July 2014 floods in Russia but authorities turning blind eye to climate change. Credit: takemake.ru

By Mikhail Matveev
MOSCOW, Aug 30 2014 (IPS)

The recent call from Russian Prime Minister Dmitry Medvedev for “tightening belts” has convinced even optimists that something is deeply wrong with the Russian economy.

No doubt the planned tax increases (introduction of a sales tax and increases in VAT and income tax) will inflict severe damage on most businesses and their employees, if last year’s example of what happened when taxes were raised for individual entrepreneurs is anything to go by – 650,000 of them were forced to close their businesses.

Nevertheless, it looks like some lucky people are not only going to escape the “belt-tightening” but are also about to receive some dream tax vacations and the lucky few are not farmers, nor are they in technological, educational, scientific or professional fields – it is the Russian and international oil giants involved in oil and gas projects in the Arctic and in Eastern Siberia that stand to gain.

“In October [2013], Vladimir Putin signed a bill under which oil extraction at sea deposits will be exempt from severance tax. Moreover, VAT will not need to be paid for the sales, transportation and utilisation of the oil extracted from the sea shelf,” noted Russian newspaper Rossiiskie Nedra.“It looks like some lucky people are not only going to escape the ‘belt-tightening’ but are also about to receive some dream tax vacations and the lucky few are not farmers, nor are they in technological, educational, scientific or professional fields – it is the Russian and international oil giants involved in oil and gas projects in the Arctic and in Eastern Siberia that stand to gain”

Some continental oil projects were alsoblessedby the “Tsar’s generosity”: “For four Russian deposits with hard-to-recover oils [shale oil, etc.] – Bazhenovskaya [in Western Siberia] and Abalakskaya in Eastern Siberia, Khadumskaya in the Caucasus, and Domanikovaya in the Ural region – severance taxes do not need to be paid. Other deposits had their severance tax rates reduced by 20-80%.”

In fact, the line of thinking adopted by Russian officials responsible for tax policy is very simple. Faced with the predicament of an economy dependent on oil and gas (half of the state budget comes from oil and gas revenue, while two-thirds of exports come from the fossil fuel industry), they decided to act as usual – by stimulating more drilling and charging the rest of the economy with the additional tax burden.

There have been many warnings from well-known economists about the “resource curse” [the paradox that countries and regions with an abundance of natural resources tend to have less economic growth and worse development outcomes than countries with fewer natural resources] – and its potential consequences for the countries affected: from having weak industries and agriculture to being prone to dictatorships and corruption.

For a long time, however, economists have been keen on separating the economic and social impacts of fossil fuel dependency from the environmental and climate-related problems. But now, these problems are closely interconnected, and Russia might be the first to feel the strength of their combination in the near future.

Medvedev may not have read much about the “resource curse” but he should at least be familiar with the official position of the UN Framework Convention on Climate Change (UNFCC), whose Executive Secretary Christiana Figueres has said that three-quarters of known fossil fuel reserves need to stay in the ground in order to avoid the worst possible climate scenario.

One should at least expect this amount of knowledge from Russia as a member of the UN Security Council and it will be interesting to note whether the Russian delegation attending the UN Climate Summit in New York on September 23 will be ready to explain why, instead of limiting fossil fuel extraction, the whole country’s economic and tax policy is now aimed at encouraging as much drilling as possible.

However, it is not just the United Nations that has been warning against the burning of fossil fuels due to the related high climate risks. In 2005, Russia’s own meteorology service Roshydromet issued its prognosis of climate change and the consequences for Russia, stating that the rate of climate change in Russia is two times faster than the world’s average.

Roshydromet predicted a rapid increase in both the frequency and strength of extreme climate events – including floods, hurricanes, droughts, and wildfires. The number of such events has almost doubled during the last 15 years, and represent not only an economic threat but also a real threat to humans’ lives and their well-being,

Consider this summary of climate disasters in Russia during an ordinary July week (not including any of the large natural disasters such as the floods in Altai, Khabarovsk, and Krymsk, or the forest fires around Moscow in 2010):

“Following the weather incidents in the Sverdlovsk and Chelyabinsk District where snow fell last weekend, a natural anomaly occurred in Novosibirsk, resulting in human casualties … Two three-year-old twin sisters died after a tree fell on them during a strong wind storm in the town of Berdsk, Novosibirsk District.”

“The flood in Yakutia lasted a week and resulted in the submersion of Ozhulun village in Churapchinsky district last Saturday. Due to the rise of the Tatta River, 57 house went under.”

“Flooding in Tuapse [on the coast of the Black Sea] occurred on July 8, 2014 … [and] has left 236 citizens homeless.”

Cars swept away in July 2014 floods in Russia. Credit: takeme.ru

Is it not worrisome that so many climate disasters have to occur before Russian officials start to realise that climatologists are not lying? Or perhaps they are simply not inclined to take the climatologists’ warnings seriously.

Another significant problem could arise for Russia if oil consumers start taking U.N. climate warnings seriously – and there is evidence that this is happening.

The European Union (still the main consumer of Russian oil and gas) has announced an ambitious “20/20/20 programme” – increasing shares from renewables to 20 percent, improving energy efficiency by 20 percent, and decreasing carbon emissions by 20 percent. The United States has decided to decrease carbon emissions from power plants by 30 percent. These are only first steps – but even these steps can help decrease fossil fuel consumption.

Fossil fuel use has only very slowly been increasing in the United States and decreasing in Europe in the last five years. On the other hand, demand for oil has continued to rise in China and Southeast Asia, and it is perhaps this – rather than the recent “sanctions” against Russia over Ukraine – that inspired President Vladimir Putin’s recent “turn to the East”.

But there are serious doubts that Asia’s greed for oil will continue into the future. China recently admitted that it will soon be taking measures to limit carbon emissions – for the first time in its history. China has already turned to green energy andled the rest of the worldin renewable energy investment in 2013.

Will other Asian countries follow suit? Perhaps – because they certainly have a very strong incentive. According to Erin McCarthy writing in the Wall Street Journal, South and Southeast Asia’s losses due to global warming may be huge, and its GDP may be reduced by 6 percent by 2060, despite the measures taken to curb its emissions.

What does this mean for Russia?

Well, if the oil-consuming countries meet their carbon emission targets, we can expect a 10-20 percent decrease in oil demand in the next ten years, maybe more. Any decrease in demand usually induces a decrease in price – but not always proportionally. Sometimes, especially if the market is overheated, even a small decrease in demand can trigger a drastic falls in price. Economists call such a situation a “bursting bubble”.

Today, the situation in the oil (and, in general, fossil fuel) market is often called a “carbon bubble”. Because of high oil prices, investors are motivated to make investments in oil drilling in the hopes of earning a stable and long-term income.

But once the world starts taking climate issues seriously and realises that most of the oil needs to be left in the ground, oil assets will fall in value. Investors will try to withdraw their money from the fossil fuel sector, and, facing a crisis, oil companies will be forced to decrease both production and prices.

If the “carbon bubble” bursts, Russia will be left with sustainable businesses (that are being choked by the nation’s own tax politics) and with a perfect network of shelf platforms, oil rigs, and pipelines (which will be completely unprofitable and useless). Thus, by making fossil fuels the core of its economy, Russia is taking twice the number of risks.

First, it risks ruining the climate, and second, it risks ruining its own economy. It looks like Russia will lose at any rate: if the leading energy consumers are unable to decrease their oil consumption, the climate will be ruined everywhere, including Russia. If they manage to decrease their dependence on fossil fuel, the Russian economy will be ruined.

This certainly is not looking pleasant, especially if we add in the high probability of a major disaster like the Gulf of Mexico Oil spill happening in the Arctic, as well as countless minor leaks possibly occurring along the Russian pipelines.

But maybe Russia just has no other alternative to an economy dependent on fossil fuels?

In that case, perhaps it is worth mentioning a recent article by Russian financier Andrei Movchan in the Russian Forbes magazine. Movchan convincingly shows that the Achilles’ heel of the modern Russian economy is its extremely underdeveloped small and medium-sized businesses. And it looks like the current tax plans would literally exterminate them.

If Russia were able to reverse this tax policy and make small businesses play as big of a role in the economy as they do in the United States or Europe, there could be economic growth comparable to the growth expected from oil and gas – without all the frightful side effects of an economy driven by fossil fuels.

Sounds like a dream, but the first step to making it a reality can be simple: get rid of big oil lobbying in the government and try to reform the taxation system to suit the interests of Russian citizens instead of the interests of the big oil corporations.

(Edited by Phil Harris)

* Mikhail Matveev is 350.org Communications Coordinator for Eastern Europe, Caucasus, Central Asia and Russia

Soon after President Barack Obama was elected in 2008, hundreds of leaders of the global medical community wrote an open letter to him, and to newly elected Russian President Dmitry Medvedev, urging them to make the abolition of nuclear weapons their highest priority:

Ira Helfand.

“You face many urgent crises at this difficult moment, but they all pale in comparison to the need to prevent nuclear war. A thousand years from now no one will remember most of what you will do over the next few years; but no one will ever forget the leaders who abolished the threat of nuclear war…Please do not fail us.”

Unfortunately, as we feared, the demands of the economic crisis crowded out other issues and, so far, the leaders of Russia and the United States have failed us. The re-election of Obama offers him a new chance to move the world down the path to nuclear disarmament. It is an opportunity that must not be wasted.

Since 2008, we have gained a fuller understanding of the dangers posed by nuclear weapons. For decades we have known that a large-scale war between the U.S. and Russia would have catastrophic humanitarian consequences for the whole world.

We now understand that even a much more “limited”, regional nuclear war, as might take place in South Asia, would also pose a threat to all of humanity. Studies by Alan Robock, Owen Brian Toon, and their colleagues have looked at a scenario in which  India and Pakistan each use 50 Hiroshima sized bombs – only 0.4 percent of the world’s nuclear arsenal of more than 25,000 warheads ­ against urban targets in the other country. The consequences would be beyond our comprehension.

The explosions, firestorms and radiation would kill 20 million people over the first week. But the worldwide consequences would be even more catastrophic. The firestorms would loft five million tonnes of soot into the upper atmosphere, blocking out sunlight and reducing temperatures around the world by an average of 1.3 degrees Celsius for an entire decade. This sudden drop in temperature, and the resulting decline in precipitation and shortening of the growing season, would cut food production in areas far removed from South Asia.

According to a study by Mutlu Ozdogan, U.S. corn production would fall an average of 12 percent for an entire decade. A study by Lili Xia has shown that Chinese middle season rice would decline15 percent over a full decade. Recent preliminary studies have shown even larger shortfalls for other grains.

The world is not prepared to deal with a decline in food production of this magnitude. World grain reserves currently equal less than three months’ consumption and would provide an inadequate buffer against these shortfalls. Further, according to the most recent data from the United Nations, there are currently more than 870 million people in the world who are malnourished. An additional 300 million people receive adequate nutrition today but live in countries that import much of their food. All of these people, more than one billion in all, would be at risk of starvation in the aftermath of this “limited” war.

A large-scale war between the U.S. and Russia would be even more catastrophic. Hundreds of millions of people would be killed directly; the indirect climate effects would be even greater. Global temperatures would drop an average of eight degrees Celsius, and more than 20 degrees Celsius in the interior of North America and Eurasia. In the Northern Hemisphere, there would be three years without a single day free of frost. Food production would stop and the vast majority of the human race would starve.

Since the end of the Cold War we have acted as though this kind of war simply can’t happen. But it can: the two nuclear superpowers still have nearly 20,000 nuclear warheads; more than two thousand of them are maintained on missiles that can be fired in less than 15 minutes, destroying the cities of the other power 30 minutes later.

As long as the U.S. and Russia maintain these vast arsenals there remains the very real danger that they will be used, either intentionally or by accident. We know of at least five occasions since 1979 when one or the other of the superpowers prepared to launch a nuclear attack on the other country in the mistaken belief that they themselves were under attack. The most recent of these events was in January 1995. The conditions that existed then, which brought us within minutes of a nuclear war, have not significantly changed today. The next time an accident takes place, we may not be so lucky.

Recognising this great danger, 35 nations joined in a new call for the elimination of all nuclear weapons at the United Nations this October. The International Red Cross/Red Crescent Movement has also called for the abolition of nuclear weapons. In March 2013, the Norwegian government will convene a meeting of all state parties to the Non Proliferation Treaty to discuss the humanitarian consequences of nuclear war.

The U.S. and Russia should embrace these initiatives and lead the way in negotiating a verifiable, enforceable treaty that eliminates nuclear weapons. These negotiations will not be easy, but the alternative is unthinkable. We cannot count on good luck as the basis of global security policy. If we do not abolish these weapons, someday our luck will run out, they will be used, and everything that we cherish will be destroyed. The stakes could not be higher. (END/COPYRIGHT IPS)

* Ira Helfand is co-president of International Physicians for the Prevention of Nuclear War and recipient of the 1985 Nobel Peace Prize.