or very little CO 2emissions during their operation. Open-loopgeothermal systems and biomass areexceptions to this rule, but technologies thatuse biomass can be regarded as ‘neutral’ interms of carbon dioxide emissions, since theCO 2 produced by biomass burning waspreviously absorbed during the plant's lifecycle. Emissions by open-loop geothermalsystems are tens of times less than emissionsfrom a traditional power station for the sameamount of energy produced.Atmospheric concentrations of harmfulsubstances are highest in big cities with highpopulation density. This has negative impact onpublic health (particularly child health) since themajority of the Russian population lives in citiesand towns.Energy production from renewableenergy sources can make a significantcontribution to development of high-techengineering and creation of jobs in Russia’sregions. Increased use of renewables in Russiawould help to reduce unemployment, improveliving conditions, and stop the outflow ofpopulation from rural areas, and from northernand eastern regions of the country. Developmentof renewable forms of energy in Russia wouldTable 6.1Employment levels using various electricitygenerating technologies (jobs/mW)TechnologyConstructionstageOperationalstageWind power plants 2.6 0.2Geothermal powerplantsSolar photovoltaiccellsSolarthermal panel4.0 1.77.2 0.15.7 0.2Biomass (average) 3.7 2.3Natural gastechnology1.0 0.1Source: Heavner B., Churchill S., Renewables work (2002): Job Growthfrom Renewable Energy Development in Californiaavert further environmental degradation andpromote and protect public health and welfare.Closing the gap with other countries inlarge-scale development of renewable is apolitical challenge of the utmost importance ifRussia is to maintain its status as a world powerand play a significant role in solving the world'senergy problems.6.3. The current situation andoutlook for developmentof renewables in RussiaRussia has enormous potential forrenewables, but their current share in totalelectricity production is as little as 0.9%. There areno statistics available for the amounts of heatproduced using renewables, but some expertsestimate that it is about 4% of the total.‘Technical’ potential for generation inRussia using renewables (i.e. the amount ofgeneration, which is theoretically possible usingexisting renewable technologies to the utmost) hasbeen estimated at 24 billion tonnes of fuelequivalent per year (not including potential of largerivers), which is over 20 times more than Russia’s111

annual domestic primary energy consumption. The‘economic’ potential of renewable energy (i.e. theamount of generation, which is commerciallyfeasible, taking account of costs for renewable andfossil fuel generating, etc.) depends on severalfactors: current state of the economy; cost,availability and quality of fossil fuel energyresources; electricity and heating prices in thecountry and its regions; distribution of technologycapabilities between regions; etc. Potential changeswith time and should be specifically assessed aspart of preparation and implementation of specificprogrammes and projects for renewable energy. Atpresent the economic potential is about 300 tonnesof fuel equivalent per year (which is 30% of annualprimary energy consumption in Russia).There are several reasons for verylimited use of renewables in Russia atpresent: high capital costs of renewableenergy plants; lack of specific mechanisms ofstate funding and support, and need forhighly skilled staff; and lack of informationabout availability and economic potential ofrenewables among government, businessand the general public.Abundance of fossil fuels and surplusgenerating capacity in Russia might be added tothe factors, which discourage development ofrenewables.There are many opportunities forefficient use of renewables in Russia today.Russia is rich in sources of renewable energy,which could be harnessed using moderntechnologies. In particular, renewable sourcescould be used for non-grid electricity suppliesand as local energy sources for heating.Practically all Russian regions have at leastone or two forms of renewable energy that arecommercially viable, and most regions have severalforms. These resources include: small rivers,agriculture and forestry waste, peat deposits, windand solar resources and low-grade heat energy ofthe earth. In some cases, renewable energy is morecost-effective than use of fossil fuels (when supplyof the latter is costly and unreliable).About 10 million people in Russia are notconnected to electricity grids and are currentlyserved by stand-alone generating systems usingeither diesel fuel or gasoline. Nearly half of thesediesel and gasoline systems are unreliablebecause of fuel delivery problems and/or highfuel costs. Remote northern and Far East regionsare supplied with fuel by rail or road, andsometimes by helicopter. Some areas receivewinter supplies by sea or river during the summeras water routes in Russia are only navigableduring limited periods. Fuel deliveries aretherefore unreliable and expensive.Non-grid electricity supplies usingrenewable energy have proved to be costefficientin many countries, since they dispensewith (often high) costs of creating transmissionlines. In Russia a number of solutions could beefficient: hybrid wind-and-diesel systems,biomass boilers, and small hydro power plants,could all be competitive in comparison withconventional technologies using fossil fuels.Heat and hot water could also beprovided to households using renewables.Specific opportunities are as follows:• Direct use of geothermal energy for heatingof buildings, hot water production,temperature control in greenhouses, cropdrying, etc., is commercially viable inKamchatka, the North Caucasus and otherregions with large geothermal resources;• Changeover of district boiler facilities fromfuel, delivered over large distances, tobiomass boilers (using local agriculture andforestry waste);• Use of solar collectors would be efficient insouthern regions of Russia.Heat pump technology, which is widelyused in many countries, deserves special attention.It enables conversion of renewable low-grade heatinto heat, which is usable for heating of premises,with a conversion rate of 4-6 or more. Examples oflow-grade heat sources include: purified water fromaeration plants in large cities, which hastemperature of 16-22°C; circulating water used inturbine condensers at power stations, which hasaverage year-round temperature of 12-25°C; warmwater in abandoned coal mines; geothermal waters;sea water on the Black Sea coast and other water112 National Human Development Report in the Russian Federation 2009

odies; outdoor air; rocks and soil; solar installationsand energy recovery systems. The strategic goalshould be to manufacture heat pumps in Russia,and create the regulatory and engineering support,which could enable large-scale application of thesetechnologies in coming years.In many countries renewable energytechnologies (photoelectric solar elements, smallwind turbines, etc.) have also proven to be morecost-effective than conventional energy sources incertain industrial applications. The number of suchapplications is growing and includes: marine/rivertransport; cathodic protection of pipelines and wellheads; power for off-shore oil and gas platforms;power for telecommunications; and many otherapplications. The list of renewable energyapplications in industry is long and is beingconstantly added to. As well as generatingelectricity in specific circumstances at relativelylower costs, industrial use of renewable creates anew market for renewable energy, stimulatingfaster development of innovative technologies fornon-standard uses.Russia has considerable potential forindustrial applications of renewable energy, butits current use is extremely limited. Renewableenergy should be used in Russia to reduceenvironmental load in cities and towns withenvironmental problems, as well as in recreationand resort areas and specially protected naturalsites. Use of renewables should be a key aspectof innovation-based development in Russianscience, technology and the power sector.Russian technologies in the field ofrenewable energy are already comparable toforeign technologies in their construction andfunction. Russia has enormous experience in theconstruction and use of small hydropower plants(less than 25 MW capacity), and technologylevels in tidal and geothermal energy are aheadof the EU and US. But western countries areahead of Russia in development of windturbines, solar cells and heat pumps.Most Russian technologies are at the R&Dor testing stage, while similar western technologieshave already been commercialized to a greater orlesser extent, enabling production of electricitywith a huge price discount to traditionalgenerating. If Russia can develop a viable domesticmarket for renewable energy technologies basedon the considerable technical and scientificexperience, which it already has, this would kickstartlarge-scale renewable generating.The cost issue is the most crucial factorfor development of renewable energy. The twomain indicators, which determine efficiency, areinitial cost of building renewable power plantsand cost of electricity produced by these plants.Per unit capital costs, as well as cost ofelectricity generation, is significantly lower forpower plants, which use traditional sources ofenergy, than for renewable energy power plants.Cost of electricity produced usingrenewables consists mainly (92%) of capitalinvestments, while operating costs of renewableenergy installations is much lower than that of fuelfiredor nuclear plants, and their ‘fuel’ is free. Costsof electricity production using renewables are notsensitive to fluctuations on energy markets.Share of the fuel component in the saleprice of electricity produced at coal-firedplants is 36% and it is as high as 64% for gasfiredplants. Sustained rise of prices for fossilfuels (particularly oil) is bound to makerenewable energy increasingly competitive, asthe cost of electricity produced fromrenewable energy sources will approach thecost of electricity from conventional powerplants. Since renewable energy isenvironment-friendly and has otheradvantages over conventional power, there isbound to be increasing demand for ‘cleanelectricity’ in developed countries over comingyears, and renewable energy will become fullycompetitive in many countries.However, it is not hard to grasp whyinvestors are skeptical and reluctant to invest indevelopment of alternative energies. Theycannot see the sense of investing heavily inrelatively expensive facilities, future prospects forwhich are not entirely clear, when investments infuel-fired and nuclear power plants offerguaranteed returns. However, there are manyexamples of economic breakthroughs by new113

generating technologies 4 . Also, Russia can drawon the experience of the EU, US and other countries,where government grants to renewable energycompanies make their projects profitable.In western European countries and someUS states certain types of renewable energy arealready fully competitive with conventional fuels.Electricity generating cost at wind-powerinstallations has now fallen to 4 euro-cents perkilowatt-hour thanks to implementation of largescaleprojects, technology improvements, andmore efficient manufacturing.As shown in Figure 6.3, the cost ofelectricity produced from renewable energyresources in Russia is significantly higher than incountries with mature renewable energyindustries. The cost gap between electricityproduced from renewable sources and from fossilfuels is also much bigger in Russia than inWestern Europe and the US.6.4. Examples of renewablesbest practice in RussiaThe Russian government is keen toaccelerate renewable energy development,targeting increase of the renewable share inelectricity production from 0.9% to 4.5% by 2020.Development of renewable energy is anexpensive project, but essential in the currentcontext.Box 6.1. Tidal power plantsCapital costs for construction of a tidalpower plant consist mainly of cost of the dam.The Kislogubskaya Tidal Power Plant made firsteveruse of the floating caissons method:reinforced concrete sections of the dam weremade on the shore and towed to their finallocation at sea. This method enables largesavings on construction costs, and is nowrecognized worldwide as the best way ofbuilding dams for tidal power plants.Renewable energy needs regulatorysupport from government, and since heat andpower production is now almost entirelyprivately-owned, implementation of renewableenergy projects should be based on privatepublicpartnerships.There are a number of successfullyoperating renewable energy facilities in Russia,which can serve as a basis for furtherdevelopment of the sector.The 0.4 MW Kislogubskaya Tidal Power Planthas been operating since 1968 in the Kola Peninsula.Construction and testing of the plant helped toadvance tidal energy technologies (Box 6.1).Technology and design that has provento be effective at the Kislogubskaya Plant will beused to create future tidal plants (Severnaya Plantin Dolgaya Bay, as well as the Mezenskaya andTugurskaya Plants).Russia also has experience, technologyand locally designed equipment for production ofgeothermal energy. In 1999 the Verkhne-Mutnovskaya Geothermal Power Plant wascommissioned with 12 MW installed capacity. Themain advantage of this industrial scale pilot plant isthat the thermal cycle enables environmentfriendlyuse of the geothermal carrier, avoidingdirect contact with the environment through useof air condensers and an ecologically clean cyclefor geothermal fluid utilization.Binary cycle geothermal power plants arealso an interesting option (Box 6.2).Hydro turbine equipment is the othermain cost component for a tidal power plant.The Kislogubskaya plant uses an orthogonalunit with the axis of turbine rotationperpendicular to the water flow. The turbinealways rotates in the same direction regardlessof the direction of the water flow.Simple design and low metalrequirements per unit of the structure made itpossible to reduce costs, and manufacturingand installation time by nearly half.4Average cost of 1 KW of installed capacity at US nuclear power plants which came on-stream in the mid-1980s was USD 3500-4000,while the cost for nuclear power plants about to be commissioned now will not exceed USD 1500 per KW (according to manufacturers).114 National Human Development Report in the Russian Federation 2009

Design and construction of geothermalpower plants helped to accomplish a number ofpractical and scientific tasks. Such plants nowsupply 30% of energy generated by the centralenergy system on the Kamchatka Peninsula. Theplants have helped to improve energy supply inKamchatka, which used to be heavily dependenton expensive deliveries of fuel oil.6.5. The way forward:regulatory and financialsupport for developmentof renewable energy in RussiaMany developed countries have adoptedlong-term programmes to meet globalchallenges by gradual increase of renewables intotal energy production. These countries havealso enacted laws to ensure implementation oftheir programmes.On January 23, 2008, the EuropeanCommission proposed a plan to achieve the 2020target for reducing CO 2 emissions by promotingrational, large-scale use of renewables. Theproposals set the following objectives for theCommission up to 2020:• to achieve 20% renewable energy in total EUenergy consumption;Box 6.2. Geothermal power plantsMost geothermal areas contain waterat medium temperatures (below 200°C),which can be used to extract energy atbinary-cycle power plants. Hot geothermalwater and a secondary fluid with a muchlower boiling point than water pass througha heat exchanger. Heat from the geothermalwater causes the secondary fluid to flash tovapor, which then drives turbines. Becausethis is a closed-loop system, there are almostzero atmospheric emissions. Moderatetemperaturewater is by far the mostabundant geothermal resource and mostgeothermal power plants in the future will bebinary-cycle plants.Figure 6.3Electricity production costs in developed countriesand in Russia (2007)Fuel-fired powerplantsNuclear powerplantsLarge and mid-sizehydro-electricplantsSmall hydro-electricplantsBiomassWind power plantsGeothermal powerplantsSolar powerindustryTidal power plants0 10 20 30 40 50 60euro-cents/KWh,In the developed countries In RussiaSource: Data of the International Energy Agency, CJSC EnergyForecasting Agency, OJSC RusHydro• to lower CO 2 emissions by 20% comparedwith 1990;• to reach a minimum of 10% biofuels inoverall fuel consumption.The Russian government has beenpaying more attention to development ofBinary-cycle plants are built usinginnovative modular construction. The turbinegenerators, electrical equipment, control panel,etc., are assembled as modules by themanufacturer, and shipped to the site, reducingconstruction times and simplifying theconstruction process in harsh climatic conditions.Highly efficient technologies are used toremove water and other substances from thegeothermal heat carrier, ensuring that steam hasthe required qualities when it passes throughthe turbines (moisture at the outlet from theseparator should not exceed 0.1%). Emission ofgeothermal gases into the atmosphere isminimal, making geothermal power stationsenvironment-friendly.115

enewable energy in recent years. In November2007 President Vladimir Putin signed the FederalLaw, ‘On the electric power industry’ (Federal LawNo. 250), which introduced the concept ofrenewable energy sources, and outlined keysupport and development measures forrenewable energy.The Federal Law was followed by a set ofregulations to support renewable energytechnology and markets. The first documentsigned by the Russian government in 2009 wasthe Resolution, ‘Main directions of state policy forimprovement of electrical energy efficiency up to2020 through use of renewables’. The Resolutionsets targets for production of electricity usingrenewable energy sources: the share ofrenewables is to be raised fivefold to 4.5% by theend of 2020.These are very optimistic targets forRussia, which would require commissioning of 22GW of new generating capacity by 2020 (equal toabout two-thirds of total capacity of all thermalpower plants in the Central Federal District). Butthe targets seem modest in comparison withwestern Europe: Germany alone had more than22 GW of wind power capacity in 2007.The Concept for Long-Term Socio-Economic Development of the RussianFederation until 2020 also has renewable targets.The Concept calls for increase of renewableelectricity generation (excluding hydro powerstations over 25 MW) from 8 billion KWh in 2008to 80 billion KWh by 2020.The Russian government has alsoapproved an Energy Strategy until 2030, whichforesees renewable electricity output of at least80-100 billion KWh by that time.However, despite the activities ofgovernment and other interested parties, there hasbeen no significant progress in renewable energydevelopment in Russia during recent years.The process is hampered by delays inadoption of regulations that would define specificmechanisms for promoting renewable energy:premiums in the sale price of renewable energy;compensation of costs for renewable generators inobtaining connection to the grid; etc.If Russia is to achieve its renewableenergy output targets, work must be carried outfor design and improvement of the regulatoryframework.Required measures include developmentof a national policy for renewable energydevelopment and specific practical steps toensure its implementation.6.6. Conclusion1. Power generation using renewablescannot yet fully replace traditional generating inRussia, which has one of the largest fossil fuelendowments of any country in the world. But anoptimal combination of renewable andtraditional generating in specific areas of thecountry has great potential for improving thesocial, economic and environmental situation.2. In Russia, as in other countries,renewable energy needs strong governmentsupport, at least in the initial stages of itsdevelopment. What is needed is not only directsupport, but a system of measures for reductionof carbon dioxide emissions, improvement ofenergy efficiency and increased use ofrenewables.3. Policy targets for the share ofrenewables in Russia’s energy mix must be set ata level, which guarantees lower CO 2 emissionsand meets energy efficiency goals. This is the onlyway for Russia to built a strong, diverse andefficient energy sector and economy.4. Government support is obviouslyessential for development of renewable energyin Russia, but Russian society also has to play apart in this development. The starting point forprogress towards clean energy is the desire ofordinary people to live in a clean environmentand to ensure the health of their families. Greatthings come from small beginnings, and thefuture of our country depends on all of us. Thechangeover to sustainable development has tostart by instilling a sense of responsibility for theenvironment among the young generation ofRussians.116 National Human Development Report in the Russian Federation 2009

Box 6.3. Prospects for nuclear powerNuclear power is not a renewable source ofenergy, and yet it is often viewed as an alternative totraditional energy generation technologies based onburning of fossil fuels. Economic development,increased competition in markets for energyresources, global climate change and a number ofother problems have led to a renaissance of nuclearpower worldwide. The presidential blog, maintainedby Russian President Dmitry Medvedev, notes that ‘adecision has been taken to gradually increase theshare of renewable energy sources in Russia’s overallenergy production. The share of nuclear power willincrease to 25% by 2030’ 5 .Safety is the most important lessonIn the 1970s it appeared that nothing couldstop the relentless advance of nuclear power acrossthe world. It was forecast that by 1990 the totalcapacity of the USSR’s nuclear power stations wouldreach 110 GW, while the world’s total nuclearcapacity would exceed 1000 GW (with the US alonehaving 530 GW) 6 . The nuclear power developmentprogramme adopted by the USSR in 1980 targeted100 GW total capacity of the country’s nuclear powerstations by 1990. This seemingly unstoppableadvance was interrupted by two major accidents: theThree Mile Island incident in the US in 1979 and theChernobyl catastrophe in the USSR in 1986.As a result by 1990 not only had the growthforecasts for nuclear power generation failed tomaterialize, but the whole future of the industry was inquestion. Some countries went so far as to startclosing down their existing nuclear power stationsand others decided not to build new ones.However, the attitude towards nuclear powergradually has changed once again. Many countriesfound that they simply could not do without nucleargenerating, which already produced a very highpercentage of their electrical power, and the accidentshad the salutary effect of making safety paramount indevelopment and operation of nuclear reactors,helping to make them more acceptable to publicopinion.A great deal has been done:• Huge amounts of money were invested inprogrammes to improve the safety of andmodernize first-generation nuclear reactors;• More attention was paid to the whole productioncycle used by the nuclear industry, including thedecommissioning of nuclear reactors anddisposal of nuclear waste;• Safety requirements began to be regulated atinternational as well as national level.The economics of nuclear power stationshave undergone significant changes since the 1980s.In the past, one obvious advantage of nuclear powergeneration was low operating costs compared withpower stations using fossil fuels, since a reactor cancontinue to work for years on very little fuel.However, once oil prices had stabilised the heavysafety overheads associated with use of nuclearpower essentially wiped out the competitiveadvantage derived from extremely low fuelconsumption. Nuclear power stations then had tocompete with other electricity producers on a levelplaying field and, if anything, nuclear power was nowat a disadvantage as it faced generally negativepublic perception.For a decade the world’s nuclear industrytried to adjust to the new reality, find its place andcreate new opportunities for growth. Eventually theseattempts began to pay off. Only a few years ago, mostof the demand for new nuclear power stations was incountries with fast growing economies, such as Chinaand India, but today developed nations are also on theverge of a nuclear renaissance.Environmental priorities played a major rolein changing the attitude towards nuclear power:because of global climate changes the option ofsimply increasing the capacity of fossil fuel powerplants is no longer acceptable, at least not in Europe.Another factor has been the difficult situation on fossilfuel markets in recent years.Today nuclear power stations generate 17%of all electricity produced in the world; their totaldesign capacity is 372 GW, of which more than half islocated in just three countries: the US, France and5www.kremlin.ru6Nuclear Power. Expert Development Estimates. Kurchatov Institute, 1949-2008. Moscow, IZDAT, 2008, page 29.117

Japan (100, 63 and 47 GW respectively). The numberof new nuclear power stations currently underconstruction is quite modest, but plans for futureconstruction are ambitious. Nuclear stations in Chinacurrently have total capacity of 9 GW, but this shouldincrease to at least 40 GW by 2020 and possibly to amuch higher level of 70 GW.Bad heritage problemsSome of the problems the industry has todeal with today have to do with the past rather thanthe future. The principal nuclear powers, particularlythe US and Russia, are burdened with a negativenuclear heritage from the Cold War arms race, whilethe heritage problem for atomic power generation assuch concerns handling of spent nuclear fuel andradioactive waste. In practice, until the late 1980s, thenuclear industry put off resolution of this issue: spentfuel and radioactive waste was allowed to accumulatewithout organisational, technical or economicsolutions for permanent storage.In recent years many nations have passedappropriate laws, introduced necessary financialmechanisms and begun implementing programmesto build facilities for recycling spent nuclear fuel andradioactive waste. Today these issues are being giventop priority, and not only by national legislation: onSeptember 5, 1997 a diplomatic conference of theInternational Atomic Energy Agency in Vienna sealedthe Joint Convention on the Safety of Spent FuelManagement and on the Safety of Radioactive WasteManagement, which imposes a number of obligationson the nations that ratified it. Russia ratified thisConvention in 2005.Russia is taking practical steps to deal with itsnuclear heritage as part of the federal targetprogramme, ‘Ensuring nuclear and radioactive safetyin 2008 and the period until 2015’. The programmecalls for creation of infrastructure for handling spentnuclear fuel and radioactive waste from thermalreactors, and appropriate legislation is also beingdeveloped, most importantly a new federal law onhandling of radioactive waste, a draft version of whichhas already been prepared. The main goal of this lawis to create financial mechanisms for handlingradioactive waste on a long-term basis and to takeinventory of waste that has accumulated so far, whereit is stored, and the conditions of storage, so thatdecisions can be made about what to do with it in thefuture.Long-term challengesThe design of modern reactors anticipatesvery long service lives, of 50-60 years. However, whathas to be taken into account is not only the period,during which a reactor will be in use, but also itsdecommissioning, construction of facilities for safedisposal of radioactive waste, creation of a closed fuelloop and a financial system to support all theseactivities for years to come.Nuclear power is a knowledge-intensiveand high technology industry. Generating electricityusing reactors running on thermal neutrons is nowa standardized industrial technique and in thissense it is an ‘old’ technology, even though it can beclassed as high-tech. Further refinement of thistechnology, primarily to optimize its economic andphysical parameters, has its limits. The fuel reservefor thermal-neutron reactors is restricted by limitedreserves of Uranium 235. Such reactors only use 1%of the uranium and as a consequence they byproducesignificant quantities of underused nuclearfuel. The handling of spent nuclear fuel significantlyincrease the cost of the fuel cycle of a nuclear powerstation.While looking for solutions to its mediumtermproblems, the nuclear power industry must alsothink about its long-term prospects. Developmentand adoption of a new technology in the nuclearindustry takes a very long time, sometimes severaldecades. In effect, therefore, the introduction of newnuclear technology can span several generations,making it impossible to tell which of the new ideasproposed today will be in demand in decades tocome.Set to growFor Russia to sustain its current level of powergeneration, it has to launch new capacity to replacethe power stations that are going offline. At present40% of the country’s total power generating capacity118 National Human Development Report in the Russian Federation 2009

consists of out-dated equipment at fuel-fired powerstations. By 2020, 57% of these stations will haveexceeded their design service life.Russia’s nuclear power industry has 31 powergenerating units with total capacity of 23 GW andcurrently generates 16% of all electric powerconsumed in the country. In European Russia theshare of nuclear power is almost twice higher, at 30%.The design service life of the power generating unitsis 30 years. Even though in the original design it wasexpected that this service life could be extended by10-20 years, Russia has to build new capacity simplybecause, sooner or later, the older nuclear reactors willhave to be decommissioned.However, Russia is on an economic growthtrajectory, which will have to be supported by increaseof power generation, and the power generationsolutions need to be implemented long beforedemand for more power rises. New facilities cannot bebuilt quickly from scratch for purely technical reasons,let alone other considerations. In the nuclear industryit takes a minimum of between five and six years tocomplete a single power generating unit after the sitehas already been surveyed and prepared (thepreparatory stage can also take years). So the sort ofnuclear power industry we will have in 10-20 years isto a large extent determined by decisions we tookyesterday and are taking now.Russia’s energy strategy up to 2020 is basedon a number of basic scenarios describing thecountry’s social and economic development in yearsto come. The official energy strategy assumes thatthe fuel-energy balance will need to be optimizedand that increase in the country’s demand forelectricity will best be met by creating additionalnuclear power capacity, primarily in European Russia.The amount of electricity generated by nuclearpower stations must grow from 130 billion kilowatthours in 2000 to 300 billion kilowatt hour in 2020 inthe best case economic-growth scenario and to 220kilowatt hours if a more moderate scenario plays out.This means that the capacity of nuclear powerstations will have to double while the share ofnuclear power in total electricity production willincrease to 23%.One of the main principles of the officialgovernment plan for deployment of electric powerfacilities up to 2020 is maximum possible increase inthe share of facilities not dependent on fossil fuels, i.e.nuclear and hydro-electric power stations.Development of nuclear power would beimpossible without the following prerequisites:• Availability of appropriate designs andtechnologies;• Acceptable levels of safety;• Nuclear power stations must have certainenvironmental advantages over powergeneration using fossil fuel.Russia is currently building nine nuclearpower generation units at home and abroad. Thebackbone of the country’s nuclear powerdevelopment in the coming decade will be the newstandard power generating unit using a VVER-1200(AES-2006) reactor.New technologiesRussian President Dmitry Medvedev hasincluded improvement of nuclear technologiesamong the country’s five main technologydevelopment priorities 7 . Thanks to large-scaleresearch carried out in the past, Russia has all thenecessary tools for creating a new nuclear technology.The new technology must meet several keyrequirements, as follows:• it must be safe;• it must be competitive with other technologies;• it must not be reliant on limited fuel reserves;• it must be environment friendly;• it must help solve nuclear non-proliferation tasks.All these requirements are met by newtechnologies based on use of fast reactors in a closedfuel loop.Fast reactors, also known as fast neutronreactors, represent a strategic innovation in thenuclear energy sector. Five countries (Russia, France,Japan, India and China) have achieved mostsignificant results in development of thistechnology, and Russia is leading the way thanks tocompletion of the Beloyarsk nuclear power station,7Dmitry Medvedev: ‘Forward, Russia!’. September 10, 2009.119

which is the world’s first and only power stationusing a BN-600 fast neutron reactor. The next step indevelopment the fast neutron technology is the BN-800 reactor, which is now being built at Beloyarskand will use mixed oxide fuel: a blend of plutoniumand depleted uranium (so-called MOX fuel), whichcan be made from depleted plutonium byproducedat thermal neutron reactors. A facility formaking MOX fuel is being built simultaneously withthe BN-800 reactor, and both are scheduled forlaunch in 2014.The idea of MOX fuel is not new: this fuel iscurrently used by a number of nuclear power stationsin Europe, primarily in France. Its advantages are thatit uses more energy-efficient plutonium and resolvesthe problems of disposal. Fast reactors can use thesame fuel multiple times, creating a closed fuel loopand resolving two important issues:• Providing the nuclear power industry with longtermfuel supplies;• Reducing the amount of radioactive waste thathas to be disposed of, and consequently the costof disposal.Fast reactors with a sodium heat-carrierare not the only recent innovation in the industry.Designs are now being developed for fast reactorsthat use liquefied heavy metals (lead and bismuthlead).The primary importance of this technologyis its potential application: today’s nuclear powerstations are very large facilities, but reactors usingheavy metals are designed for use in small- tomedium-scale power stations, which candeployed in remote areas or regions where largepower stations are simply not needed. Variousalternative fuels for fast reactors are also beinglooked at, and projects are in hand to use nuclearreactors for non-electric purposes, such as waterdesalination.Research needs to be diversified tomaintain the industry’s innovative potential andcreate a ‘production line’ of reactor and fueltechnologies at different stages of preparedness forindustrial use. These are the aims of the federaltarget programme, ‘New Generation Nuclear PowerTechnologies for 2010–2015 and through 2020’,designed to create a technological platform fornuclear power stations based on closed nuclear fuelloops with fast reactors, which would meet thecountry’s increasing demand for energy resourcesand increase the efficiency of natural uranium andspent nuclear fuel utilisation.Shortage of specialistsThe current nuclear renaissance has made itclear to all developed nations that the nuclearindustry needs to preserve and develop its humanresources. In the recent past, negative publicperception and unclear prospects made jobs in thenuclear power industry and nuclear science lessprestigious and promising. As a result the industry haslost nearly a generation of engineers and specialists,who chose not to pursue careers in the nuclearindustry.Nearly all countries have felt this humanresource drain in the nuclear sector and begun toimplement more aggressive programmes toattract and train new staff. India and China havealready managed to significantly improve theirhuman resource capacity in nuclear engineering.Russia also suffered the full impact of nuclearstagnation, exacerbated by cuts in military andresearch programmes. The crisis of the 1990s alsomade a negative contribution. All of Russia’sengineering professions have experiencedshortages of trained staff, so that engineeringpositions in many industries, including nuclear,still have to be filled with older employees. If newnuclear technologies are to be developed andnew power stations are to be built, the industryneeds a long-term supply of skilled humanresources.Transfer of knowledge from onegeneration of technicians to the next is aprerequisite for preserving and developing anyhigh-tech industry, and there is a risk that theageing generation of specialists in the nuclearindustry will disappear, leaving few heirs.Attention is therefore being focused, as a matterof urgency, on training of new specialists andcreation of a system that will attract and retainyoung engineers in the nuclear sector, thanks toadequate opportunities for social and professionaldevelopment.120 National Human Development Report in the Russian Federation 2009

ConclusionThe world’s nuclear power sector is driven bya handful of nations from the elite nuclear club, whichhave the resources necessary to carry out R&D andimplement pilot projects. These same countriesdominate the international market for nucleartechnologies. They shoulder the burden of sectordevelopment expenses and determine the direction,in which the rest of the world will move with respectto nuclear power.Clearly, the nuclear sector faces a numberof problems today, which no single nation canresolve alone. For this reason there is muchdiscussion of the need to create an effective systemfor international cooperation in order to seeksolutions that can benefit all countries. Nuclearfusion is one example of such cooperation. Otherissues under discussion include establishment ofinternational uranium enrichment centers, orcenters for producing and recycling nuclear fuel.Such centers will strengthen nuclear nonproliferationwhile ensuring that all nations haveequal access to nuclear power generationtechnologies.Today Russia is implementing an integratedstate nuclear power policy that aims to solve problemsstemming from negative heritage and to create newtechnologies. Russia is one of few countries that hasdone research and implemented projects inpractically all branches of nuclear science and canoffer solutions for a broad range of questions relatedto nuclear power, from production and recycling ofnuclear fuel to new reactor technologies. Bypreserving and developing this innovative potential,Russia can become a leader in the nuclear powersector and significantly improve its positions in theinternational market for nuclear technologies.121

Chapter 7The Energy Industryand Environmental SustainabilityRussia’s energy sector is the foundationof the country’s economy, but it is also the maincause of pollution and environmentaldegradation. The consequences of fuel & energysector development for the environment are stillinsufficiently studied, both as regards the ‘old’energy industries, which have prevailed duringfour decades of rapid sector growth, and asregards alternative forms of energy provision forthe needs of the economy.Production, transportation, and use ofoil, natural gas, and coal on the scale seentoday are inevitably associated with colossaladverse effect on the environment – ‘colossal’in terms of the size of the impact, its depth (inthe literal and figurative senses) and its extent.Debates over the acceptability, in principle, ofrisks related to nuclear power are stillcontinuing; nearly all hydropower projectsprovoke objections on environmentalgrounds; and even renewable energy projects,which are supported by the majority ofenvironmentalists, are criticized by other‘greens’ for the impact they will have on theenvironment (wind farms are unsightly andlethal to unsuspecting birds; the process ofmanufacturing solar cells and their disposalafter use have negative effects; and there isgrowing concern that biofuels are not asenvironmentally friendly as we would likethem to be, especially those from crops andforestry; etc.).Table 7.1Fixed source emission rates, thousand tonnes 1Years1996 1999 2000 2001 2002 2003 2004 2007RUSSIAN FEDERATION 20274 18540 18820 19124 19481 19829 20491 20491Industry 16661 14704 15222 15492 15842 15875 16733 *Oil extraction 1309 1329 1619 2119 3113 3227 4195 3706Gas industry 542 456 501 476 537 591 651 508Coal industry 596 560 604 786 819 764 757 1063Power industry 4748 3935 3857 3656 3353 3447 3258 2924Oil-refining industry 850 748 736 679 621 594 581 795Chemical and petrochemical industry 413 415 427 437 428 403 408 393Iron and steel industry 2535 2330 2396 2268 2223 2178 2203 *Non-ferrous metallurgy industry 3598 3312 3477 3405 3297 3262 3287 *Machine buildingand metal working industry602 454 433 433 370 356 340 *Woodworking industry and* Pulp and paper industry434 367 379 372 332 309 304 *Housing utilities 658 943 981 999 1058 1078 991 *Agriculture 111 121 133 126 127 119 101Transportation 2370 2394 2062 2055 2005 2175 2137 *incl. pipelines in general use 2024 2111 1797 1787 1720 1890 1826 1850* No official data1The 2000 Russia’s National Environmental Report, M., The National Center for Environmental Programs (Gosecocenter), 2001, 562 p; The2003 Russia’s National Environmental Report, M., The National Center for Environmental Programs (Gosecocenter), 2004, 446 p; The 2004Russia’s National Environmental Report, M., ANO The Center for International Projects, 2005, 493 p; The 2006 Russia’s National EnvironmentalReport, M., ANO The Center for International Projects, 2007, 500 p.122 National Human Development Report in the Russian Federation 2009

7.1. Impact of the fuel& energy sectoron the environment:atmospheric emissionsThe fuel industry, especially oilproduction, is the absolute leader among energysector branches by the level of adverseenvironmental effects arising from its operations.In 2004 the fuel industry took first place byvolume of atmospheric emissions among 12industries identified by the standard classificationof the Federal Service of State Statistics (Rosstat),and it still occupies first place today, which is anunprecedented phenomenon for any countrywith a diversified economy. Table 7.1 shows airpollution by fixed sources in 1996–2007 andgives an impression of the energy sector’scontribution. In 2004, the fuel, powerengineering,and oil-refining industriesaccounted for more than 54% of industrialpollutant emissions into the atmosphere,compared with 48% in 1996 and 2000.In the 1990s, Russian atmosphericemissions by the overall economy and byindustry were on the decrease, and no branch ofthe economy or industry showed any significantincrease of emissions in any year. There was anabrupt change at the turn of the century, andemissions grew steadily in 2000–2006. Table 7.1shows that this increase was due mainly to thefuel industry, especially oil production, whileother sectors either continued to reduceemissions or kept them roughly constant. Thelarge increase in oil production (31.7% inphysical terms) during 2000–2004 is notsufficient to explain the enormous jump inemissions, which was more than threefold.Initially (in 2000–2001), attempts were made toexplain the leap by improvement of themeasurement system, which looked strange inthe context of factual breakdown of the Russianenvironmental control system in those years andalmost complete halting of environmentalmonitoring of polluters, previously carried outby territorial agencies of the Russian StateCommittee for Environmental Protection(Goskomgeologiya). In 2002 it became evidentthat worsening of adverse environmental effectsfrom oil production was due primarily to everincreasing amounts of secondary gas flaring,which reflected disregard of environmentalissues by most oil companies.Unfortunately, there is no officialinformation, which would enable us to continuethe series for all sectors in 2005 and subsequentyears: from 2005 the content and form ofprovision of information about environmentalimpact due to the economy in National Reportson the State of the Environment in the RussianTable 7.2Air pollutant emission changes in main sectors, 1999-2007 (thousand tonnes and %)YearsGrowth ratesIndustries1999 2004 2007 (3)-(2) (5)/(2),% (4)-(2) (7)/(2),%Industry 14704 16733 * 2029 14Oil extraction 1329 4195 3706 2866 216 2377 179Coal industry 560 757 1063 197 35 503 90Gas industry 456 651 508 195 43 52 11Power industry 3936 3258 2924 -678 -17 -1012 -26Oil-refining industry 748 581 795 -167 -22 47 6Non-ferrous metallurgyindustry3312 3287 * -25 -1Iron and steel industry 2330 2203 * -127 -5 - -* No official data123

Table 7.3Volumes of wastewater discharge into surface water, million cubic meters 2YearsIndustries1996 1999 2000 2001 2002 2003 2004RUSSIAN FEDERATION 22414 20657 20291 19773 19767 18961 18535Industry 7444 6445 6514 6352 6176 5852 16733Oil extraction 4.7 4.3 7.0 3.7 4.2 3.0 3.7Gas industry 5.9 3.2 10.3 11.5 11.6 11.7 10.7Coal industry 658 396 380 432 395 372 414Power industry 1073 995 946 860 768 791 685Oil refining industry 228 164 153 159 145 133 210Chemical and petrochemical industry 1363 1249 1280 1184 1303 1246 1126Iron and steel industry 705 699 755 752 686 628 610Machine building and metalworking 641 597 510 484 473 456 446Non-ferrous metallurgy industry 483 364 393 439 421 420 443Housing utilities 12072 12082 12133 11869 12206 11573 11432Agriculture 2574 1769 1408 1315 1190 1360 1283Table 7.4Volume of wastewater discharge into surfacewater by economic activities, million cubicmeters 3Typeof economic activityYears2005 2006 2007Russian Federation, total 17727 17489 17176Crude oil and natural gasproduction and relatedservicesExtraction of hard coal,lignite and peatProduction, transmissionand distribution ofelectricity, gas, steam andhot waterChemical production,rubber and plastic productmanufacturing40.7 54.7 42.8441 398 444816 826 893897 855 704Federation were changed. In the newer reportsthe national economy is no longer viewed as aset of industries. Instead, the data represent theenvironmental impact of specific economicactivities. Excerpts from these reports, groupedin order to harmonize as far as possible with thestructure of Table 1, are represented in the lastcolumn. In 2006 emissions from oil productiondecreased by 12% in comparison with theprevious year due to introduction by severalcompanies of facilities for collection andutilization of secondary gas. However, emissionsgrowth resumed in the next year, matching therate of extraction growth. Table 7.2 presents dataon growth of atmospheric emissions by industryin general and by seven major pollutingindustries in 1996–2007.7.2. Environmental impactof the fuel & energy sector:wastewater dischargeAgriculture, hunting andrelated service activities1033 1136 1039Volumes of wastewater and solid wasteare insignificant at oil & gas production2See Appendix 13Russia National Environmental Report, 2007, M., ANO The Center for International Projects, 2008, 504 p.124 National Human Development Report in the Russian Federation 2009

Table 7.5Solid waste from production and consumption,million tonnes 4IndustriesTHE RUSSIANFEDERATIONГоды2002 2003 20042035 2614 2635Industry 1989 2571 2599Oil extraction 0.9 1.4 0.6Table 7.6Production and consumption waste by economicactivities, million tonnes 6Type of economic activityYears 52006 2007Russian Federation, total 3519 3899Fossil fuel extraction 1732 1636Gas industry 0.3 0.3 0.1Coal industry 1054 1243 1443Power industry 57 73 58Production and distribution of electricity,gas and waterChemicals production, rubber and plasticproducts manufacturing73.5 70.844.8 46.3Oil-refining industry 1.6 0.9 1.0Chemical andpetrochemical industry116 120 133Iron and steel industry 398 478 429Non-ferrous metallurgyindustry251 425 459Housing utilities 7.8 17 15Agriculture 8.3 15 13Other sectors 30 11 8.4Metallurgy and fabricated metal productmanufacturing190 145Construction 17.8 62.8Agriculture, hunting and forestry 17.3 26.6Wholesale and retail trade, repair ofmotor vehicles, motorcycles, andpersonal and household goodsReal estate operations,rental and service provision143 31150.9 386.3enterprises but very significant in the coalindustry (particularly for solid waste).Unfortunately, official statistics are incompleteand inconsistent. The National Report on theState of the Environment in the RussianFederation in 2000 contains information ongeneration of industrial toxic waste, which isclassified by hazards rather than sources, butlacks data on generation of production andconsumption waste (over a five-year periodfrom 1996 to 2000), while the National Reportfor 2004 lacks the former information butshows the latter (for a three-year period from2002 to 2004).Environmental impact of the fuelsector (oil, gas and coal industries) comparedwith some branches of industry and thenational economy (other major contributors towater pollution and solid waste) is presentedby Table 7.3.Further trends in wastewater discharge(2005–2006) for fuel sector industries arepresented in Table 7.4, but in a different groupcompared with Table 7.3, which, naturally,makes it impossible to make a directcomparison. However, these data indicate thatwhile the trend in the overall economy wastowards slow decline of wastewater discharge4Russia National Environmental Report, 2004, M., ANO The Center for International Projects, 2005, 493 p.5The data for 2005 is not included in the National reports (and in industrial reports as well).6Russia National Environmental Report, 2006, M., ANO The Center for International Projects, 2008, 504 p.125

(by about 1-2% per year, except in 2005, whenthe decline exceeded 4%), the fuel & energysector saw fluctuations between years whenwastewater discharge declined and years whenit increased. There is no convincing explanationfor these fluctuations, which gives reason todoubt accuracy of data presented in NationalReports on the State of the Environment in theRussian Federation.7.3. Environmental impactof the fuel & energyindustry: solid wastegenerationTable 7.5 presents data on solid waste for2002–2004. Data for 2006–2007 are shown in Table7.6 (in a different grouping, as already noted).The coal industry is responsible forthe largest amount of solid waste, whichcontinues to grow at a rate of 16-18%annually. Such rates are not justified bygrowth of output (about 2%) or worseningcoal quality, which could only account for 1-2% of the growth at most. Volumes of solidwaste generated by oil & gas extraction andtransportation pose little or no risk to theenvironment.Many of the indicators presented inNational Reports on the State of the Environmentin the Russian Federation, especially in the lastseven of them, require explanations, which thereports do not give. There is a principle of‘environmental hazard’, which operates in theopposite way to the presumption of innocence incriminal law, and which is often used in proceduresof environmental expertise (audit), environmentalimpact assessment, etc. All doubts about theveracity of data in the official sources should betreated in accordance with this principle, i.e. itshould be assumed that the actual situation iscertainly not better than such data suggest.7.4. Impact of the fuel& energy sectoron the environment:disturbance of landThere is no doubt that oil producerscould have produced the same quantities of oilwithout disturbing such huge tracts of land(Table 7.7 7 ) through more efficient location andexploitation of wells, improvement of reservoirnetworks, use of better pipes, and (particularly)better construction and assembly work duringinstallation of trunk pipelines and reservoirsystems. About 100,000 wells had been drilled bythe mid–1990s in Khanty-Mansi AutonomousDistrict alone [On the State…], a large part ofwhich did not recoup their costs due to mistakesin operation or choice of location. Table 7.7 showsthat the fuel industry, oil & gas pipelineconstruction, and oil & gas geologicalprospecting taken together accounted for 60%of the land, which was disturbed in 2004, andthese industries represented as much as 72% ofthe total in 2007! However, these industries,which are the wealthiest in the national economyand Russia’s main foreign currency earners,accounted for less than 50% of land reclamationin 2004 and less than 60% in 2007. Landreclamation by the oil industry in 2004 was only74% of land disturbed in the same year (the ratiofor the gas industry was less than 57%), and only45% in 2007. This is further proof of disregard forenvironmental problems by the majority of fuelcompanies. By contrast the coal and electricpower industries have fulfilled their landreclamation responsibilities. This is partly due topressure from public environmentalorganizations, local authorities and the generalpublic, since the coal and electricity industries(unlike oil & gas) are located in densely populatedareas. However, growing indifference on the partof government towards environmental issues hasled to a negative trend: in 2007 the coal and7The first data on disturbed and reclaimed lands appeared in the 2004 National Report. The transition from grouping land disturbancedata by industry to grouping it by type of business was not made in the 2005 National Report, therefore a uniform table for 2004-2007cannot be made. Nevertheless, it seems sufficient to give data only for the starting and finishing parts of that period.126 National Human Development Report in the Russian Federation 2009

Table 7.7Areas of disturbed and reclaimed lands in 2004 8IndustryDisturbedlandTotal area ofdisturbed land,end of periodReclaimed land2004 2007 2004 2007 2004 2007Russia 58 219 46 165 892 419 919 034 52 175 29 480Oil extraction 22 372 23 447 94 134 114 373 16 453 10 632Gas industry 6 449 2 811 81 975 84 283 3 641 3 430Coal industry 1 338 1 637 103 622 105 555 2 494 1 160Geological prospecting 4 019 2 425 26 976 29 441 3 700 2 114Peat industry 53 11 59 063 57 254 752 525Oil and gas pipeline construction 1 859 3 027 10 708 13 853 1 466 868Power industry 414 263 26 845 26 848 1 066 36Iron and steel industry 645 221 51 197 51 500 232 42Non-ferrous metallurgy 17 600 6 923 108 360 107 116 16 785 6 392Chemicaland petrochemical Industry120 5 10 035 9 009 554 160Сonstruction materials industry 845 666 49 281 49 242 865 364Railway construction 247 185 4 357 4 469 387 63Road construction 1 020 696 20 092 19 677 1 568 655Agriculture 274 542 121 756 115 922 912 415Forestry 99 1 560 66 233 64 384 179 1 862Construction relating to water bodies andimprovement work70 175 10 301 10 628 24 28Other industries 795 1 571 47 494 55 480 1 097 734power industries disturbed more land than theyreclaimed (though the gas industry met its landreclamation responsibilities in that year).As can be seen, the fuel & energyindustry ranks first among all economic sectorsby the land area, which it disturbs.7.5. Impact of the fuel & energysector on the environment:oil spillsThere are almost no official statistics inRussia on oil spills due to blow-outs and otheraccidents on trunk oil pipelines and at reservoirsystems in oil-producing areas. So the oil industryescapes negative attention, which it mightotherwise attract.Some impression of the frequency andscale of oil spills can be gathered fromfragmentary information in the media, relating toparticular regions and years 9 [Fundamentals of ...,1989; Mazur, 1995; Problems of Geography ...,1996; Solntseva, 1998]. The periodical ‘Neft Rossii’(‘Russian Oil’) has reported that 545 accidentsoccurred on trunk pipelines alone between 1992and 2001 and there was no trend towardsreduction of the average number of accidents8Russia National Environmental Report, 2004. M., ANO The Center for International Projects, 2005, 493 p; Russia National EnvironmentalReport, 2007. M.9For example, the average annual oil product content in the Okhinka River (Sakhalin) in 2000 was 368 times higher than the official limitand the maximum recorded concentration was 640 times above the limit The Russia National Environmental Report, 2000.127

per year (50-60). In 2001, there were 42,000instances of leaks from field pipelines, resultingin spillage of at least 65000 m 3 of oil and stratawater [Russian Oil, 2003, № 1; № 2] 10 . Accordingto Neva-Ladoga Water Authority, there were atleast 35 oil spills each year in the city ofSt.Petersburg and Leningrad Region due toshipping accidents in 1999–2003 [Barenboim,2005] 11 . Six major oil spills amounting to 42,290tonnes of crude oil (and, on one case,combustion of the spillage) were officiallyregistered in 1993–2001 on pipelines in IrkutskRegion operated by Transneft (the nationalpipeline monopoly) between Krasnoyarsk andIrkutsk and Omsk and Irkutsk (reported in letterNo. 4-9-758, dated August 23, 2002, from theIrkutsk Regional Branch of the Ministry of NaturalResources of the Russian Federation) [cited in‘Green World’, 2006]) 12 .Impact of oil spillages from pipelines areessentially disregarded in accounting of disturbedland. This seems to be because most spillagesoccur in ‘undeveloped’ areas – areas, which havenot been put to any (or to minimal) use in theeconomy. Local impact of spillages are ofteneliminated (though not completely) by springfloods within a year or a few years without thepipeline owner or emergency or environmentalservices taking any action. The fact that nearlyevery spillage of oil or oil products entailscontamination of water bodies is not taken intoaccount by official statistics on adverseenvironmental impacts, because suchcontamination does not come under any of thestatistical headings: ‘atmospheric pollutantemissions’, ‘waste water discharge’, ‘wasteformation’, ‘land disturbance’, ‘radiationcontamination’, ‘electromagnetic radiation’, ‘noise’,and ‘vibration’. The hydro-ecological sub-systemof environmental monitoring shows that oilcontamination of water bodies ranks fourth byvolume among types of water pollution (aftersuspended solids, phosphorus, and ironcompounds). Discharges of oil products andeffluent from oil operations were 5600, 6600,3700, 4600 and 3100 tonnes in respective yearfrom 2003 until 2007, and oil industry pollution isthe main type of pollution in many of Russia’srivers lakes and (particularly) reservoirs) 13 . Thesources of pollution in specific cases (andtherefore the responsible parties) are rarelyidentified, mainly because there is no nationalsystem for monitoring chief sources of oilpollution and no information on the shares ofdifferent economic sectors in pollution of waterbodies. However, the figures adduced above leaveno doubt that the share of oil production andpipeline transport in pollution is very high. Minorleakage from underwater pipelines (due to thehigh rate of wear, which is typical of most Russiantrunk pipelines) makes a steady contribution towater contamination. One example is anunderwater pipeline across the Sura River, whichflows into the Cheboksary Reservoir, where a leakwas detected by accident in the course ofprospecting work [Barenboim, 2005] 14 . But sharesof the processing industry and the transportationsector (mainly water and road transport) inpollution of water bodies are also large.To conclude, therefore, official data on oilspills and related environmental damage to soil,terrestrial ecosystems, ecotones and waterbodies are lacking or are highly inadequate , butthere is no doubt that such damage is very large.7.6. Impact of the fuel & energysector on the environment:pressure on ecosystemsThe outcome of economic impacts onecosystems depends on both the degree and10Oil of Russia, 2003, No.1, pp.104-107; Oil of Russia, 2003, No.2, pp.84-88.11G.M.Barenboym, Tha Main Scientific and Practical Results of GTsVM Operation and their Development Perspectives, M, 2006, 34 p.;12Quote: “Green World”, 2006, No.2 (471), p.13.13For example, the average annual oil product content in the Okhinka River (Sakhalin) in 2000 was 368 times higher than the official limitand the maximum recorded concentration was 640 times above the limit The Russia National Environmental Report, 2000, M., The NationalCenter for Environmental Programs (Gosecocenter), M, The National Center for Environmental Programs (Gosecocenter).14Quote: G.M.Barenboym, Works.128 National Human Development Report in the Russian Federation 2009

nature of the impact (atmospheric emissions,wastewater discharge, solid waste disposal, landdisturbance, etc.), as well as specific features ofthe ecosystems, which are affected (scale andquality of land reclamation is also important).Russia has enormous geography (17 million sq.km.) and encompasses a great variety of climatezones and an even greater variety of ecosystems.Hydrocarbon production is carried out all over thecountry as well as offshore, affecting terrestrialand marine ecosystems, but is located mainly innorthern areas: southern tundra, forest tundra,and taiga. Major increase of oil & gas productionis also to be expected in the near future on theoffshore continental shelf. Atmospheric emissionsby the fuel & energy sector are carried over vastdistances. It has been established that sulfurdioxide (SO 2 ) and nitrogen oxides (NO x ), whichare the primary causes of acid rain, can travel upto 4000 km from their source. Many lakes,including Lake Baikal, absorb more pollutantsfrom the air than from discharge water.Carrying of air pollutants over largedistances makes it difficult to estimate theirquantitative impact on ecosystems. Mixture ofpollutants from various sources (industries) in theatmosphere adds to the difficulties. So, our abilityto determine the share attributable to each typeof source is limited to relatively simple cases.Satisfactory results can be achieved in modelingof air pollution by one or two industrial sources,but accurate estimates for three sources are notyet possible.Methods of observation from a distanceallow identification of impact zones, whereecosystems are under pressure from a specificpollutant source, and fuel & energy enterprisesfigure frequently among such polluters. Mostsuch enterprises are located in undevelopedareas, in the ‘wilderness’, and this makes it mucheasier to identify facilities, which are havingmajor impact on their close surroundings. This isalso true for pollution of coastal areas and waterbodies by leaks from pipelines. High-resolutionsatellite images are available, but they costmoney and they need to be supplemented byintegrated ground-based observations, whichalso require significant investment, especially inremote areas. Analysis techniques for distancemonitoring data now exist, which can identify thesource of close impact and track the spread of oilpollution (‘spots’) in water bodies (seas, lakes,reservoirs, rivers, canals). Wide implementationof these techniques is hampered by shortage ofmonitoring information and of money to pay forits collection. The biggest obstacles to progress,however, is the absence of any authority in Russiacommitted to carrying out these tasks (theMinistry of Natural Resources and Ecology of theRussian Federation is principally focused onmaximizing natural resource extraction and noton preventing environmental damage oraddressing other environmental concerns).Meanwhile, for want of monitoring, assessmentand forecasts of fuel & energy impact onecosystems, and for want of estimates of theeconomic damage arising from these impacts,there is a risk that Russia’s biggest ‘bread-winning’sector could become the destroyer of Russia’snatural environment, and, consequently, thedestroyer of its economy.In order to maintain the current level ofoil production in Russia, it will be necessary toexpand the geography of production and todiscover and develop new oil deposits,particularly in eastern Siberia and offshore. Thesame is true for the gas industry. The coalindustry will open new mines adjacent to existingfacilities. If per unit indicators of environmentalimpact (emission, discharge and solid waste perunit of production or transportation of rawmaterials) remain at current levels, there will bemore pressure on ecosystems, which are alreadysuffering large impacts. Russia is currently aglobal environmental donor, since overall impactof Russia's economy on the environment is lessthan the useful yield of Russian ecosystems forsustaining the global ecological balance. Russianboreal forests and wetlands (where most of thecountry’s fuel & energy enterprises are located)are important carbon sinks. But Russia could losethis role if it allows the unfettered fuel & energyexpansion, which we have just described, tocontinue.129

7.7. Impact of the fuel & energyindustry on the environment:concluding remarksIn the sections above, we have discussedmain environmental impacts of the energy sector(mainly the fuel industry, but to a lesser extent,electric power generating and power engineering).There has not been room for discussion of otherdangerous environmental impacts from uraniumore mining and enrichment [OECD ..., 1999;Proceedings ..., 2003] 15 , production of fuel elementsfor nuclear power plants, and operation of NPPsthemselves (see, in particular, [Yablokov, 1997] forenvironmental concerns about nuclear power) 16 .We have also had to omit analysis of theenvironmental implications of oil & gas productionon the continental shelf, construction andoperation of oil & gas pipelines on the sea-bed, (see[Patin, 2001; Aibulatov, 2005]) 17 , environmentalproblems related to renewable geo-energy, etc.The 2009 Sayano–Shushenskaya hydroelectricaccident has also raised new concerns about safetyin the hydro-electricity industry. Environmentalconcerns related to this sub-sector havetraditionally included flooding of land to createartificial reservoirs, coastal flooding, shallow waterpropagation with sharp deterioration of waterquality, abrasion, local climate change, etc.), ButSayano-Shushenskaya raises serious concernsabout equipment dangers, which seem to havebeen underestimated. These problemsundoubtedly require large-scale monograph study,similar to electricity sector research in themid–1990s [Lyalikov et al, 1995] 18 .Every country in the world will continue toneed considerable amounts of energy, includingfossil fuels and their derivatives, for the foreseeablefuture. The question is how much will be needed,taking account of environmental factors, energysubstitution, import potential and, especially,pricing (not only for energy, but for everythingproduced or used by energy-consumingindustries). Progress of science and technologylowers energy intensity in all sectors, but to varyingdegrees and limits. Negative impact of extractiveenterprises on the environment is inevitable andno technologies can reduce it beyond an objectivelimit. More difficult mining and extractionconditions tend to raise this limit, and that entails aprinciple of diminishing returns in environmentalimpact reduction: increasingly difficult productionconditions in Russia, as the most accessibleresources are depleted, will makes it increasinglydifficult to minimize environmental impacts astime goes on.In manufacturing industries that processmaterials, which have already been removedfrom natural systems, there is at least atheoretical possibility of reducing environmentalimpact to zero, though with two significantreservations: firstly, such possibility only concernsthe production process and not what thenhappen to the manufactured product; secondly,heat pollution, which obviously has some nonzerolow limit, is not taken into consideration.With these two limitations, technologicalprogress should steadily reduce negative impactof the manufacturing sector on the environment.The function of the extractive industries(not only mining, but also forestry, agriculture,fisheries, hunting, etc.) is extraction of naturalsubstances from the environment and, whateverthe extraction method, there will be someinsuperable limit to reduction of negative impactfrom this process, regardless of any technologicaladvances. This is a principle difference between theraw material sector and manufacturing industries.15E.g. see: OECD Environmental Activities in Uranium Mining Milling. A Joint Report by the OECD Nuclear Energy Agency and the InternationalAtomic Energy Agency. 1999. 230 p.; Proceedings of International Conference Uranium Geochemistry 2003: Uranium Deposits – NaturalAnalogs – Environment. Wien, 2003. 380 p.16The environmentalists’ claims to the nuclear power segment are found in the following book: A.V.Yablokov, Nuclear Mythology:Environmentalist’s View of Atomic Energy, M, Nauka, 1997, 272 p.17See: S.A.Patin, Oil and the Continental Shelf Environment, M, VNIRO, 2001, 247 p.; N.A.Aybulatov, Russia’s Activities in the Coastal Area andEnvironmental Issues, M., 2005, 364 p.18Such an investigation was done in mid 1990-s only for a single sector of the Fuel and Energy Complex – electric power industry. See:G.N.Lyalik, S.G.Kostina, L.N.Shapiro, E.I.Pustovoyt, Electric Power Industry and the Nature: Environmental Issues of Electric Power Industry,M, Energoatomizdat, 1995, 352 p.130 National Human Development Report in the Russian Federation 2009

Further, the economic cost ofenvironmental impacts is rising at an acceleratingrate, and will continue to do. This factor andincrease of impacts on the environment due toincreasingly difficult extraction conditions(particularly in Russia), will widen the gapbetween extraction and processing in reductionof environmental impacts (this phenomenon hasalready been noted in analysis of structuraltendencies in the economy of various countries,though it has often been left unexplained).Conclusions about the graveenvironmental impact of Russian fuel & energyproducers and converters are evident, despiteincompleteness of our survey and superficialnature of our analysis. Impacts from the fuel &energy sector are large and (what is of moreconcern) they are growing. There have beenoverall improvements in the environmentalperformance of electricity generating and oilrefining, but any improvements on the part of oil,gas and coal producers have been on minorcounts. It is beyond question that reduction offuel &energy production would have positiveenvironmental effects. The question is whethersuch reduction can be achieved withoutundermining industrial output and througheconomically acceptable means. To answer thisquestion, we need to briefly review how theenergy produced by the fuel & energy industry isused in the Russian economy.Table 7.8The energy concern index, data for the beginning of 1990CountryClimate severity indexTotalComparedwith the USA7.8. The connection betweencold climate and energyconsumption in RussiaAfter analyzing the impact of Russia's fuel& energy industry on the environment, it wouldbe natural to pose the opposite question, and toinvestigate impact of the environment on energyproduction and consumption. However, such aninvestigation, if carried out in full, would take usfar beyond the scope of this Report. We willtherefore limit the discussion to impact of theclimate on energy consumption in the housingutility sector.Energy intensity of Russian housingutilities is catastrophically high, and that is theresult of a careless, irresponsible attitude, ratherthan of Russia’s severe climate as such. The‘energy concern index’ (it might also be called an‘energy savings index’) proposed by [Danilov,Shchelokov, 2002] 19 is of considerable interestwith respect to energy use in housing utilitiesand also in other sectors. The index definition andits method of calculation, as well as its values forseveral countries are presented in Table 7.8.Like any other ‘designed’ index, theenergy concern index cannot pretend to offer anaccurate description of reality: in particular, itignores the structure of the housing stock, as wellas some other factors. But it undoubtedly givesan insight into the scale of wasteful energyHeat insulation productionm 3 per thousandresidentsper yearsame, withallowance forclimate severityindex:(4) / (3)Energy concernindex:(5) comparedwith the USAUSA 2700 1 500 500 1Sweden 4020 1.49 600 403 0.8Finland 4120 1.52 420 276 0.55Russia 5000 1.85 90 48.6 0.1See Appendix 19 with amendments19N.I. Danilov, Ya.M. Schelokov, The Power Saving Encyclopedia, Ekaterinburg, Sokrat Publishing House, 2002, 352p.131

practices in Russia's housing utilities sector,which are usually attributed to harsh climaticconditions.If the energy concern index in Russia is5.5-8 times lower than that of our Nordicneighbors, it is unsurprising that unit heat use forheating residential buildings in Russia (500–600kWh/m 2 per year) is several times higher than inSweden or Finland (135 kWh/m 2 per year), whereclimatic conditions are similar to the average inRussia (averaging is carried out with adjustmentfor population density, and not simply over thecountry’s territory). Table 7.8 shows heatinsulation of all premises (not only housing), asgross output of heat insulation corresponds topopulation size, rather than to floor area ofparticular premises. Severe climate is often citedto excuse higher energy costs in Russia. Russia isa northern country and much heating will berequired, even with the best possible housingutility system. But the issue is the extent, to whichhigher energy consumption is due to climate,and the extent, to which it is due to other, quiteunrelated circumstances. Estimates have shownthat the climate factor can only be used to justify25% excess of energy intensity in Russian GDPcompared with western Europe (even if the needfor air conditioning is left out) 20 .Energy intensity of Russian GDP at thestart of the 21 st century was 3.1 times higherthan in the European Union (prior to theadmission of new members, i.e. with 15member countries). Maintenance of a relativelyacceptable economic situation in the countrywas only possible thanks to large-scale exportof oil and natural gas at relatively high prices.This makes the Russian economy extremelyunstable and over-dependent on the state ofglobal fuel markets. These discrepancies havebecome apparent since the 2008 globalfinancial and economic crisis. Russian productscannot be competitive in the world marketwhen their manufacture is so energy intensive.Only industries making semi-products fromdomestic raw materials (low-level metallurgy,mineral fertilizers, timber) can keep afloatthanks to disproportions between global anddomestic energy prices. These factors cast ashadow on the long-term outlook. Long-termeconomic problems could only be addressedby efficient deployment of resources obtainedin years when the market environment washighly favorable. But trends in energy intensityof GDP in 2000–2007 show that the potential isnot being used adequately. Some reduction ofthe energy intensity index since 2000 isinsufficient and much less than observed in theWest after 1974.These points are, essentially, platitudes,and are cited here to emphasize that Russia’slong-term economic interests by no meansconflict with its environmental interests: bothnecessitate reducing the power intensity of GDPthrough energy saving and increased energyefficiency. The modernization needed for energysaving would simultaneously yield considerableeconomic benefits, because new equipment isnot just more energy efficient, but moreeconomical overall and more reliable, enablingmanufacture of better-quality products in betterconditions of work, where staff can make fulleruse of their professional skills. The latter aspect isparticularly important, since current productiontechnologies in Russia often fail to match theeducational attainment level of industrialemployees, entailing inefficient use of laborresources and negative social consequences.7.9. Social and economicconsequences of hypertrophicdevelopment of the fuel& energy sectorAs shown in previous chapters,development of fuel & energy without regard forenvironmental concerns will have seriousnegative impact on the environment. If existing20The United States spend more power for air conditioning than Russia for heating. This is partly due to the climate but partly is a result of thepower wasting attitude. It is worth noting that Table 8 takes into consideration only the ‘harshness’ of the climate, but other aspects of a climatecan also be unfavorable . Other negative climate aspects are also found in Russia, but they are less vivid and systematic in inhabited areas.132 National Human Development Report in the Russian Federation 2009

trends continued the damage would approachcatastrophic levels. However, full significance ofthese consequences can only be grasped inconjunction with other processes, initiated,supported and intensified by hypertrophicdevelopment of the fuel & energy sector. We listall of the relevant factors (Box 7.1) without goinginto detail (such detail can be found in previouschapters of this Report and in other publications:[Danilov-Danilyan, 2001, 2003], etc.) 21 .It is easy to see that the points listed inBox 7.1 are interlinked. The first five refer mainlyto negative economic consequences ofhypertrophic development of the raw materialssector, while the other four emphasize socialconsequences of this process. The trends, whichhave been described, can undermine humandevelopment, creative social practices, and thestrengthening of civil society.7.10. Energy and environmentalmalaise and ways of overcoming itThe current state of Russian energyproduction, characterized by unacceptably highand increasing adverse impacts of the fuel &energy industry on the environment andsquandering of energy in the economy, could bequalified as ‘energy and environmental malaise’.We have described how this situation has comeabout, but a few more important aspects areworth pointing out.The ‘big money’ to be made from oildiscourages the development of long-rangeinterests among business groups, particularlythose dealing directly with oil. Their focus onmaximum gains while market conditions arehighly favorable is understandable: they wouldhave to make much greater efforts in order toobtain many times smaller profits if world fuelprices were lower, so it is important to seize theopportunity while it is there. But this approachentails disregard for environmental protection,sustainable use of mineral resources,technological innovation, and energy andresource saving. There was no time or need forsuch details in the mid–2000s environment ofsuper-profits from record oil prices (even a priceof about USD 70 dollars per barrel triggersdisregard for nature conservation, which dropsout of account completely at higher price levels).Individual and clannish interests of oil magnatesdiverge radically from national interests. Andartificially low domestic energy prices, which,essentially, result from exorbitant world prices,undermine progress to energy saving in powerconsumingindustries.State regulation of oil production (and ofmineral resource use in general) is inefficient:licensing commitments have token status andare not properly enforced; tax issues have beenleft unresolved; distribution of resource rent doesnot meet long-term national interests or theinterests of the fuel & energy sector itself; and asearch for ‘direct’ methods of rent expropriationlead to economic deadlock (see [Danilov-Danilyan, 2004]) 22 ; the government is notimplementing any amortization policy, but haswashed its hands of the major challenges ofcapital repair and renovation (unlike the situationin developed countries, where these issues aregiven equal priority with tax collection).It is hard to expect resolution ofenvironmental problems if the government has noenvironmental policy: since abolition in 2000 of theRussian State Committee for EnvironmentalProtection (Goskomgeologiya), there have beenalmost no attempts to define and start consistentimplementation of such a policy. Approval by thegovernment in 2002 of the Russian EnvironmentalDoctrine has had no practical consequences andno other documents related to environmentalpolicy have been issued since 2000. The economic21E.g. see: V.I.Danilov-Danilyan, The Run for the Market: 10 Years Later, M., MNEPU, 2001, 232p.; V.I.Danilov-Danilyan, Power Efficiency-theKey Route of Russia’s Economic Development // Economic Issues of Environmental management on the Fringe of the XXI-st Century, M., TEIS,2003, pp.580-593.22See: V.I.Danilov-Danilyan, The Natural Resource Rent and Utilization of Natural resources // Economics and Mathematic Methods, 2004,vol.40, No.3, pp.3-15.133

Box 7.1. Negative consequencesof excessive growth of the fuel& energy sector1) Investment efficiency in the rawmaterial sector (as a function of production timeor production volume) is declining, due toobjective worsening of production conditions.2) Emphasis on raw materialdevelopment will inevitably lead to furtherdeformation of the sectoral structure of theeconomy (and export), due to lack of adequatefunding for development of high-tech industries.3) Export of raw materials, particularlyenergy, is unreliable as a source of budgetrevenue (through taxes and duties) because oflarge and unpredictable volatility ofinternational prices (some forecasters predictthat oil prices will come down to USD 9 dollarsper barrel in a few years in comparable prices,while others expect levels in excess of USD 200dollars). To combine an energy based economywith relative stability a country needs hugeforeign exchange reserves per capita (as inKuwait and the other main OPEC countries).Russia has never had such reserves and cannotexpect to accumulate them in the future.4) Because it dominates the economy, theraw materials industry has no competitors: it is ina monopoly position as taxpayer, supplier of thecountry’s budget income, and in other relatedrespects. This favors large-scale corruption, but italso creates unfavorable conditions fordevelopment of the raw material sector itself:lacking economically efficient competitors, thesector loses interest in its own improvement; thewage levels of its management are too high toleave scope for incentives, etc.. This is a specifictype of monopoly, but like any other monopoly itrepresents a threat both for the economy and(ultimately) also for the monopolist.mechanism of environmental protection iseffectively defunct, and even the generallyaccepted principle, by which ‘the polluter pays’, isnot adequately embodied in law since adoptionof a new Federal Law, ‘On environmentalprotection’ (2003). The roles of state environmental5) Science and technology have limitedimportance in the raw material sector. They do, ofcourse, play a role (any company, which fails to usemodern technologies, falls behind), but they arenot paramount, as they are in the high-tech sector.6) The raw materials sector is lessaccessible for small business than any othersector. The share of small business in the Russianeconomy is minimal in comparison with anydeveloped country and this imbalance needs tobe corrected, but it cannot be easily correcteddue to raw material dominance.7) Investment distribution betweenregions corresponds to geographicaldistribution of raw material industries, favoringregions with rich mineral endowments, butthese tend to have unfavorable climates, smallpopulations, and undeveloped and expensiveinfrastructure, so they are bound to suffereconomic decline after depletion of their rawmaterial resources or reduction of demand forthe resources. Meanwhile, densely populatedand otherwise promising regions are neglectedby investors (as are non-raw material industries).8) Work conditions in the extractiveindustry are particularly tough, even when themost advanced technologies are being applied,offering few prospects for personal development,and climatic and other negative factors specific toRussian resource regions add to his effect. Manyoil wells are near the Arctic circle or beyond it, andthe context of rigs, oil and gas pipelines, minesand quarries, does not help employees and theirfamily members to benefit from the humandevelopment opportunities that are available inthe 21 st century.9) Very high concentration of money istypical of the raw material sector, so dominanceof the sector in the economy encourages creationof an oligarchy and extreme wealth inequality.impact assessment and environmental oversighthave been minimized: 200-300 federalenvironmental inspectors – helped (or hindered) insome, but not all, regions – cannot possiblyexercise environmental control functions in acountry of 17 million sq. km.134 National Human Development Report in the Russian Federation 2009

What the government needs to do inorder to break out of the current energy andenvironmental malaise is so self-evident that wewill not spend much time here spelling it out.Measures to improve energy saving andenergy efficiency should embrace all levels of thenational economy. This involves a change in thecountry’s sectoral structure, prioritizingdevelopment of sectors, which are less energyintensive. This process has been underway sincethe 1990s, but it has been slow and uneven, withdevelopment concentrated in the service sector.Within sectors the emphasis should be onchangeover to new products, whose productionor consumption requires low power inputs (forexample, energy-efficient light bulbs instead ofconventional incandescent lamps), deeperprocessing of raw materials, especially in oilrefining, metallurgy, woodworking, etc. In manycases this approach requires radicalreconstruction of operating plants andconstruction of new ones. In the oil industry, thechallenge should be to minimize flaring ofsecondary gas to match standards of the world’sbest oil companies. The most effective steps atcompany level are for installation of equipment,which can make the same or similar productswith less energy (for example, replacement ofopen-hearth furnaces by oxygen steel-makingconverters or electric furnaces). At the ‘people’level, a large effect can be obtained by properorganization in the workplace and in daily life,and by following elementary rules of energyeconomy.The experience of all developedcountries gives a clear indication of the hugeenergy-saving reserves, which Russia has at itsdisposal. Use of this potential will invigorate thenational economy and radically reduce adverseeffects of the economy on the environment.7.11. Conclusions and suggestionsThe present situation in the Russianenergy sector, characterized by unacceptablyhigh and steadily growing negative impacts onthe environment combined with squandering ofenergy in the economy, amounts to an energyand environmental malaise. The impact of thefuel & energy sector on the environment isunacceptably high. Continuation of existingtrends will lead to large-scale disruption ofecological balances, massive pressure onecosystems, and disappearance of Russia’s role asa global environmental donor.In order to avoid such a scenario and toaccelerate transition to environmentallysustainable development Russia needs to:• dramatically enhance its environmentalsystem, ensuring its independence from thegovernment system for natural resourcemanagement;• develop efficient state environmental policyand vigilantly control its consistentimplementation;• enact regulations on more efficient use ofenergy and take steps to combatsquandering of energy. Such regulationsshould be supported by a system ofpenalties for non-compliance and failure totake appropriate measures;• ensure safety and security of all aspects ofthe energy sector, and of the nationaleconomy as a whole, through governmentinitiatives (based on legislation), whichensure that depreciated equipment isrepaired, decommissioned and replaced in atimely fashion;• take practical action to restructure theeconomy through increase in the share ofprocessing and high-tech industries.135

Box 7.2. Environmental sustainability of Russian citiesThe environmental situation in a city,particularly its air quality, is of prime importance forthe well-being of its inhabitants. Out of 56 Russiancities where emissions in 1990 exceeded 100thousand m.t.p.a., only 25 still had high levels ofpollution by 2008. These include major productioncenters for copper, nickel and some other nonferrousmetals, where the environmental situation isof great concern: Norilsk (Krasnoyarsk Region),Monchegorsk and Zapolyarniy (Murmansk Region),Mednogorsk (Orenburg Region), Bratsk andKrasnoyarsk. Norilsk has been the biggest source ofatmospheric emissions in Russia in recent decades,with volumes between 2.540 million tonnes (in1987) and 1.957 million tonnes (2008). Thetechnologies used cause Norilsk to give off largequantities of flue gases containing sulphur dioxidewhich is not used for production of sulphuric acid.However, although annual emissions at Norilsk are17 times higher than at Monchegorsk, annualindexes show the city’s air to be somewhat cleaner.This is explained by a natural ventilation effect,which is much greater in the Norilsk area. Frequentand strong winds in the Taimyr peninsula, especiallyin winter, make the climate extremely harsh, butthey also save Norilsk from becoming anenvironmental disaster area. Emission volumesdepend on technical and economic factors(industrial layout of the area, scale of production,existence of treatment facilities and other types ofenvironmental protection infrastructure), but selfpurificationis a purely natural characteristic of thelocal environment, determined by geographicallocation, ambient air circulation, specific climate,terrain, soils, vegetation and other natural features.These features can affect environmental conditionsin the area around an industrial site to a greaterdegree than emission volumes.The top 10 emission leaders include suchmetallurgical centers as Novokuznetsk, Lipetsk,Cherepovets, Magnitogorsk, Nizhny Tagil, Orsk,Chelyabinsk and Kachkanar. They are followed bylarge centers with coal-fired power generating, suchas Troitsk in Chelyabinsk Region, petrochemical andoil refining industries (Omsk, Angarsk, Ufa) and areaswhere oil extraction is just beginning (Strezhevoy inTomsk Region). The economic growth period thatended in 2008 saw reduction of emissions in all of theabove-mentioned industrial centers, except Omsk,Novosibirsk and Angarsk, and this has led to decreasein specific pollution values (per unit of production incomparable prices).Analysis of specific pollution figures andtheir progress in 974 towns and cities with totalpopulation of 92.4 million (97% of the total urbanpopulation in Russia) helps to determine mainpollution trends. Differences between cities byspecific pollution levels due to stationary sourcesare as great as 1000 times. Values are lowest inmachine-building, light and food industry centers inEuropean Russia, but they increase further northand east. There are less than 20 cities east of the Uralmountains, which have relatively low specificemissions (less than 5 kg/1000 roubles of industrialproduction in comparable prices, while the averagenational value is 31 kg). These include more than 10oil & gas producing centers in the northern part ofTyumen Region, the diamond producing centre ofMirny, and Yakutsk, which has almost no industryand generates its electricity from natural gas, unlikemost cities in Siberia and the Far East. On average,specific emissions in northern and eastern citieswhere coal accounts for most of power generationare respectively 3.5 or 1.4 times higher than in citieswhere power is generated from gas or fuel oil.Geographical location, climate and coal burning arethe main reasons for increased levels ofanthropogenic pollution in these areas (Figure7.2.1).It is generally believed that type ofindustrial specialization determines levels ofpollution in cities, but this is not necessarily true,since several cities are relatively clean despitehosting potentially dirty industries. Generally,differences between industries are less marked thandifferences within the same industry. Oil extraction,which is potentially the most polluting fuel & energysub-sector, has cities with very low emissions (0.4-0.5 kg/1000 roubles), for instance Kogalym,Langepas, Pyt’-Yakh and Megion in Khanty-MansiAutonomous District, though Khanty-Mansi also hastwo towns (Pokachi and Beloyarskiy), where specificemissions are 70-80 kg/1000 roubles of production,even though the production company at Pokachi –136 National Human Development Report in the Russian Federation 2009

Figure 7.2.1Specific atmospheric emissions in cities and regions of the Russian Federation (kg/1000 roubles of production in comparable prices, 2007)Specific atmospheric emissions fromstationary sources, kg/100 roubles ofproduction in comparable prices of 1997Cities RegionsMore than 10050 – 10010 – 505 – 101 – 5Less than 1Population, thousandsMore than 1000More than 10051 – 10021 – 5011 – 208 – 10Less than 5AbbreviationsMoscow Region Kemerovo RegionLess than 50137

Pokachevheftegaz – uses 88% of its secondary gas(flaring of secondary gas is often the main source ofpollution from oil production). Some old oilproduction centers, such as Frolovo (VolgogradRegion) and Pokhvistnevo (Samara Region) havespecific emissions that are considerably higher at130-170 kg/1000 roubles.The gas sector causes large amounts ofatmospheric pollution, both in extraction operationsand at compressor stations. Production at compressorstations is modest in money terms (even though theiroverall emissions are comparable with the those fromall stationary industrial sources in Moscow), so specificemissions are hundreds of kg/1000 roubles (at suchlocations as Myshkin and Sosnogorsk). Coalenrichment plants are the major polluters in the coalindustry and specific emissions in areas where lowqualityhard or brown coal is produced (Nazarovo,Kopeysk, Kumertau, Emanzhelinsk, Nyurba,Gremyachinsk) are 5-10 times higher than in areaswhere high-quality coals are mined (Borodinskiy,Berezovskiy).Thermal power production is associated withhigh specific emissions in nearly all parts of thecountry. Indicators depend on various factors,including capacity and type of power station, age ofequipment and, crucially, the type of fuel used.Highest specific emissions (more than 100 kg/1000roubles) are from coal-fired power stations withobsolete equipment (Suvorov, Myski, Verkhniy Tagil).Levels at new stations, which work on natural gas, aremuch lower at 10-12 kg/1000 roubles (Volgorechensk,Dobryanka).Size of urban settlement is a more significantdeterminant of pollution than industrialspecialization. Specific emission values in most citiesare in inverse proportion to their population: thelarger the city, the more likely it is to be included inthe ‘sustainable’ group. Creation of productionfacilities in small towns could thus be viewed astending to increase pollution impacts This contributesto formation of ‘industrial poverty’ areas, whichcombine poor infrastructure (including environmentalinfrastructure), inadequate purification facilities, lackof a skilled labor market and lack of incentives, whichcould attract qualified specialists.Trends in specific emission data areparticularly informative. They show negative changesin the structure of pollution by territories and areuseful in forecasting alterations in environmentalimpact.Pollution volumes declined more slowlythan production volumes in the economic crisisyears of the 1990s. Emissions in 1999 were 58.3%of their level in 1990, exceeding indexes for GDPand industrial production. Waste water dischargeand solid waste declined even more slowly. As aresult, specific emissions (pollution volume toFigure 7.2.2Specific emission trends in urban settlements with different populations, 1995-2008kg/1000 roubles of industrial outputat comparable prices25.020.015.010.05.00.0>1000 500-1000 100-500 50-100

money value of industrial output) continued togrow until the end of the 1990s in all types of townsand cities, except those with populations in excessof one million.Specific emissions fell in all towns and citieswhen economic growth began (Figure 7.2.2). Moreprosperous businesses carried out reconstruction, andsome of the oldest and most polluting businesses hadclosed down during the crisis period. The share ofcities where specific emissions continued to rise camedown from 50% in 1998 to 28% in 2000. These weremostly towns, accounting for just 5% of the country’surban population (the only exceptions were the citiesof Nizhnevartovsk and Novy Urengoy).However, the negative specific pollutiontrends of the 1990s were not reversed becauseeconomic growth made it necessary to meetelectricity demand by using some of the oldestgenerating capacity, and a growing deficit of naturalgas forced power stations to burn more polluting coaland fuel oil. As a result, specific emissions grew intowns and cities where they were already too high(10-100 times the national average). A widening gapbetween specific pollution indicators of the country’stowns and cities was a hallmark of Russia’s newfoundeconomic growth.Most of the increase in gross and, particularly,specific pollution during the period of economicgrowth was due to obsolete power generating units.Old coal-fired boilers were re-commissioned in 20cities in response to economic growth and the shareof natural gas in generating in these cities declined bybetween 7% and 39%, mostly in favor of coal.Maximum reduction of the share of gas was inSverdlovsk Region at the Serovskaya,Verkhnetagilkaya and Nizhneturinskaya CPPs and theKamensk-Uralskiy CHP.Specific emissions have declined in townsand cities where gas has either completely replacedcoal in power generating (this is the case in Vladimirand Tomsk) or has partially done so (Ivanovo,Novosibirsk, Smolensk, Izhevsk etc.). The same is truein cities with combined gas and fuel oil power stations,which were switched to gas in 1998–2000 (Penza,Kuznetsk (in the Penza Region), Dzerzhinsk, NizhnyNovgorod, Ufa). This reflects overcoming of thesituation in the 1990s, when regions tended to switchto locally produced fuel, even when it was moreexpensive.Widening of the pollution gap betweendifferent territories was also driven by rapid increasein pollution from the oil extraction sector, whichaccounts for a third of all ambient air pollution inRussia (Figure 7.2.3). Khanty-Mansi AutonomousDistrict doubled its emissions in 1998–2003 tobecome the biggest atmospheric polluter in Russia(this title was held by Krasnoyarsk Territory fordecades previously). Oil production in theAutonomous District rose by 37% over the five yearsand emissions from stationary sources rose by 2.1times. Record oil prices led to development of newoil fields in Russia and maximal use of older and lessefficientwells, giving further impetus to gross andspecific pollution levels in oil production centersFigure 7.2.3The average impact index (share of each industry in each type of pollution) in 1995-2004.19952.0Food industry 1.7 0.50.4 2.0Light industry0.55Construction materials1.5industry 3.7 6.3Wood, pulpand paper industry 2.921.0Machine-buildingand metal work industry 4.0 9.1 6Chemical industryPetrochemical industry2.7 17.8Non-ferrous metallurgy20.4Ferrous metallurgyFuel industryElectric power industry15.120.18.876.21.512.719.327.712.7 9.60.0 10.0 20.0 30.0 40.0 50.0 60.0 70.02.644.620041.7Food industry 0.9 0.50.2 1.0Light industry 0.55Construction materials1.9industry2.8 7.5Wood, pulpand paper industry 1.823.51.7Machine-building 2.0and metal work industry7.9 3Chemical industry2.4Petrochemical industry19.910.9Non-ferrous metallurgy19.67.825.7Ferrous metallurgy13.210.830.3Fuel industry37.111.3Electric power industry19.512.1 5.90.0 10.0 20.0 30.0 40.0 50.0 60.0 70.0Share in industrial emissionsShare in industrial dischargesShare in industrial solid waste13139

where the level of pollution was already too high.Pollution growth exceeded growth of production atthe oldest fields (those in development for over 35years accounted for over 80% of all emissions) and atnewly commissioned sites due to flaring ofsecondary and natural oil gas. Specific emissions atboth the oldest fields (Frolovo in Volgograd Region,Pokhvistnevo in Samara Region) and the newest(sites in Khanty-Mansi and near the town ofStrezhevoy in Tomsk Region) exceeded 100 kg/1000roubles. The lowest rate of pollution growth was at20-30 year-old extraction sites around Surgut,Kogalym and Langepas. These areas have a relativelylower level of pollution due to specifics of gascontent in the oil-bearing strata, oil field area andwell numbers, and Soviet-vintage infrastructure forutilization of waste. High rates of specific pollutionare also characteristic of gas production centers(both extraction areas and locations of compressorstation).The situation is different in the oil refiningindustry, where there have been a number of positivetrends since the mid–1990s. The growing number ofcars on Russia’s roads and creation of verticallyintegrated oil companies helped refineries to operateat full capacity, and investments were made tomodernize facilities and increase the share of moreexpensive products in overall output. As a result,emissions per 1000 roubles of industrial outputdeclined by nearly 10 times (from 40-54 to 4.8-16 kg)in cities where oil refineries were the only source ofpollution (Kirishi, Kstovo, Novokuibyshevsk, Syzran,Tuapse). Reduction of pollution, though to a smallerextent (from 3-9 to 2.3-6.9 kg/1000 roubles ofproduction), was also recorded in cities where oilrefineries were not the only, but the major source ofpollution (Yaroslavl, Ufa, Perm, Saratov, Volgograd,Omsk, Khabarovsk). However, specific emissions permillion tonnes of primary refining output have onlyhalved, and this is true both for towns and cities whichpreviously had low pollution levels, such as Tuapse(5.5 kg/m.t. of oil) and for towns and cities withaverage levels, such as Komsomolsk-on-Amur (10.2kg/m.t.) or high levels, such as Ukhta (41 kg/m.t.).Rates of pollution reduction slowed down as early as2002, because further progress would require muchgreater investment.The first stage of Russia’s economic growthdid not lead to large-scale negative environmentalimpacts. However, the mechanism ofcompensational growth, based mostly on recommissioningof idle facilities and commissioningof low-efficiency hydrocarbon fields, has led to anincrease in specific and gross environmentalpressure in towns where pollution levels werealready high. Operation of obsolete assets led toincrease in pollution levels, mostly in small citiesand towns, which account for nine of out of tenurban settlements where specific pollution figuresgrew in 1998–2002.Rates of growth in the oil & gas industry andof investments by large companies have sloweddown since summer 2004, and positive effects fromsector restructuring and investments have beenmainly exhausted. Rate of growth of investments inenvironmental protection equipment declined from2004 (in comparable prices) and there was a declineof environmental investments in 2007, withemission control being the hardest hit (84%reduction of investments compared with theprevious year).Even though specific emissions continueto decline nationwide, the share of towns and citieswhere they are growing has returned to levels ofthe 1990s (47% of towns and cities, with 35.4% ofthe population). Several large regional centers(over 50,000 inhabitants) with heavy industry orcoal-fired power stations were among the 495towns and cities where environmental parametersworsened in 2007 (the large centers in questionwere Izhevsk, Vladivostok, Chelyabinsk,Novosibirsk, Krasnoyarsk and Volgograd (Figure7.2.4)). The pollution gap between large and smallurban settlements started to narrow in 2007, butonly due to this worsening of the situation in largecities.Energy and fuel intensity in the economymay well increase in the context of the latest crisis.Electricity generation declined in the transition crisisof 1990–1998, but specific emissions grew in 89% ofRussian towns and cities, reflecting environmentalinefficiency of many Russian power stations. Whenin 2006 power consumption rose by 4.2% andproduction of thermal power plants by 5.2%140 National Human Development Report in the Russian Federation 2009

Figure 7.2.4Trends in specific atmospheric emissions in cities and regions of the Russian Federation (kg/1000 roubles of production in comparable prices, 1995-2007)Index of specific atmospheric emissionsfrom stationary sources, 2007/1995, %AbbreviationsMoscow Region Kemerovo RegionCities RegionsMore than 150100 – 15070 – 10050 – 70Less than 50No dataPopulation, thousandsMore than 1000Less than 50141

compared with 2005, the absolute emissions growthwas 11%. According to the recently dismantledelectricity monopoly, RAO UES, about 80% of theextra emissions in 2006 were from five CPPs:Troitskaya, Reftinskaya, Novocherkasskaya,Kashirskaya and Kirishskaya. It will not be possibleto reduce overall impact of anthropogenic pollutionin towns and cities without large-scale replacementof obsolete assets. Generators took less advantagethan other economic sectors of the potential forefficiency improvement offered by the 1990stransition crisis. The latest crisis gives the Russianpower industry a second chance to eliminate itsoldest and most polluting assets.142 National Human Development Report in the Russian Federation 2009

Chapter 8The Energy Industry and SustainableDevelopment Indicators8.1. In searchof a new developmentdimensionThe global economic crisis has shownonce again that traditional developmentindicators need to be adjusted. Humanity hasbeen held hostage to economic and financialindicators, which often ignore or distort realeconomic, social and environmental processes.The crisis happened because distorting financialand economic mirrors had been used in decisionmakingprocesses.The most widely used economicmeasure in the world – GDP – is a primeexample of an indicator, which is inappropriatein a sustainable development perspective. Mostcountries (Russia included) still measure theirdevelopment achievements by the yardstick ofGDP. But growth of GDP thanks to the resource(energy) sector can prove unsustainable forcountries with social problems and largenatural resource endowment, of which Russiais a typical example. Many leading Russianexperts are agreed that most of GDP growth upto the present has been caused by a favorableexternal environment, and primarily by high oilprices 1 . So high GDP indicators have beenmainly based on depletion of natural resourcesand transformation of the Russian economyinto an energy and raw materials appendage ofthe global economy. The depth of the currentcrisis in Russia can be mainly explained by thefact that Russia has fallen into the ‘energy andraw materials’ trap. The GDP indicator fails toreflect major social problems, and it can groweven in a context of growth of incomeinequality, disease, mortality, etc.Before the crisis, progress and growthin the world and in Russia were usuallyidentified with GDP growth and maximizationof profit, financial flows and other financialindicators, while the quality of growth and itscosts (social and environmental) were mostlyignored.However, the need to develop newindicators for social and economic progress hasbeen long recognized by the world community.New conceptual and methodologicalapproaches to measurement of social andeconomic progress appeared as early as theend of 1980s and beginning of 1990s, offeringalternatives to the traditional indicators GDP,GNP and per capita income. The role of the UNin this process deserves to be stressed. Theconceptual approaches and specific indicators,which were developed under the UN aegis,have made a huge contribution to the theoryand practice of human development, offeringnew priorities for humanity. Two new theories –human development and sustainabledevelopment – have made the biggestcontribution. Both were forged within UNstructures and were supported by all membersof the Organization, which has given themofficial international status. It is very importantthat these conceptual approaches have beenreinforced by specific indicators, of which thebest known are the Human Development Index(HDI), Millennium Development Goals, andSystem of Sustained Development Indicators.Creation of the Human Development Index(HDI) in the 1980s was specifically intended as acounterweight to GDP.Other international organizations (theWorld Bank, Organization for EconomicCooperation and Development, EuropeanCommunity, World Wildlife Fund, etc.) have alsoparticipated in this work. The World Bank createdthe Index of Adjusted Net Savings, which reflectsthe social, energy and environmental aspects ofdevelopment in a more adequate way. Mostdeveloped countries now have their own systemof sustained development indicators.If the Russian Government wants toachieve its long-term social and economic1See, for example, A.G. Aganbegyan ‘Necessary Conditions for the Future Growth of Russia’ in the book -Transitional Economies in thePostindustrial World: Challenges of the Decade (materials of the international conference). M.: Institute for the Economy in Transition,Academy of National Economy under the Government of the Russian Federation, 2006, pages 148-150.143

development targets, starting from the crisisperiod, it needs to prioritize humandevelopment, movement away from the energyand raw material economy, and structuraltransformation in order to create an innovativeand socially-oriented development model. Thishas nothing to do with chasing quantitativeratings, whether they are value indicators (GDP,etc) or physical volumes (output of oil, gas,metals, etc). The accent in the new economymust be on qualitative and not quantitativedevelopment.8.2. Types of energy indicatorsThe energy factor is widely reflected insustainable development indicators, becausesustainable development depends on dueattention to economic, social andenvironmental aspects, all of which have muchto do with energy 2 . Two approaches are mostwidely used in both theory and in practice. Thefirst is to construct an integrated (aggregate)indicator (index), which enables judgment ofthe level of sustainability of social andeconomic development. The aggregationusually relies on three groups of indicators:economic, social and environmental. Thesecond approach involves construction of asystem of indicators, each of which reflectsdifferent aspects of sustained development.The aspects chosen are most usually economic,environmental, social and institutional. This isthe approach used by UN sustainabilityindicators.The energy factor has priority in all theapproaches, as seen most clearly in ubiquitoususe of the energy intensity index. It is importantto grasp that division of the indicators intoeconomic, environmental, and social is relative.Some indicators can reflect several aspects ofsustainability, and this is apparent from theexample of energy intensity, which is included indifferent groups of indicators by the UN, WorldBank, Organization for Economic Cooperationand Development (OECD) and various countries:economic (reflecting efficiency of energyresource utilization in the economy);environmental (the level of pollution andgreenhouse gas emissions); and social (since thevolume and content of emissions has impact onhuman health).Energy intensity is basic to globalsystems of sustainability indicators and to thesystems used by specific countries. It is a keyindicator for Russia, helping to gaugesustainability of its energy sector and of thecountry as a whole. As such, it should beincluded in programmes, strategies, conceptsand projects at both federal and regionallevels.The following energy intensity indicatorsare most commonly used at the macroeconomiclevel:• energy intensity of GDP as regardsconsumption of energy resources;• energy intensity of GDP as regardsproduction of energy resources (theproportion between primary energyproduction and GDP);• energy efficiency (often identified as thereverse indicator of energy intensity);• specific indicators of energy intensity ofGDP (electric intensity, heat intensity, oilintensity, coal intensity, gas intensity ofGDP) etc.In Russia’s case it is important todistinguish between two energy intensityindicators: intensity in terms of domesticconsumption of energy as a share of GDP, andintensity in terms of the share of energyproduction in GDP. The consumption indicatoris the classic and most widely used indicator.But it clearly fails to take account of manyeconomic, environmental and socialconsequences of the extraction andproduction of energy for export, since (all else2The indicators of sustainable development are studied in details in the monograph by S.N.Bobylev, N.V. Zubarevich, S.V.Solovyova, Y.S.Vlasov. ‘The Indicators of Sustainable Development: Economy, Society, Nature’/ under the editorship of S.N. Bobylev. M.: MAX Press, 2008.144National Human Development Report in the Russian Federation 2009

eing equal) it only reflects that part ofnegative impacts on the environment andpublic health, which are conditioned by theprocess of energy consumption, so that it canonly be a partial indicator of dependence ofthe Russian economy on energy exports andpressure of the energy sector on theenvironment and society (Chapter 1). The mainreason why energy intensity by consumption isthe dominant indicator worldwide is that mostcountries do not have sufficient energyresources of their own, so that energy intensityin terms of production is of little concern tothem.Energy production as a share of totalproduction is a much more important measurefor Russia because volumes of natural resourcesbrought into economic use, both to meetdomestic needs and for export, give an indirectindication of levels of pressure on theenvironment and public health.The degree to which the two indicatorsdiffer can be clearly seen in Table 8.1. Levels ofRussian energy intensity in terms ofconsumption are three times higher than indeveloped countries, but differences in energyintensity in terms of production are much moredrastic: the difference between Russia and theEuropean Community is 11 times, and thedivergence with Japan is more than 30 times(see also Table 1.3 in Chapter 1). The twoindicators could move in different directions:energy intensity in terms of consumption maydecline, reflecting positive structural shifts inthe economy, but in case of dramatic growth ofenergy resource extraction energy intensity interms of production is likely to grow,reinforcing Russia’s orientation to energy andresource exports. The long-run target should beto dramatically reduce energy intensity in termsof production by increasing energy efficiencyand GDP while holding back rates of growth ofprimary energy extraction, i.e. by greater use ofintensive growth factors. This course will notaffect the country’s export potential because,as mentioned in earlier chapters of this Report,relatively simply energy-saving measures couldreduce domestic energy consumption by half,i.e. Russia has enormous ‘hidden export’potential.Table 8.1GDP energy intensity in terms of energy consumption and production in different countries (1990,2000 and 2008*)Country1990 2000 2008 2008/1990 (%) 2008/2000 (%)1 2 1 2 1 2 1 2 1 2Great Britain 0.156 0.174 0.130 0.178 0.102 0.096 65 55 79 54Germany 0.171 0.108 0.131 0.064 0.113 0.059 66 55 86 92France 0.154 0.089 0.147 0.086 0.132 0.078 86 88 90 91USA 0.246 0.234 0.209 0.172 0.175 0.145 71 62 84 84Canada 0.331 0.418 0.301 0.427 0.275 0.395 83 95 91 93Japan 0.134 0.026 0.141 0.033 0.126 0.025 94 96 89 76Norway 0.287 1.057 0.234 1.397 0.194 1.121 68 106 83 80Russia 0.460 0.840 0.496 0.943 0.324 0.767 70 91 65 81China 0.549 0.451 0.288 0.206 0.274 0.179 50 40 95 87India 0.176 0.206 0.169 0.152 0.138 0.112 78 54 82 74Brazil 0.115 0.107 0.133 0.119 0.125 0.138 109 129 94 116Ukraine 0.643 0.297 0.741 0.385 0.423 0.246 66 83 57 64Sources: World Bank (World Development Indicators Online Database), BP Statistical Review of World Energy June 2009; International EnergyAgency (IEA World Energy Statistics and Balances - Energy Balances of Non-OECD Countries - Economic Indicators Vol. 2009 release 01)* 2007 for the energy intensity in terms of production1 – energy consumption intensity (m.t. of oil equivalent / thousand USD in 2005 by PPP)2 – energy production intensity (m.t. of oil equivalent / thousand USD in 2000 by PPP)145

Energy intensity in terms of productionhelps to raise energy awareness among decisionmakers and society, and should berecommended as a priority indicator in long-termnational programmes and developmentstrategies.Both indicators of energy intensity inRussia have shown strong positive trends in thelast decade, particularly in the early 2000s,when consumption intensity declined by 35%and production intensity by 19% (Table 8.1).These are among the best results in the world.But must faster decline of consumptionintensity compared with production energyreflects major growth of Russia’s energy exportdependence (Figure 8.1). The relationshipbetween the two indexes was the reverse in EUcountries. It should also be realized that Russiahas already used its potential for structuralimprovement of energy intensity, but the gapbetween Russian energy intensity and that ofdeveloped countries remains huge in absoluteterms.Energy intensity of separate parts of theeconomy is also important: specific sectors,industry, transport, housing utilities, andefficiency of fuel use in electricity generation alldeserve to be distinguished. The last indicator isdefined as fuel expenditure in electricityproduction at various types of power station, andis particularly important, since it reflectsdevelopments in the biggest fuel consumingindustry.Reduction of all types of energyintensity will be a vital link in the chain, whichwill pull the Russian economy towardssustainable growth.8.3. Measuringthe energy factorin systems of indicatorsMulti-functionality of energy intensity asan indicator of sustainable development isevident in the Millennium Development GoalsFigure 8.1Trends in energy intensity by consumption and production (primary energy production to GDP ratio),for Russia and EU-27 (1990 = 100%)1301201101990 = 100100908070601990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Energy intensity of Russian economyEnergy intensity of EU-27 economyRelation of primary energy production to Russian GDPRelation of primary energy production to EU-27 GDPSource: World Bank (World Development Indicators Online Database), British Petroleum (BP Statistical Review of World Energy June 2009),International Energy Agency (IEA World Energy Statistics and Balances - Energy Balances of Non-OECD Countries - Economic Indicators Vol 2009release 01)146 National Human Development Report in the Russian Federation 2009

(MDGs), issued by the UN in 2000. The MDGs arewell-designed and relatively simple to use,setting out goals, tasks for achieving them, andrelevant indicators. The mission of Goal 7 in thissystem is to ensure environmental sustainabilityboth globally and in specific countries 3 (Table8.2). Adapted for Russia, Goal 7 proposes threetasks and eight indicators, focusing on the needto solve two major problems for environmentalsustainability:• to reduce human impact on theenvironment and depletion of naturalresources;• to improve the environmental conditions forhuman development, reducingenvironmental threats to human safety,health and quality of life;The importance of solving the secondproblem, connected with human developmentand improvement of the ecological conditionsfor human life and health, should be emphasized.This problem is often omitted when issues ofsustainable development focus onenvironmental protection and utilization ofnatural resources.In the MDG system energy intensity isreferred to Goal 7, dealing with environmentalsustainability and, specifically, to Task 1, whichis to include principles of sustainabledevelopment in national strategies andprogrammes, and prevent wastage of naturalresources (Table 8.2). In this context, energyintensity acts as an environmental-economicindicator.Other key indicators of sustainabledevelopment are also closely connected withtrends in energy intensity. Emissions of carbondioxide, volumes of which depend mainly on theenergy industry (Indicator No.4 in Table 8.2) areat the center of attention in issues of globalclimate change and ratification by Russia of theKyoto Protocol. At present more than 72% ofGHG emissions in Russia are due to burning offossil fuels 4 .The index of numbers of people livingin severely polluted cities has great importancefor Russia and also depends on the energyindustry (Indicator No.5 in Table 8.2). Theenergy sector and its products make a decisivecontribution to air pollution, accounting forabout half of all pollution from stationarysources plus emissions from combustion of carfuel. Addressing this problem has high priorityfor Russia, particularly in big cities with highpollution levels (there are 135 such cities withtotal population of about 60 million) 5 . TheTable 8.2Goal 7 of the MDG, ‘Securing Environmental Sustainability’, tasks and indexesTasks of MDG 7 for Russia Progress Indicators for Russia ValuesTask 1. Include principles ofsustainable development innational strategies andprogrammes and prevent wastageof natural resourcesTask 2. Provide the population withpure drinking waterTask 3. Improve housingconditions1. Percentage of territory covered by forest2. Percentage of territory, which is protected in order tomaintain biodiversity of the land surface environment3. Energy intensity4. Emissions of carbon dioxide (m.t.)5. Number of people living in severely polluted cities(million)6. The share of residential areas provided with mainswater (urban and rural)7. Share of residential areas with sewerage (urban, rural)8. The share of slums and housing in dangerousdisrepair45.42.40.324247858Urban – 100%Rural – 30%Urban – 98%Rural – 5%3.2%3This goal and its indicators are studied in detail by the author in the Chapter, ‘Securing Environmental Sustainability’ in the UN HumanDevelopment Report for Russia from 2005 (under general editorship of S.N.Bobylev and A.L. Alexandrova. M.: UNDP, 2005).4The bulletin, ‘Environmental Protection in Russia’. M.: Rosstat, 20085State Report, ‘On Condition and Protection of the Environment in the Russian Federation in 2007’. M.: RF Ministry of Natural Resources, 2007147

Concept for Long-term Socio-economicDevelopment of the Russian Federation up to2020 sets the following targets for this aspectof human development:• fivefold reduction of the number of citieswith high and very high levels of pollution;• fourfold reduction of the number of peopleliving in unfavorable environmentalconditions.The area of territories in Russia, which areprotected in order to maintain biodiversity(Indicator No.2), also depends to a significantextent on the energy industry and itsinfrastructure. At present the majority ofprotected areas are in northern and easternregions of the country where there are also hugedeposits of energy resources, development ofwhich will involve large-scale infrastructurecreation: oil & gas pipelines, electricitytransmission lines, railways and roads, etc.Development of the energy industry in theseregions may therefore have negative impact onprotected territories, biodiversity, forests andwetlands. Extensive development of the energyindustry in north-eastern regions couldundermine the role of Russia as a globalenvironmental donor, diminishing the potentialrole of its ecosystems for humanity. A goodexample of a positive approach to solving suchproblems is the government’s decision to movethe route of a planned trunk pipeline away fromLake Baikal, which has unique environmentalimportance. Initial plans would have run thepipeline along the Lake shore.The energy factor plays an important forachievement of MDG 7 tasks to provide puredrinking water and improve housing conditions(Indicators No. 6, 7, 8), which are highly importantfor human potential development. Provision ofpure water, decent housing and sewerage willrequire considerable energy consumption in thehousing utility sector.The energy factor is well reflected in thesystem of indicators developed by the WorldBank, which are published annually in theBank’s ‘Indicators of Global Development’ 6 Andinclude six main energy indexes (Table 8.3.) Themacro ratio to GDP used by the World Bank isnot energy intensity, but the index of energyefficiency, which shows the oppositerelationship. The system also has threestructural indicators, connected with biomass,fuel combustion, and hydro-electricity. Russiaproduces almost 30% less GDP per unit ofconsumed energy than East European orCentral Asian countries and 2.3 times lesscompared with countries that have higherincome levels. The share of energy producedfrom biomass and waste is 2-3 times less inRussia than in the latter countries. Per capitaelectric power consumption is much higher inRussia than in East European and Central Asiancountries (by more than a third), but muchlower than the same index for rich countries (by1.7 times). The share of electricity producedfrom fossil fuels is approximately the same:about two thirds of total production.Constructive approaches todevelopment of energy indicators have beenproposed by the UN Economic Commission forEurope (ECE UN), including a special study for thetransition economies of Eastern Europe, theCaucasus and Central Asia 7 . The approach isbased on differentiation of indicators, using asystem of ‘driving force – pressure – state –impact – reaction’. ECE UN suggested four basicenergy indicators: 1) final energy consumption(overall and by final consumers); 2) total energyconsumption (overall and by major fuel types); 3)energy intensity; and 4) energy consumptionusing renewable sources. The first and secondindicators relate to driving forces, and the thirdand the fourth to reactions.Rates of GHG emissions are associatedwith energy indicators. For example, the WorldBank considers CO 2 emissions per GDP unit andper capita, and growth of these indicators since1990.6World Development Indicators 2008. World Bank, Washington DC, 20087Environmental rates and estimative reports based on them. Eastern Europe, Caucasus and Central Asia. UNECE, New York, Geneva, 2007.148National Human Development Report in the Russian Federation 2009

8.4. The energy factorin integral indicatorsThe energy factor is reflected in manyintegral indicators: its components are taken intoaccount both directly and indirectly whenstatistical data are aggregated into singleindexes. In particular, energy resources arereflected well in the Adjusted Net Savings Index,and the energy factor is indirectly reflected in theHuman Development Index via prosperity(income) levels (see Chapters 2 and 3 and Box 2.1on the Human Development Index) and lifeexpectancy (influence of the energy sector onhealth, see Chapter 4).The Index of Adjusted Net Savings(sometimes referred to as genuine (domestic)savings), which was developed and is widelyused by the World Bank 8 , is probably the bestsuitedto reflect energy aspects, and also hasthe advantages of a good statistical databaseand potential to be calculated at country andregional levels. Estimates of adjusted netsavings take more account of human potential,and energy and environmental factors thantraditional macroeconomic indexes. Theimportance of measuring these savings whenimplementing a sustainable developmentpolicy is clear: consistently negative indicatorsreflect formation of an unsustainabledevelopment path, which will lead to decline ofprosperity.The standard system of nationalaccounts assumes that only investments infixed capital represent investments in futureprosperity of society. The expandedinterpretation used by adjusted net savingsincludes natural and human capital alongsidefixed capital as determinants of nationalwealth. From this point of view depletion ofnon-renewable natural resources (primarily,energy resources) and excessive utilization ofrenewable natural resources diminish nationalwealth. Investments in public education add tohuman capital. Current education expendituresare equivalent to investments, reflecting adefinition of human capital/potential based ona broad concept of domestic investments.Investments in human resources are not treatedas unproductive consumption, but asinvestments that will ensure future growth ofnational wealth. A country, which reinvestsincome from extraction of non-renewablenatural resources in development of humanTable 8.3Energy indicatorsIndicatorsRussiaEast Europe andCentral AsiaCountries with highincome levelGDP per unit of energy use(2005 PPP $/kg oil equivalent)Energy use per capita(kg oil equivalent)Energy from biomass products and waste(% of total)2.6 3.3 6.04517 2826 54981.1 2.2 3.2Electric power consumption per capita (kWh) 5785 3633 9760Electricity generated using fossil fuel (% of total) 65.8 66.1 62.5Electricity generated by hydropower (% of total) 18.2 17.5 11.5Source: World Development Indicators 2008. World Bank, Washington DC, 20088Where is the Wealth of Nations? Measuring Capital for the 21 st Century. World Bank, Washington DC, 2006; World Development Indicators2008. World Bank, Washington DC, 2008149

Table 8.4Breakdown of the Adjusted Net Savings IndexNational accountingaggregatesAmount (in % of GNP)Countrieswith high RussiaincomeGross saving (% of GNI) 19.9 30.7Consumption of fixed capital(% of GNI)Education expenditure(% of GNI)13.0 7.04.7 3.5Energy depletion (% of GNI) 1.5 37.5Mineral depletion (% of GNI) 0.2 1.9Net forest depletion(% of GNI)0.0 0CO 2 damage (% of GNI) 0.3 1.4Particular emission damage(% of GNI)Adjusted net savings(% of GNI)0.3 0.39.3 -13.8Source: World Development Indicators 2008. World Bank, WashingtonDC, 2008Table 8.5Adjusted Net Savings Indexes in specific countriesCountryAdjusted netsavingsCountryAdjusted netsavingsJapan 15.8 EU 12.0Germany 12.1 Russia - 13.8France 11.4CzechRepublic14.7Great Britain 6.9 Poland 7.8Canada 5.4 Ukraine 4.1USA 4.1 China 36.1Norway 9.2 India 20.6Source: World Development Indicators 2008. World Bank, WashingtonDC, 2008capital by raising educational levelsaccumulates savings and ensures sustainabledevelopment.The Adjusted Net Savings Index takesparticular account of the energy factor byadjusting the traditional gross savings index toreflect depletion of energy resources (Table 8.4),and by applying indicators of CO 2 and particularemissions to record impact of the energyindustry on human health and environmentalpollution.The main merit of the Adjusted NetSavings Index is that it offers a single method ofcalculation for the whole world and for specificcountries, using official national statistics,updated annually and published in ‘WorldDevelopment Indicators’ (the main statisticaldigest of the World Bank) or in other World Bankstatistical materials. This Index is already used byseveral countries as an official macroeconomicindicator.Calculations published by the World Bankand based on adjusted net savings (genuinesavings) for all the countries show a dramaticdifference between traditional economicindicators and those adjusted for environmentalfactors. In Russia economic growth (in thetraditional understanding) has beenaccompanied by depletion of natural capital andenvironmental degradation, and adjustment toreflect these factors turns the traditionaleconomic indicators negative. Russia’s Index ofAdjusted Net Savings has been negative in recentyears, despite growth of GDP. It is important totake this fact into account during the crisis and inthe search for ways of overcoming it. Forexample, 2006 was a highly successful year forthe Russian economy judged in traditionaleconomic terms: GDP growth amounted to 7.4%.But the Adjusted Net Savings Index was negative(-13.8%), mainly due to depletion of naturalresources (Table 8.4)Comparison of adjusted net savings inRussia and some other countries of the world isalso telling. The Index level in developedcountries is 9.3% (Table 8.4). Adjusted net savingsfor various countries (developed, developing andwith transition economies) are presented in Table8.5, and are positive in all cases except for Russia.Negative value of adjusted net savings in Russiacannot be explained only by dramatic depletionof natural capital (primarily energy resources),since international experience shows thatcountries with large and depleting natural capitalcan compensate the depletion by increase ofsavings, education spending, etc. Norway,150 National Human Development Report in the Russian Federation 2009

Canada, the USA and Great Britain have positiveAdjusted Net Savings Indexes (Table 8.5), and thefigure for Norway is as high as 9.2%.The Adjusted Net Savings Index hasseveral defects, but its importance is in giving anaggregate estimate of sustainable developmentand showing the need to compensate depletionof natural capital through increase ofinvestments in human and physical capital.The Index shows the need for dramaticincrease of energy efficiency in Russia, whichwould raise the country’s Index score by raisingproductivity and putting limits on extensive,low-margin extraction of energy resources. It isalso advisable for a country to have a specialfund or funds (‘fund of future generations’)such as exist in Norway, the USA some oilproducingcountries, which accumulate fixedcontributions from extraction of finite fuel andenergy resources to secure future economicgrowth. Russia set up such a fund – theStabilization Fund – in 2007. It wassubsequently decided, as part of the transitionto a three-year budget cycle, to divide theStabilization Fund into the Reserve Fund andthe National Wealth Fund. The Reserve Fund ismeant to play a stabilizing role for the Russianbudget when oil prices decline, and theNational Wealth Fund was earmarked as a fundof future generations. Unfortunately, most ofthe money accumulated has been quickly spenton stabilization of the social and economicsituation in the country since onset of the crisis.Box 8.1. Adjusted Net Savings Indexfor Kemerovo RegionThere is huge divergence betweentraditional economic indicators for KemerovoRegion and calculations based on adjusted netsavings, which take account of social andenvironmental aspects (Table 8.6). Depletion ofthe Regions’ natural resources andenvironmental pollution are large enoughproblems to turn strongly positive traditionalindexes negative when adjusted savings areCalculations based on the adjusted netsavings approach have been carried out in a fewRussian regions, including coal mining KemerovoRegion 9 . Both the energy factor and the humanfactor had major impact when calculating theIndex for this Region, which suffers fromenvironmentally determined public healthproblems. Illness due to water and air pollutioncause loss of up to 12% of GRP (Table 8.6).Depletion of resources by coal mining alsoreduces adjusted net savings in Kemerovo to alarge extent. As a result, the Adjusted Net SavingsIndex for Kemerovo Region was around -10% in2001–2005, despite significant growth of GRP(Box 8.1).Popular integral indicators that takeaccount of the energy factor include:Environmentally Adjusted Net Domestic Product,developed by the UN for national accounts; the‘Ecological Footprint’ used by the WWF; and theEnvironmental Sustainability Index, constructedby specialists from Yale and ColumbiaUniversities. The Ecological Footprint (EF) index,measuring pressure on the natural environment,which appears in regular reports of the WorldWildlife Fund, is particularly functional. The EFindex measures energy consumption in terms ofthe area necessary for absorption of respectiveCO 2 emissions and consumption of food andmaterials by people in terms of biologicallyproductive land and sea areas, which are neededfor production of these resources and absorptionof the waste produced. The EF of one personcalculated. Despite strong growth of GRP in2001-2005, corrected net savings in KemerovoRegion were about -10%, signifying powerful‘anti-sustainable development’ trends. Theregional economy is currently living at theexpense of future generations, throughdepletion of energy resources, depopulationand short life expectancy, and accumulatedenvironmental damage in the form of pollutedor disturbed land as well as degradation ofecosystems.9Mekush G.E. Environmental Policy and Sustainable Development. M.: Max Press, 2007151

Table 8.6Breakdown of the Adjusted Net Savings Index for Kemerovo RegionIndicators / Years 2001 2002 2003 2004 2005GRP, RUB billion 116.3 144.6 177.7 251.8 264.4Gross saving, % GRP 20.9 18.2 20.8 25.9 26.3Net regional savings, % GRP 13.5 12.6 14.3 19.4 19.8Depletion of energy sources, % GRP 10.8 11.0 11.2 15.3 15.5Damage from СО 2 emission, % GRP 1.2 1.2 1.3 1.5 1.8GRP losses due to impact of pollution on publichealth, %11.0 10.8 11.0 11.9 11.6Adjusted net savings, % GRP -9.5 -10.4 -9.2 -9.0 -10.0from a developed country is 4 times higher thanthat of a person from a country with low percapita income 10 . The EF for an average US citizenis 9.6 hectares of biologically productive area,while for an Indian citizen it is only 0.8 hectares.The environmental deficit is particularly high inthe USA (-4.8 hectares per capita), Great Britain (-4.0), Japan (-3.6) and Italy (-3.1). There is also anenvironmental deficit in such densely populatedcountries as China (-0.9) and India (-0.4). Bycontrast, some other countries have anenvironmental reserve: Russia (2.5), Brazil (7.8)and Canada (6.9).8.5. Information and institutionalsupport for the indicatorsInternational experience shows thatlimitations and barriers to development ofenergy indicators and measures of sustainabilityare mainly due to a lack of necessary economic,social and environmental information. This lack ispartly objective, but it is also partly due tocommercial confidentiality (which is widespreadin most energy companies).A paradoxical situation has arisen wheremany key indicators of sustainable developmentare used in national development documents,but are not published in official data books,putting obstacles in the way of their use fordecision making at all levels and transmission ofinformation to the general public. For example,the index of energy intensity is present in theConcept for Long-term Development of theRussian Federation up to 2020, in the RussianPresidential Decree on energy andenvironmental efficiency improvement (2008), inenergy strategies and programmes. But indextrends over years are not included in Rosstatdocuments, making proper analysis impossible.There is a similar paradox with respect to regionalGHG emissions. Another important indicator, ofthe number of people living in highly pollutedareas, is not published outside the Ministry ofNatural Resources.The following indicators need to beincluded in state statistics and made available tothe general public as a matter of urgency, so thatthey can be used in decision making processes atall levels:• various forms of energy intensity (electricintensity, segment energy intensity, etc.);• indexes of disturbance and reclamation ofland by the energy sector;• GHG emissions (per region);• number of people living in polluted areas;• reclamation, etc.There have been instances recently ofinstitutional support for greater use of energyindicators and measures of energy efficiency, atboth federal and regional levels. A system ofenergy efficiency indicators has been developedas part of a programme led by the Ministry ofEducation and Science, ‘Complex solutions forenergy efficiency problems and efficient use of10Living Planet Report 2006. WWF.152 National Human Development Report in the Russian Federation 2009

Box 8.2. Energy efficiencyindicators used by the FederalEducation AgencyThe Federal Education Agency (a branchof the Ministry of Education and Science) iscarrying out a programme to monitor energy useby educational establishments. A system of energyefficiency indicators has been devised by analysisof statistics on energy use at 120 educationalinstitutions subordinated to the Federal Agency,covering 1200 buildings over a period of five yearsby types of energy and building types.The indicators use relative rates of fuel &energy consumption, as follows:• in natural volumes (by building type):- electric energy, KWh per sq.m. and perstudent p.a.;- thermal energy for heating and hot watersupply (purchased and in-houseproduction) per sq.m. and per student p.a.;- boiler and furnace fuels (by type) forinternal energy sources (gas and coal boilerhouses),tonnes (cubic meters) per 1 Gcal;resources for innovative development ofeconomic sectors’ (Box 8.2).The most advanced and inclusiveregional system of sustainable developmentindicators has been developed in Tomsk Region,where the indicators are used in various fields,primarily for strategic planning, with institutionalsupport from the Tomsk Regional Administration.Sustainability indicators are used for design ofeconomic programmes and regionaldevelopment strategy (Box 8.3).The Independent Environmental RatingAgency has developed an energy efficiencyrating of Russian regions based on calculation ofenergy efficiency of GRPs (Box 8.4).8.6. Conclusions andrecommendationsThe global economic crisis has shown theneed for changes to traditional developmentindicators. Macro-economic indicators often- cold water, cubic meters per student, p.a.;- natural gas for dormitories, cubic metersper person p.a.• in standard units: all energy types areinterconnected by conversion to tonnes of fuelequivalent, which provides a universal indicatorfor all of the institutions and their buildings.• in value terms: roubles per sq.m. perstudent.The system of energy efficiencyindicators is confirmed by calculations made forspecific educational institutions, split by typeand group of institutions in the form of tablesper type of fuel and energy resources and pergroup of standard buildings.The energy efficiency indicators wereused to develop a system of annualizedstatistical accounting. Recommendations havebeen prepared for using the energyaccounting system and indicators throughoutthe system of education establishmentscontrolled by the Ministry of Education andScience.ignore or distort real economic, social andenvironmental processes. The two most commonapproaches in theory and in practice ofsustainability measurement are creation of anintegral (aggregate) indicator (index) anddevelopment of a system of indicators, eachreflecting a separate aspect of sustainability.The energy factor is widely representedamong sustainable development indexes, thatare used by international organizations and bynational governments, and which include:indexes attached to Goal 7 of the UN MillenniumDevelopment Goals, World Bank energyindicators, adjusted net savings, and theecological footprint. Energy intensity has a keyplace in all these, offering measures, which areeconomic (efficiency of energy resource use inthe economy), environmental (the relation ofenergy to levels of pollution and GHG emission);and social (the scale and content of energy sectoremissions have impact on public health).Energy intensity is a key indicator forRussia, characterizing development sustainability153

Box 8.3. System of sustaineddevelopment indicatorsfor Tomsk RegionThe system of sustainable developmentindicators for Tomsk Region was developed in2003 as part of the international project,‘Development of indicators for estimation ofsustainability of economic and social reforms inthe Russian Federation’. The system has beenconstantly refined since its creation, mainindicators have been monitored, and a bulletin,‘Sustained development indicators in TomskRegion’ is published regularly 11 , serving to informgovernment and the general public.Such institutional support fordevelopment and application of indicators isunique for Russia. The chief editor of the bulletin isthe Governor of Tomsk Region, V.M. Cress, andother editors are the First Deputy Governor, O.V.Kozlovskaya, and the Head of the Department ofNatural Resources and Environmental Protectionin Tomsk Region, A.M. Adam. The high statusaccorded to the indicators helps them to serve asa real instrument for monitoring and assessmentof the country in general and of its energysegment in particular. Energy intensity has aclaim to be the principal national developmentindex for Russia and should play a role inprogrammes, strategies, concepts, and projectsat federal and regional levels.The Adjusted Net Savings Index isparticularly constructive, with a good statisticaldatabase and calculability at both national andregional levels. Compared with traditionalmacro-economic indicators, adjusted netsavings achieve wider recognition of the factorsof human potential, energy and theenvironment. Such adjustment radicallychanges assessments of developmentsustainability for Russia. By taking account ofenergy resource depletion, the Index showsnegative results, despite GDP growth in the firstof social-economic development in the Regionand the environmental situation.The indicators are used primarily forstrategic planning, helping to design strategictargets for social and economic development.Three quarters of the sustainability indicators areused in the Tomsk Regional DevelopmentStrategy up to 2020 and the Program of Social andEconomic Development of Tomsk Region in 2006-2010 (developed by Tomsk RegionalAdministration in 2005).Tomsk Region uses a complex system,combining three types of sustained growthindicators: economic, social, and environmental.Indicators have been ranked according to theirpriority and regional specifics as ‘key’ or ‘basic’,‘additional’ and ‘specific’.The system consists of 38 indicators intotal, of which 12 key, 21 additional and 5 specific.The most important key indicator is energyintensity. Integrated (aggregate) indicators arealso used: HDI, adjusted net savings, and naturalcapital. Relative indicators are widely used, mainlyto measure environmental intensity.decade of the 21 st century, demonstrating theurgency of compensating depletion of naturalcapital through growth of investments inhuman and physical capital, radical growth ofenergy efficiency, and accumulation of naturalresource revenues in ‘funds of futuregenerations’.The country and its regions now haveexperience of using different indicators and thereis much potential for their adaptation to takemore account of energy factors. Main energyindicators need to be included in officialstatistical publications at federal and regionallevels, so that they can be more widely used indecision-making processes. This refersparticularly to energy intensity and its specificvarieties, GHG emissions by regions, andnumbers of people living in polluted areas.10Indicators of Sustainable Development in Tomsk Region. Edition 3/under the editorship of V.M.Cress. Tomsk: ‘Pechatnaya Manufactura’Publishing House, 2007.154 National Human Development Report in the Russian Federation 2009

Box 8.4. Energy efficiency rating of Russian regionsThe energy efficiency rating for Russia’sregions was based on indicators showing energyefficiency of GRP (gross regional product) ascalculated by the Independent EnvironmentalRating Agency (ANO NERA), which was set up by theInternational Socio-Environmental Association(MSOES). In 2009 ANO NERA and MSOES sentrequests to all regional governors to provideinformation for the environmental and energyefficiency rating. Information for calculating therating was provided by the heads of 77 of thecountry’s constituent regions.A preliminary estimate for GRP in 2008 wasused. The estimate was based on trends in industrialand agricultural production, construction and otherindustries in 2007-2008. Before GRP values forvarious regions can be used to correctly compareefficiency of their economies, differences betweensources of GRP in the different regions need to betaken into account. In regions where naturalresources are extracted a large share of GRP comesfrom rent, primarily from natural gas and oiloutputs, which has nothing to do with productionefficiency (the reason why the rent is taken away astaxes).Since several regions did not fill in theirquestionnaires and questionnaires returned bysome other regions were not filled in properly, acontrol array of data on energy consumption had tobe created. The problem was exacerbated by thefact that Russian official statistics do not calculate aunified energy balance by regions on a regular basis,so that, for the purpose of the ratings, ANO NERAhad to produce its own estimates for consumptionof all types of fuel (not including oil used by oilrefineries in the refining process). Regressiveanalysis methods were used to establishdependence of fuel consumption on electricityconsumption in regions with different types ofenergy systems. If a region was a net importer ofelectricity, the amount of imports was convertedinto tonnes of conditional fuel and added to theamount of internal fuel consumption. If a region wasa net exporter of electricity and the electricity itexported was produced by thermal power plants,then the estimated amount of fuel consumed by theregion was reduced by the amount of electricityexported to other regions, since this energy is usedoutside the region.The energy consumption data provided byheads of regional administrations were comparedwith the data in the control array and averagedeviation of the regional data from the data in thefederal array was determined. This averagedeviation was used as a criterion for discardingunreliable data. If the difference between thecontrol array and the data provided by a region wasgreater than the average, then only the data of thecontrol array were used. If the difference wassignificantly less than the average deviation, thenthe data provided by the regional administrationwere used. In instances between these twoextremes, the mean of the control array andregional data was used.Method for calculating GRP energyefficiency indicators1. Energy consumption in 2008 per millionroubles of GRP.Estimated total energy consumption in eachregion, converted to tonnes of conditional fuel, isdivided by estimated GRP less net taxes.To make it easier to compare indicators forvarious regions, the estimate for each region isdivided by average energy intensity of GRP for allRussia’s regions. The result, expressed in percent,shows how much more or less energy is consumedin each region per million roubles of outputcompared with average energy intensity of GRP forall regions.2. Trend in consumption of primary energyper unit of GRP in the period after 2000 (2008/2000).3. Trend in consumption of primary energyper unit of GRP in one year (2008/2007).It should be noted that calculation of relativeenergy consumption per unit of GRP did not use themonetary value of GRP but relied instead on changesin output of key industries, which are measured byRosstat in natural units. For this purpose GRP of eachregion had to be divided by change in natural output(2008/2000 and 2008/2007). The result shows changein consumption of energy per unit of GRP in 2008prices.155

Table 8.4.1GRP energy efficiency ratings of Russia’s regionsRatingConstituencyEnergy intensity of GRP(% of Russian average),2008Change in energyintensity of GRP in 8 years(2008-2000 +/- %)Change in energyintensity of GRP in oneyear (2008-2007 +/- %)1 Rostov Region 72.2 -49.6 -15.42 Tver Region 78.9 -47.8 -21.83 Kaluga Region 87.9 -51.2 -28.44 Tambov Region 80.4 -48.4 -14.85 Amur Region 100.4 -60.6 -17.76 St.Petersburg 33.1 -42.5 -11.97 Chuvashia 67.3 -49.9 -8.98 Chukotka 48.7 -56.4 -5.09 Orel Region 85.5 -43.4 -9.810 AdygeiAutonomous Region 89.1 -43.9 -9.911 Bryansk Region 100.7 -38.6 -15.712 Arkhangelsk Region 100.6 -49.2 -9.513 Mariy-El 77.2 -37.0 -10.314 Pskov Region 89.9 -38.3 -9.615 Kalmykia 69.7 -24.9 -14.616 Leningrad Region 129.7 -44.2 -12.117 Sakhalin Region 38.6 -54.0 +12.318 Bashkortostan 117.8 -46.7 -8.219 Mordovia 150.0 -48.2 -14.620 Omsk Region 105.2 -49.0 -3.021 Tula Region 144.0 -45.5 -14.122 Kabardino-Balkaria 112.7 -41.8 -6.823 Stavropol Territory 147.4 -42.2 -14.824 Kaliningrad Region 60.7 -30.7 -5.625 Moscow Region 80.4 -28.1 -9.526 Magadan Region 130.8 -46.8 -6.027 Belgorod Region 125.2 -34.8 -15.428 Krasnodar Territory 84.8 -27.0 -8.629 Saratov Region 129.3 -36.1 -11.830 Yakutia-Sakha 84.6 -34.7 -2.731 Tatarstan 76.4 -32.6 -1.332 Orenburg Region 121.7 -37.5 -5.733 North Ossetia-Alania 187.4 -42.3 -10.634 Volgograd Region 124.0 -34.1 -9.935 Kurgan Region 131.6 -39.2 -5.936 Tyumen Region 87.9 -36.7 -0.337 Samara Region 99.8 -25.8 -7.138 Moscow 12.2 -26.6 +2.839 Jewish Autonomous Region 66.4 -37.2 +17.340 Novosibirsk Region 98.6 -38.2 +2.9156 National Human Development Report in the Russian Federation 2009

41 Penza Region 116.0 -35.2 -4.542 Altai 117.6 -41.4 -0.243 Voronezh Region 202.3 -37.1 -13.644 Kursk Region 86.2 -17.9 -5.545 Lipetsk Region 149.8 -36.8 -6.546 Kamchatka Region 81.9 -12.4 -5.447 Ulyanovsk Region 132.9 -32.7 -5.7Khanty-Mansi Autonomous48District65.5 +10.3 -0.549 Khabarovsk Territory 75.2 -31.4 +13.050 Nizhniy Novgorod Region 120.7 -33.9 -1.551 Karelia 68.7 -9.0 +1.552 Ivanovo Region 158.4 -37.8 -1.953 Yaroslavl Region 117.5 -32.3 -0.354 Karachaevo-Cherkessia 139.4 -41.1 +3.955 Dagestan 101.6 -34.9 +12.856 Vladimir Region 133.7 -25.4 -4.657 Ryazan Region 133.8 -30.6 -2.758 Republic of Udmurtia 105.9 -10.5 -1.659 Primorie Territory 114.4 -14.7 -0.660 Kirov Region 130.4 -15.9 -4.161 Vologda Region 170.0 -22.4 -5.962 Komi Republic 105.2 -12.7 +1.263 Irkutsk Region 221.1 -36.2 -0.5Nenets Autonomous64District31.1 +56.0 +22.765 Perm Territory 121.9 +0.5 -3.266 Chelyabinsk Region 157.2 -32.3 +0.867 Tomsk Region 91.3 +9.0 +6.368 Buryatia 118.7 -21.6 +7.069 Sverdlovsk Region 158.4 -34.8 +6.270 Altai Territory 172.2 -35.1 +10.471 Trans-Baikal Territory 132.4 -24.0 +9.872 Novgorod Region 167.1 -18.7 +1.273 Krasnoyarsk Territory 154.5 -23.1 +4.574 Republic of Tyva 109.5 -4.8 +21.975 Smolensk Region 140.6 -14.9 +5.276 Murmansk Region 153.4 -6.4 +2.277 Kemerovo Region 170.4 -19.0 +4.678 Kostroma Region 199.6 -15.5 +4.479 Ingushetia 265.2 -17.2 +13.280 Khakassia 254.4 +34.7 +3.581 Astrakhan Region 281.1 -16.6 +20.582 Yamalo-NenetsAutonomous District184.0 +15.3 +28.383 Chechnya 364.3 +31.6 +36.8157

Resulting estimatesfor energy intensity of GRPThe biggest geographical grouping in Russiawith high energy consumption per unit of productionis Central Siberia, a region stretching from Chita toKemerovo and including Altai Territory, in the south,and extending to Yamal-Nenets District, in the north.These regions use huge amounts of energy forproduction of coal, aluminum, nickel and natural gas(high energy use in the natural gas industry is mainlyat compressor stations on gas pipelines). By contrast,regions, which produce oil, and also timber regions(mainly the north-west taiga zone) turn out to be veryenergy efficient in the current system of prices andtariffs. All of the eastern Urals is very energy intensive,as might have been expected. Regions with lowestenergy efficiency in the west of the country areclustered around the central Caucasus and form across-shape in the centre of European Russia (Figure8.4.1)Figure 8.4.1Energy consumption per million roubles of GRP(without net taxes) in 2008 (% of the average forRussia)Less than 80%80 – 105%105 – 130%130 – 155%More than 155%Figure 8.4.2Changes in energy consumption per unit of GRPin 2008 +/- % of 2007Trends in energy consumptionper unit of GRPIn the period following 2000, energyconsumption grew or fell only slightly in regions thatproduce oil and natural gas, with the exception of thesouthern Urals. In the rest of the country energyconsumption during the growth years formed amosaic pattern, suggesting that causes of change inenergy consumption were different in each region.However, in the first year of the crisis therewas a clear break: the energy intensity map for 2008(Figure 8.4.2) shows reductions across the whole ofthe European-Urals agrarian zone without exception.From -28% to -10%From -5,5% to -10%From -0,5% to -5,5%From +5% to -0,5%From +5% to -37%However, the industrial centers of Siberia and theNorth West not only stopped increasing their energyefficiency but saw an increase in energy intensity ofGRP.Combined criteria of high energy efficiencyof GRP and improving trends indicate three clearregional winners, which are Rostov, Tver and Kaluga(Table 8.4.1).158 National Human Development Report in the Russian Federation 2009

Appendix to Chapter 1Table 1.1. GDP energy intensity of some national and supranational economies, 1990-2008, t. oil equiv / thousand USD 2005 by PPPCountry/Region 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008EC-27 0.170 0.168 0.164 0.164 0.158 0.158 0.160 0.154 0.151 0.147 0.143 0.142 0.139 0.139 0.137 0.135 0.130 0.124 0.122Great Britain 0.156 0.162 0.160 0.158 0.150 0.146 0.149 0.142 0.138 0.133 0.130 0.128 0.123 0.121 0.118 0.116 0.111 0.104 0.102Germany 0.171 0.158 0.153 0.153 0.148 0.146 0.149 0.144 0.140 0.134 0.131 0.132 0.129 0.130 0.128 0.125 0.123 0.113 0.113Italy 0.114 0.115 0.114 0.113 0.110 0.112 0.111 0.110 0.111 0.113 0.111 0.109 0.108 0.111 0.112 0.111 0.108 0.105 0.105France 0.154 0.161 0.161 0.162 0.156 0.157 0.161 0.155 0.154 0.151 0.147 0.147 0.144 0.144 0.143 0.140 0.136 0.131 0.132USA 0.246 0.246 0.242 0.241 0.236 0.235 0.234 0.226 0.218 0.212 0.209 0.203 0.203 0.198 0.195 0.189 0.182 0.182 0.175Canada 0.331 0.342 0.348 0.348 0.344 0.340 0.347 0.335 0.315 0.306 0.301 0.292 0.288 0.291 0.285 0.285 0.275 0.273 0.275Russia 0.460 0.478 0.533 0.547 0.570 0.566 0.568 0.530 0.559 0.531 0.496 0.469 0.458 0.429 0.406 0.379 0.371 0.345 0.324Japan 0.134 0.135 0.135 0.136 0.140 0.141 0.140 0.140 0.141 0.142 0.141 0.140 0.139 0.137 0.136 0.134 0.131 0.127 0.126Norway 0.287 0.259 0.263 0.264 0.245 0.249 0.216 0.217 0.217 0.219 0.234 0.205 0.212 0.187 0.183 0.206 0.185 0.194 0.194China 0.549 0.528 0.482 0.454 0.425 0.412 0.394 0.359 0.318 0.301 0.288 0.275 0.266 0.281 0.297 0.296 0.290 0.278 0.274India 0.176 0.184 0.184 0.180 0.178 0.180 0.178 0.177 0.174 0.167 0.169 0.161 0.162 0.153 0.154 0.148 0.141 0.140 0.138Brazil 0.115 0.117 0.122 0.120 0.119 0.120 0.124 0.127 0.132 0.135 0.133 0.129 0.128 0.128 0.126 0.126 0.125 0.127 0.125Korea 0.185 0.190 0.202 0.208 0.208 0.208 0.215 0.225 0.223 0.222 0.217 0.214 0.209 0.210 0.206 0.205 0.197 0.194 0.194Mexico 0.121 0.121 0.119 0.119 0.121 0.125 0.128 0.124 0.124 0.119 0.116 0.116 0.116 0.120 0.118 0.118 0.118 0.117 0.119Argentina 0.178 0.161 0.152 0.150 0.146 0.157 0.159 0.146 0.147 0.150 0.155 0.159 0.168 0.167 0.161 0.158 0.154 0.148 0.141South Africa 0.327 0.328 0.326 0.331 0.340 0.349 0.352 0.353 0.350 0.339 0.327 0.315 0.315 0.322 0.323 0.300 0.290 0.288 0.291Australia 0.216 0.217 0.220 0.219 0.219 0.216 0.214 0.211 0.206 0.199 0.192 0.194 0.193 0.186 0.184 0.183 0.185 0.179 0.166Saudi Arabia 0.256 0.251 0.236 0.242 0.263 0.255 0.259 0.258 0.265 0.270 0.277 0.287 0.297 0.294 0.298 0.300 0.304 0.312 0.320Indonesia 0.136 0.137 0.139 0.137 0.135 0.133 0.133 0.136 0.154 0.167 0.167 0.170 0.172 0.166 0.165 0.168 0.153 0.149 0.148Ukraine 0.643 0.640 0.623 0.612 0.680 0.726 0.771 0.781 0.767 0.784 0.741 0.675 0.633 0.579 0.544 0.525 0.484 0.442 0.423Source: World Bank (World Development Indicators Online Database), BP Statistical Review of World Energy June 2009Table 1.2. Russian GDP energy intensitySource: Unit: 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Estimate of the Institutefor Energy and Financebased on data from BPand World BankIEAt. oil equiv.. /thousand USD2005 (PPP)t. oil equiv.. /thousand USD2000 (PPP)0.460 0.478 0.533 0.547 0.570 0.566 0.568 0.530 0.559 0.531 0.496 0.469 0.458 0.429 0.406 0.379 0.371 0.345 0.3240.571 0.593 0.63 0.657 0.657 0.659 0.678 0.639 0.659 0.643 0.595 0.573 0.544 0.525 0.491 0.471 0.452 0.419 н.д.Source: World Bank (World Development Indicators Online Database), BP Statistical Review of World Energy June 2009, IEA (IEA World Energy Statistics and Balances - Energy Balances of Non-OECD Countries -Economic Indicators Vol 2009 release 01)159

Appendix to Chapter 1Table 1.3. Primary Power Production to GDP Ratio for Selected National and Supranational Economies,1990 – 2008, t. oil equiv./thousand USD 2000 (PPP)Country/Region 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008World 0.264 0.261 0.257 0.253 0.248 0.245 0.242 0.235 0.232 0.223 0.219 0.216 0.212 0.212 0.211 0.208 0.202 0.194 н.д.OECD 0.162 0.162 0.160 0.158 0.158 0.157 0.156 0.152 0.149 0.143 0.139 0.139 0.136 0.132 0.129 0.125 0.122 0.118 0.118Countries outside OECD 0.440 0.431 0.423 0.412 0.397 0.388 0.377 0.365 0.362 0.348 0.340 0.330 0.321 0.321 0.317 0.310 0.297 0.279 н.д.ЕС - 27 0.110 0.109 0.107 0.107 0.105 0.105 0.106 0.102 0.097 0.094 0.090 0.088 0.086 0.084 0.082 0.077 0.073 0.069 н.д.Great Britain 0.174 0.182 0.182 0.185 0.195 0.199 0.202 0.195 0.191 0.191 0.178 0.167 0.161 0.150 0.133 0.118 0.105 0.096 0.090Germany 0.108 0.093 0.088 0.082 0.077 0.075 0.074 0.072 0.067 0.066 0.064 0.062 0.062 0.063 0.063 0.062 0.060 0.059 0.057Italy 0.020 0.021 0.021 0.022 0.023 0.022 0.023 0.022 0.022 0.021 0.019 0.018 0.018 0.019 0.019 0.018 0.018 0.017 0.017France 0.089 0.094 0.094 0.100 0.095 0.096 0.098 0.094 0.089 0.087 0.086 0.085 0.086 0.086 0.084 0.083 0.081 0.078 0.078USA 0.234 0.233 0.226 0.214 0.214 0.208 0.204 0.195 0.188 0.178 0.172 0.173 0.166 0.159 0.155 0.149 0.147 0.145 0.148Canada 0.418 0.445 0.455 0.477 0.488 0.489 0.495 0.483 0.465 0.439 0.427 0.424 0.420 0.414 0.414 0.406 0.403 0.395 0.385Japan 0.026 0.027 0.027 0.029 0.030 0.032 0.032 0.033 0.035 0.033 0.033 0.032 0.030 0.025 0.028 0.029 0.029 0.025 0.024Norway 1.057 1.128 1.219 1.252 1.308 1.362 1.457 1.419 1.337 1.334 1.397 1.355 1.387 1.376 1.301 1.242 1.171 1.121 1.087Former USSR 0.700 0.703 0.754 0.788 0.846 0.869 0.898 0.855 0.890 0.874 0.836 0.813 0.801 0.793 0.766 0.744 0.707 0.666 н.д.Russia 0.840 0.832 0.905 0.927 0.994 1.008 1.044 0.996 1.060 1.020 0.943 0.924 0.916 0.913 0.892 0.867 0.822 0.767 н.д.China 0.451 0.418 0.374 0.340 0.318 0.309 0.290 0.265 0.245 0.223 0.206 0.196 0.193 0.197 0.203 0.200 0.191 0.179 н.д.India 0.206 0.211 0.203 0.196 0.190 0.185 0.175 0.174 0.163 0.155 0.152 0.147 0.145 0.139 0.132 0.125 0.118 0.112 н.д.Brazil 0.107 0.106 0.107 0.103 0.102 0.099 0.103 0.106 0.112 0.119 0.119 0.121 0.130 0.136 0.132 0.137 0.140 0.138 н.д.Australia 0.427 0.452 0.450 0.439 0.417 0.431 0.421 0.427 0.437 0.415 0.447 0.460 0.454 0.436 0.432 0.437 0.423 0.434 0.425Argentina 0.169 0.156 0.151 0.149 0.154 0.170 0.174 0.173 0.171 0.178 0.184 0.198 0.214 0.204 0.184 0.164 0.155 0.141 н.д.Indonesia 0.429 0.429 0.411 0.391 0.395 0.370 0.361 0.353 0.395 0.425 0.393 0.389 0.379 0.378 0.368 0.366 0.389 0.391 н.д.Korea 0.053 0.047 0.041 0.038 0.034 0.034 0.034 0.034 0.042 0.043 0.042 0.041 0.041 0.043 0.041 0.045 0.043 0.040 0.041Mexico 0.276 0.275 0.265 0.264 0.253 0.266 0.267 0.262 0.255 0.241 0.229 0.234 0.232 0.241 0.242 0.240 0.226 0.215 0.198Saudi Arabia 1.726 1.989 1.957 1.935 1.883 1.889 1.846 1.797 1.803 1.679 1.721 1.671 1.669 1.743 1.712 1.705 1.636 1.528 н.д.Ukraine 0.297 0.283 0.296 0.310 0.350 0.372 0.373 0.390 0.397 0.403 0.385 0.352 0.337 0.318 0.287 0.282 0.269 0.246 н.д.South Africa 0.356 0.367 0.369 0.390 0.394 0.401 0.385 0.398 0.401 0.392 0.378 0.366 0.350 0.362 0.355 0.340 0.321 0.309 н.д.OPEC 1.330 1.317 1.344 1.410 1.420 1.426 1.420 1.431 1.448 1.395 1.420 1.376 1.305 1.309 1.299 1.287 1.240 1.169 н.д.Source: IEA (IEA World Energy Statistics and Balances - Energy Balances of OECD Countries - Economic Indicators Vol 2009 release 01, IEA World Energy Statistics and Balances - Energy Balances of Non-OECDCountries - Economic Indicators Vol 2009 release 01)Table 1.4. Primary Power Production to GDP Ratio for Russia, 1990 – 2007, t. oil equiv./thousand USD 2000 (PPP)Primary PowerProduction to GDPRatio1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 20070.840 0.832 0.905 0.927 0.994 1.008 1.044 0.996 1.060 1.020 0.943 0.924 0.916 0.913 0.892 0.867 0.822 0.767Source: IEA (IEA World Energy Statistics and Balances - Energy Balances of Non-OECD Countries - Economic Indicators Vol 2009 release 01)160 National Human Development Report in the Russian Federation 2009

Attachment to Chapter 4Table 4.1Russian coal-fired power plants and socio-environmental indicatorsfor their surrounding areasTerritoryCoal-firedCPP/CHPShareof coal-firedheating sources,% *Population,thousand**HDI in2006/ranking***Central Federal DistrictVladimir Region 0.756/60Level of ambient airpollution in 2006/2007,Roshydromet data ****Vladimir Vladimirskaya CHP-2 11.7 339.5 HighVoronezh Region 0.771/40Voronezh Voronezhskaya CHP-2 3.2 839.9 HighIvanovo Region 0.735/73Ivanovo Ivanovskaya CHP-2,3 16.9 406.5 Insufficient dataKostroma Region 0.756/59Kostroma Kostromskaya CHP-1,2 1.7 271.7 HighKursk Region 0.781/30Kursk Kurskaya CHP-1 3.8 408.1 HighMoscow Region 0.781/31Dzerzhinskiy Dzerzhinskaya CHP-22 44.3 Fairly highKashiraKashirskaya CPP٭٭٭٭٭‎4‎39.5 No dataStupino Stupinskaya CHP 66.4 No dataShatura Shaturskaya CPP 31.2 No dataRyazan Region 0.773/38Ryazan 1.9 510.8 Very highNovomichurinsk Ryazanskaya CPP 20.0 Not monitoredSmolensk Region 0.755/62Smolensk 4.9 316.5 Fairly highOzerniy town Smolenskaya ٭٭٭٭٭CPP 6.0 Not monitoredVerkhnedneprovskiytownDorogobuzhskaya CHP 13.5 Not monitoredTver Region 0.753/63Tver Tverskaya CHP-3 407.3 Not stated. But monitoredTula Region 0.763/50Tula 0.7 500.0 HighSuvorov Cherepetskaya ٭٭٭٭٭CPP 19.9 Not monitoredAlexin Alexinskaya CHP 65.4 Not monitoredYaroslavl Region 0.793/18Yaroslavl Yaroslavskaya CHP-2 13.6 605.2 High161

Attachment to Chapter 4North-Western Federal DistrictKomi Republic 0.799/13Syktyvkar 27.7 246.3 HighVorkuta Vorkutinskaya CHP-1,2 116.9 HighInta Intinskaya CHP 35.2 No dataArkhangelsk Region 0.789/22Arkhangelsk 73.0 354.7 HighSeverodvinsk Severodvinskaya CHP-1 191.4 No dataVologda Region 0.800/12Vologda 3.3 286.2 Fairly highKaduy town Cherepovetskaya ٭٭٭٭٭CPP 17.8 No dataLeningrad Region 0.758/55Kirovsk Dubrovskaya CHP ٭٭٭٭٭‎8‎ 23.4 Not monitoredMurmansk Region 0.782/28Murmansk Murmanskaya CHP 12.5 314.8 LowMurmashi town Apatitskaya CHP 15.6 Not monitoredNovgorod Region 0.762/53Velikiy Novgorod Novgorodskaya CHP-20 216.2 Fairly highPskov Region 0.729/76Pskov 11.4 194.2 Fairly highDedovichi town Pskovskaya ٭٭٭٭٭CPP 9.6 Not monitoredSt. Petersburg Pervomayskaya CHP 17.3 4568.1 0.848/3 HighSouthern Federal DistrictRostov Region 0.775/36Rostov-on-Don 6.9 1048.7 HighNovocherkasskNovocherkasskaya٭٭٭٭٭CPP177.0Not stated,in 2000 the city was ratedas an environmentalemergency area162 National Human Development Report in the Russian Federation 2009

Attachment to Chapter 4Volga Federal DistrictRepublic of Bashkortostan 0.805/9Ufa 2.7 1021.5 HighSalavat Salavatskaya CHP 155.9 HighKumertau Kymertausskaya CHP 62.4 No dataRepublic of Tatarstan 0.834/4Kazan Kazanskaya CHP-2 1.4 1120.2 Very highUdmurt Republic 0.791/19Izhevsk Izhevskaya CHP-2 26.5 613.3 HighKirov Region 0.752/64Kirov Kirovskaya CHP-3,4,5 43.2 486.3 HighPerm Territory 0.790/20Perm 6.7 987.2 HighChaikovskiy Chaikovskaya ٭٭٭٭٭CHP-18‎ 82.9 Not statedKrasnokamsk Zakamskaya CHP-5 52.6 Not statedDobryanka Permskaya CPP 35.8 Not monitoredYayva township Yayvinskaya CPP 2.1 Not monitoredSamara Region 0.803/10Samara 5.7 1135.4 HighTogliatti Togliattinskaya CHP 705.5 HighUrals Federal DistrictSverdlovsk Region 0.802/11Ekaterinburg Sverdlovskaya CHP 15.3 1323.0 Very highKrasnoturyinsk Bogoslovskaya CHP 61.7 Very highAtryomovskiy Artemovskaya CHP 33.3 Not monitoredKamensk-Uralskiy Krasnogorskaya CHP 181.0Environmentalemergency areaSerov Serovskaya ٭٭٭٭٭CPP 98.5 Not statedVerkhniy Tagil Verkhnetagilskaya CPP 12.3 No dataNizhnyaya TuraNizhneturinskaya٭٭٭٭٭CPP22.8 No dataAsbest Reftinskaya ٭٭٭٭٭CHP 71.3 Not monitoredChelyabinsk Region 0.796/17Chelyabinsk Chelyabinskaya CHP-1,2 19.0 1092.5 Very highOzersk Argayashskaya CHP 86.9 Not monitoredTroitsk Troitskaya ٭٭٭٭٭CPP 82.4 Not monitoredYuzhnouralsk Yuzhnouralskaya ٭٭٭٭٭CPP 38.5 Not monitoredMagnitogorsk Magnitogorskaya CHP 409.0 Very high163

Attachment to Chapter 4Siberian Federal DistrictRepublic of Buryatia 0.744/69Ulan-UdeUlan-Udenskaya CHP-1,2Timlyuyskaya CHP91.1 340.8 Very highGusinoozersk Gusinoozerskaya ٭٭٭٭٭CPP 24.1 Not monitoredRepublic of Tyva 0.691/80Kyzil Kyzilskaya CHP 100.0 108.1 HighRepublic of Khakassia 0.765/48Abakan Abakanskaya CHP 93.3 163.2 HighAltai Territory 0.756/58BarnaulBarnaulskaya CHP-1,2٭٭٭٭٭‎3‎ Barnaulskaya CHP72.9 597.2 HighRubtsovsk Rubtsovskaya CHP 156.2 Not monitoredBiysk Biyskaya CHP 221.4 Not monitoredKrasnoyarsk Territory 0.807/8Krasnoyarsk٭٭٭٭٭‎1‎ Krasnoyarskaya CHPKrasnoyarskaya CHP-272.5 936.4 Very highTurs township 62.5 5.5 Not monitoredSharypovo Berezovskaya CPP ٭٭٭٭٭‎1‎ 38.5 Not monitoredZelenogorsk Krasnoyarskaya CPP-2 68.5 Not monitoredKansk Kanskaya CHP 99.0 Not monitoredMinusinsk Minusinskaya CHP 66.8 No dataNazarovo Nazarovskaya CPP 53.6 Not monitoredSosnovoborskSosnovoborskaya CHP(renamedKrasnoyarskaya CHP-4)Irkutsk Region 0.776/3530.1 Not monitoredIrkutsk Irkutskaya CPP 56,6 575.8 Very highBaikalsk Baikalskaya CHP 15.0 No dataMarkova township Novo-Irkutskaya CHP 7.0 Not monitoredAngarsk٭٭٭٭٭CHP-9‎ AngarskayaAngarskaya CHP-10Irkutskaya CPP-10242.5 Not statedCheremkhovo Cheremkhovskaya CHP 54.3 No dataSayansk Novo-Ziminskaya ٭٭٭٭٭CHP 44.0 Not monitoredUst-Ilimsk Ust-Ilimskaya CHP 98.0 Not monitoredKemerovo Region 0.771/41KemerovoNovokuznetskKemerovvskaya CPPKemerovskaya CHPNovo-Kemerovskaya CHPZapadno-SibirskayaCHPKuznetskaya CHP73,2 520.0 High562.2 High164 National Human Development Report in the Russian Federation 2009

Attachment to Chapter 4Belovo Belovskaya CPP 75.8 Not monitoredMyski Tom-Usinskaya ٭٭٭٭٭CPP 41.9 Not monitoredKaltan Yuzhno-Kuzbasskaya ٭٭٭٭٭CPP 24.8 Not monitoredNovosibirsk Region 0.790/21NovosibirskNovosibirskaya CHP2,3,4,564.2 1390.5 HighOmsk Region 0.798/15Omsk Omskaya CHP-4,5 14.3 1131.1 HighTomsk Region 0.815/5Tomsk Tomskaya 40.0 ٭٭٭٭٭CHP-3‎ 516.1 Very highSeversk Severskaya CHP 107.1 Not dataTrans-Baikal Territory 0.730/75Chita Chitinskaya CHP-1,2 75.0 306.1 Very highSherlovaya GoratownshipYasnogorsktownshipPriargunsktownshipSherlovogorskaya CHP 14.4 Not monitoredKharanorskaya٭٭٭٭٭CPPAgin-Buryat Autonomous DistrictAginskoyetownship9.2 Not monitoredPriargunskaya CHP 8.1 Not monitored100.0 13.9 Not monitored165

Attachment to Chapter 4Far Eastern Federal DistrictRepublic of Sakha (Yakutia) 0.799/14Yakutsk 6.6 255.8 HighNyeryungri Nieryungrinskaya CPP 64.4 No dataChulmantownshipChulmanskaya CHP(incorporated inNeryungrinskaya CPP)10.4 Not monitoredPrimorye Territory 0.756/57VladivostokVladivostokskayaCHP-1,249.4 605.4 HighArtem Atremovskaya CHP 111.9 LowLuchegorsk township Primorskaya ٭٭٭٭٭CPP 22.0 Not monitoredKhabarovsk Territory 0.770/42Khabarovsk Khabarovskaya CHP-3 58.3 577.3 HighAmursk Amurskaya CHP 46.1 No dataKomsomolsk-on-AmurKomsomolskayaCHP-1,2272.4 HighMaiskiy township Maiskaya CPP 3.0 1 Not monitoredAmur Region 0.744/68Blagoveschensk Blagoveschenskaya CHP 70.7 207.3 Very highKamchatka Territory 0.763/49Petropavlovsk-KamchatskiyKamchatskaya CHP-1,2 50.9 194.9 HighMagadan Region 0.785/25Magadan Magadanskaya CHP 14.3 107.1 Very highMyaoondzha Arkagalinskaya CPP 2.1 (2002 г.) Not monitoredSakhalin Region 0.788/23Yuzhno-SakhalinskYuzhno-SakhalinskayaCHP31.3 173.8 Very highLermontovka village Sakhalinskaya CPP 4.6 (2003) Not monitoredJewish Autonomous Region 0.734/74Birobidzhan Birobidzhanskaya CHP 100.0 75.1 HighChukotka Autonomous District 0.741/72Anadyr Anadyrskaya CHP 50.0 11.8 No dataPevek Chaunskaya CHP 4.4 No dataEgvekinottownshipEgvekinotskaya CPPEgvekinotskaya CHP2.4 Not monitored* according to the State Statistics reporting form TaST as of the end of 2006 for all types of property** Russia’s regions. Main social and economic indices of cities - 2008. Stat. Digest / Rosstat – М., 2008. – 375p.(http://www.gks.ru/bgd/regl/B08_14t/Main.htm), also on data taken from http://www.mojgorod.ru, http://www.migratio.ru,http://ru.wikipedia.org*** The 2009 National Human Development Report - М., 2009.**** Annual emissions digest of Russia’s urban and rural areas, 2007; The R&D Institute for Ambient Air Protection, St.Petersburg, 2008. – 204p.;Annual Digest of Ambient Air Pollution in Russian Cities, 2006. The A.I.Voyeykov Leading Geophysical Observatory of Roshydromet. St.Petersburg,2008. – 208p.***** CHP, where coal-fired generation will be increased by 2020. Construction proposals for expansion of Smolenskaya, Reftinskaya, Yuzhno-Uralskaya CPPs are not available. (I.S.Kozhukhovskiy. Situational analysis and forecast, http://www.eapbe.ru/actions/09_03_24_Vedomosti_Kozhukhovsky.pps#- material taken on july 07th, 2009.)1http://bereg.in/index/0-5166National Human Development Report in the Russian Federation 2009

The previous National Human Development Reportsin the Russian Federation have been devotedto the following themes:2008 Russia Facing Demographic Challenges2006/2007 Russia’s Regions: goals, challenges, achievements2005 Russia in 2015: Development Goals and PolicyPriorities2004 Towards a Knowledge-based Society2002/2003 The Role of the State in Economic Growth and Socio-Economic Reform2001 Generation Aspects of Human Development2000 Impact of Globalization on Human Development1999 Social Consequences of the August 1998 Crisis1998 Regional Differentiation in the Russian Society1997 Human Development under Conditions of Politicaland Economic Transformations1996 Poverty: its reasons and consequences1995 Human Development concept and its application tothe Russian context

United Nations Development Programmein the Russian Federation9 Leontyevsky Lane, Moscow, 125009Tel.: +7 (495) 787-21 00Fax: +7 (495) 787-21 01http://www.undp.ruoffice@undp.ru