Igor BashmakovIgor Bashmakov

Russian GDP Doubling, District Heating Russian GDP Doubling, District Heating

and Climate Change Mitigationand Climate Change Mitigation

UNFCCC Workshop UNFCCC Workshop Climate Change Mitigation: Climate Change Mitigation:

Vulnerability and Risk, Sustainable Vulnerability and Risk, Sustainable Development, Opportunities and Development, Opportunities and

SolutionsSolutions June 19, 2004, Bonn, GermanyJune 19, 2004, Bonn, Germany

High

energy

intensity

Does Russia sells its economic growth Does Russia sells its economic growth for Kyoto or does Kyoto opens a for Kyoto or does Kyoto opens a

window of opportunity for Russian window of opportunity for Russian economic growth?economic growth?

The evaluation of potential impact of Kyoto protocol ratification The evaluation of potential impact of Kyoto protocol ratification on Russian economic growth requires answering the on Russian economic growth requires answering the following 7 questions:following 7 questions:

1.1. What are possible levels of energy production and what What are possible levels of energy production and what portion of Oil and Gas revenues are needed to keep those portion of Oil and Gas revenues are needed to keep those levels?levels?

2.2. How much oil and gas revenues (own investments deducted) How much oil and gas revenues (own investments deducted) are needed for Russia to buy the doubling GDP?are needed for Russia to buy the doubling GDP?

3.3. How much energy would then be available for domestic use?How much energy would then be available for domestic use?4.4. What GDP doubling means for two sectors: Oil-Gas sector What GDP doubling means for two sectors: Oil-Gas sector

and Non-Oil-Gas sector? and Non-Oil-Gas sector? 5.5. Can Russia support the required growth of Non-Oil-Gas GDP Can Russia support the required growth of Non-Oil-Gas GDP

with sufficient energy services when energy export to finance with sufficient energy services when energy export to finance growth is deducted ?growth is deducted ?

6.6. How far Russia can go with the energy efficiency revolution?How far Russia can go with the energy efficiency revolution?7.7. What are sustainable economic growth rates for Russia What are sustainable economic growth rates for Russia

before 2012 and how much GHG emissions sustainable before 2012 and how much GHG emissions sustainable growth generates?growth generates?

If Russia doubles GDP with present high energy intensity the capacity to export oil and gas

expires in 2010!

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GDP 2002 GDP 2010 Oil and Gas-2002

Oil and Gas- stable 2000

intensity

Oil and Gas- moderateintensitydecline

Oil and Gas-

revolutionaryintensitydecline

mtoe

Oil and Gas sector Non-oil and gas sector Net oil and gas export

Low production scenario High production scenario

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GDP 2002 GDP 2010 Oil and Gas-2002

Oil and Gas- stable 2000

intensity

Oil and Gas- moderateintensitydecline

Oil and Gas-

revolutionaryintensitydecline

mtoe

Oil and Gas sector Non-oil and gas sector Net oil and gas export

Low production scenario High production scenario

Russia needs energy export revenues to “pull” its NOGGDP growth, so aggressive energy policy is vital!

To keep 2002 oil and gas export levels, while doubling GDP, Russia needs to sustain annual energy productivity growth by 4,8%!

If Russia is only able to keep rates of energy productivy improvements achieved in 2000-2003 (2,3%), then achievable GDP growth in 2002-2010 is in the range of 50-70%.

Law of energy efficiency: Law of energy efficiency: the sustainable way to economic prosperity goes along the sustainable way to economic prosperity goes along

the energy efficiency arch!the energy efficiency arch!Central planning makes every economy irrespective of climate Central planning makes every economy irrespective of climate

and size pregnant with large energy inefficiencies! and size pregnant with large energy inefficiencies! Transition back to a market economy allows decoupling of Transition back to a market economy allows decoupling of

economic growth and energy consumption. Poland managed economic growth and energy consumption. Poland managed to increase its GDP by 45% in 1990-2001 with the to increase its GDP by 45% in 1990-2001 with the decline decline of of

TPES by 9,3%!TPES by 9,3%!Russia reduced GDP energy intensity by 2,3% annually in Russia reduced GDP energy intensity by 2,3% annually in

2000-2003!2000-2003!

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GDP PPP per capita 000 US$ PPP/capita

TPEC

/GD

P (P

PP),

toe/

0009

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S$ P

PP

Russia E

South Korea

Persian Gulf oil exporting countries

China

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GDP PPP per capita 000 US$ PPP/capita

TPEC

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P (P

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toe/

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5 U

S$ P

PP

Russia E

South Korea

Persian Gulf oil exporting countries

China

1 2 3 4 5 6 7 8 9

Estonia/Finland

Russia/Canada

Austria/Czeck R.

Bulgaria/Italy

Ukraine/Germany

DPR ofKorea/S.Korea

Energy intensity exoresed er GDP PPP ratio for 2001

1 2 3 4 5 6 7 8 9

Estonia/Finland

Russia/Canada

Austria/Czeck R.

Bulgaria/Italy

Ukraine/Germany

DPR ofKorea/S.Korea

Energy intensity exoresed er GDP PPP ratio for 2001

Russian Energy Efficiency indicators:

back to 1990 level

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20%

40%

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100%

120%

140%

1990 1995 1996 1997 1998 1999 2000 2001 2002 2003

En/GDP El/GDP

Russian Energy Efficiency indicators:

back to 1990 level

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20%

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1990 1995 1996 1997 1998 1999 2000 2001 2002 2003

En/GDP El/GDP

Russian District HeatingRussian District Heating Is regularly ignored when Russian energy and GHG Is regularly ignored when Russian energy and GHG

mitigation policies are discussed and determined, but mitigation policies are discussed and determined, but Accounts for about 45% of all domestic energy Accounts for about 45% of all domestic energy

consumption, and for over 50% of fossil fuel use andconsumption, and for over 50% of fossil fuel use and Is tIs the he largest single product largest single product market market in Russia in Russia split into split into over over

50000 local markets with50000 local markets with::– 30 US$ billion 30 US$ billion annual annual salessales,, and and – 50 US$ billion efficiency improvement investments potential50 US$ billion efficiency improvement investments potential, ,

but withbut with only 500 US$ million annual investments (100 year to only 500 US$ million annual investments (100 year to release the potential);release the potential);

– at least at least 20% nation wide fossil fuel consumption and GHG 20% nation wide fossil fuel consumption and GHG emission emission reduction reduction potentialpotential;;

Over 50% of district heat is consumed by buildings;Over 50% of district heat is consumed by buildings; Industrial consumption went down by 35% in 1995-2001;Industrial consumption went down by 35% in 1995-2001; The future for large CHPs in Russia is not brightThe future for large CHPs in Russia is not bright.. Market for Market for

large CHPs is squeezed by the competition vise;large CHPs is squeezed by the competition vise; With the shortage of metering heat in Russia is still traded With the shortage of metering heat in Russia is still traded

in the mystery of heat quantities and costs. in the mystery of heat quantities and costs. Large business Large business recently moved into recently moved into heat market. heat market.

Russian District Heating IndicatorsRussian District Heating Indicators

IndicatorIndicator UnitsUnits   VolumeVolume

Combined heat and power Combined heat and power plantsplants

UnitsUnits 485485

Including RAO EES Rossi CHPs Including RAO EES Rossi CHPs UnitsUnits 242242

Large boilersLarge boilers UnitsUnits >190000>190000

Indiv. heat generators and Indiv. heat generators and boilersboilers

UnitsUnits >600,000>600,000

Heat generationHeat generation Million GcalMillion Gcal 2,3002,300

Own useOwn use Million GcalMillion Gcal 7474

Network lossesNetwork losses Million GcalMillion Gcal 442442

Heat networksHeat networks 1000 km1000 km 183.3183.3

Final heat consumptionFinal heat consumption Million GcalMillion Gcal 1,7841,784

Average fuel efficiencyAverage fuel efficiency %% 71.571.5

Total en. inputs to heat Total en. inputs to heat generationgeneration

Million toeMillion toe 323323

Heat tariffs, averageHeat tariffs, average $/Gcal$/Gcal 1414

Heat tariffs, rangeHeat tariffs, range $/Gcal$/Gcal 8-3008-300

Heat salesHeat sales $ billion$ billion 30.030.0

Potential savings from Potential savings from efficiency improvements efficiency improvements

$ billion$ billion 10.010.0

Russian large CHPs heat in a Russian large CHPs heat in a competition vicecompetition vice

CHPs supply 30% of district heat:CHPs supply 30% of district heat:

Wrong system designs and blind Wrong system designs and blind tariff policy makes decentralization tariff policy makes decentralization attractive;attractive;

Industry built own large and small Industry built own large and small CHPs and boilers;CHPs and boilers;

Consumers started heat metering Consumers started heat metering and consumption reduction;and consumption reduction;

CHP generation declined by 35% in CHP generation declined by 35% in 1990-2001;1990-2001;

Sales reduction escalates costs and Sales reduction escalates costs and pushes more clients to pushes more clients to decentralization;decentralization;

Public utility CHPs design capacities Public utility CHPs design capacities are loaded only at 40-45%.are loaded only at 40-45%.

CHP heat in competition vice

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Own heat generation CHP heat generation Demand reduction

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reverse indicator of heat load density

heat

supply

losses,

%

Real losses estimates by CENEf Normative losses estimates

Heat losses in the 190 Russian DHSs Heat losses in the 190 Russian DHSs as a function heat load as a function heat load rarefactionrarefaction

High heat supply

centralization efficiency zone

Marginal heat supply

centralization efficiency zone

Effect of low heat supply networks

maintenance quality

Some Russian DHS efficiency Some Russian DHS efficiency indicatorsindicators

Average efficiency for all heat sources – 71,5%;Average efficiency for all heat sources – 71,5%; Heat only boilers:Heat only boilers:

– for for 64% municipal boilers64% municipal boilers efficiency efficiency is is below 80%, below 80%, – for 27% - below 60%, for 27% - below 60%, – and for 13 % - even below 40%and for 13 % - even below 40%

Heat supply networks: average heat losses are in the range 20-Heat supply networks: average heat losses are in the range 20-25%:25%:– Actual losses in 70% of heat supply systems are in the range of 20-Actual losses in 70% of heat supply systems are in the range of 20-

70%;70%;– Due to excessive centralization in 75% of DHSs costs to transport Due to excessive centralization in 75% of DHSs costs to transport

heat accounts for about 50% of total DHS costs;heat accounts for about 50% of total DHS costs;– Low replacement rates lead to critically low level of heat networks Low replacement rates lead to critically low level of heat networks

physical reliability and high frequency of failures – 0.6-4 physical reliability and high frequency of failures – 0.6-4 accidents/km/year;accidents/km/year;

– High leakages ratio, lack and low quality of insulation, failure to High leakages ratio, lack and low quality of insulation, failure to provide required hydraulic regimes and temperature schedule. provide required hydraulic regimes and temperature schedule.

Buildings are as a rule either overheated or under-heated and Buildings are as a rule either overheated or under-heated and consume 20-50% as much heat and hot water as potentially consume 20-50% as much heat and hot water as potentially needed;needed;

New building build on the basis of new Building codes are twice New building build on the basis of new Building codes are twice as heat efficient as existing ones, to modernize which a lot as heat efficient as existing ones, to modernize which a lot efforts and investments are required.efforts and investments are required.

Regional EE Building Codes development and Regional EE Building Codes development and enforcement system timetable (Russia): 10 enforcement system timetable (Russia): 10 years to develop and 10 more years to get years to develop and 10 more years to get

effectseffects

1990 1994 1998 2002 2006 2010

Established certification of construction goods andservice system

Developed new concept for Regional Building Code

Adopted new EE Building Codes for Moscow

Establishment of building design control system

Adopted 43 EE Regional Building Codes

Developed federal performance based EE BuildingsCodes

Implementation

2002-2012 effects:Energy savings 770000 TJ;Emissions reduction 10 million t CO2 per year;Energy cost savings 1650 million $US

Source: Developed based on Yu. Matrosov (2003)

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communal and housing (numerator) and energy expenditures (denominator) as percentage of family income (%)

colle

ctio

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ate

Private Russian business is moving to DHS: Private Russian business is moving to DHS: with limits of purchasing power they have to with limits of purchasing power they have to reduce costs and improve efficiency to pay reduce costs and improve efficiency to pay

back investmentsback investments

Threshold 2: rigidity of collecting

payments actions brings no results

Threshold 1: collection rate

starts declining

 Bashmakov’s wingBashmakov’s wing

Doubling Russian GDP and GHG Doubling Russian GDP and GHG Emission Mitigation Policy Synergy. Emission Mitigation Policy Synergy.

Major conclusionsMajor conclusions Kyoto commitment is just half way on the road to GDP Kyoto commitment is just half way on the road to GDP

doubling;doubling;– To reach Kyoto targets Russia needs To reach Kyoto targets Russia needs an effectivean effective energy energy

efficiency policy;efficiency policy;– To double GDP to the year 2010, Russia needs To double GDP to the year 2010, Russia needs revolutionaryrevolutionary

energy efficiency policy!energy efficiency policy!

Absence of clearly stated federal energy efficiency policy and Absence of clearly stated federal energy efficiency policy and institutions limits the energy productivity growth and so limits institutions limits the energy productivity growth and so limits the potential economic growth;the potential economic growth;

Addressing this problems trough Kyoto is equivalent to setting Addressing this problems trough Kyoto is equivalent to setting for Russia country-wide energy efficiency improvement target for Russia country-wide energy efficiency improvement target which should correspond to desired rates of economic growth;which should correspond to desired rates of economic growth;

So ratifying Kyoto for Russia means:So ratifying Kyoto for Russia means:– a stamp on the decision to pull country out of the energy a stamp on the decision to pull country out of the energy

inefficiency swamp to the sun of economic growth;inefficiency swamp to the sun of economic growth;– open window of opportunities: gives push to use major Russian open window of opportunities: gives push to use major Russian

undeveloped energy resource – energy efficiency improvements. undeveloped energy resource – energy efficiency improvements.