Impacts of climate change policies worldwide on the Russian economy

Abstract

ABSTRACT Because the Russian economy relies heavily on exports of fossil fuels, the primary source of human-induced greenhouse gas (GHG) emissions, it may be adversely impacted by Paris Agreement-based climate policies that target reductions in GHG emissions. Applying the MIT Economic Projection and Policy Analysis (EPPA) model to assess the impacts on the Russian economy of the efforts of the main importers of Russian fossil fuels to follow the global goals of the Paris Agreement, we project that climate-related actions outside of Russia will lower the country's GDP growth rate by about one-half of a percentage point. The Paris Agreement is also expected to raise Russia's risks of facing market barriers for its exports of energy-intensive goods, and of falling behind in the development of low-carbon energy technologies that most of the world is increasingly adopting. Key policy insights Regardless of its domestic emissions reduction efforts, Russia will not be able to sustain its current trajectory of fossil fuel export-based development due to climate policies worldwide. To address the challenge of climate-related energy transition, Russia needs a new comprehensive development strategy that accounts for the post-Paris Agreement global energy landscape. The key elements of such a strategy include diversification of the economy, moving to low-carbon energy sources, and investing in human capital development. Our diversification scenarios show that redistribution of income from the energy sector to the development of human capital would benefit the economy. The largest impact of investment re-orientation from the fossil fuel sector would be on manufacturing, services, agriculture and food production.