Russian energy sector – driving or hindering human development?

19 Apr 2010

Moscow– The energy sector makes a vital contribution to the country’s main socio-economic parameters of development, in particular the national income and budget. At the same time, according to the National Human Development Report for the Russian Federation, Energy and Sustainable Development, launched by the United Nations Development Programme today, the influence of the energy sector on human development is not that straightforward.

This new report offers a detailed analysis of a major challenge in modern Russia – development of the fuel and energy complex in the context of its impact on human development and sustainable development of the country.

This publication was prepared for UNDP by a group of independent experts  and is aimed at contributing to the discussion of post-crisis development and a deeper understanding of the role of the energy sector in Russia’s socio-economic development.   

Dominance of energy resources export in the national economy not only makes it vulnerable to global shocks but shackles its long-term economic potential. This leads to reducing motivation for investments in human development, growth of social tension, and slowdown of real income growth. Single-industry economic structure can prevent a person from fully realizing his or her potential.

Sustainable development of the Russian economy can no longer be provided by extensive development of energy resources. Increasing energy efficiency is the country’s major energy, economic and social resource required for Russia’s transition from the “raw materials export oriented” to sustainable innovative development, mitigation of the negative impact of the energy sector on people’s health and environment.

“Energy preparedness and environmental safety as well as energy and budget efficiency are the cornerstones of the long-term government policy,” noted Minister of Energy of the Russian Federation, Sergey Shmatko, in the preface to the Report. Formation of an adequate modern regulatory system as well as proper legal environment, consumer and governance mechanisms are necessary for achieving these goals. The Report is of interest and help to all those concerned with these problems.

The Report includes eight chapters. In the chapter ‘The Energy Sector, the Economy and the Crisis’ the authors note that the ‘resource curse’ factors can suppress motivation for investments in human development and its effective utilization. Low energy effectiveness dilutes relative advantages of the Russian economy in the energy sector creating obstacles and postponing human development, leads to environmental impacts creating public health hazards.

Despite the fact that fuel and energy territories with the highest oil and gas reserves and , consequently, high personal and budget incomes, have succeeded in increasing life expectancy, reducing infant mortality and improving the vocational education system, their high profits do not help fight illnesses that depend on the state of society. This requires modernization of the social environment and lifestyles. The chapter ‘Energy Industry and the Regions: Human Development Challenges’ provides an insight into development of fuel and energy territories.
               
In chapter 3, Personal Incomes, the Energy Sector and the Crisis’, the authors conclude that income generated by the resource oriented economy is sufficient for forming the country’s tax base and high incomes for a small group of people. It is highly important to realise that these incomes do not guarantee effective employment for the majority of the population. The chapter also looks at the cause and effect of a low share of expenditures on housing and utilities in Russian household budgets compared to other countries.  

In Chapter 4, ‘The Energy Sector and Public Health’, the authors claim that environmental pollution caused by the energy sector is a health hazard. Atmospheric pollution causes up to 40,000 deaths among urban population annually with at least 15-20% caused by the fuel and energy complex. Modern technologies should be implemented to reduce the negative impact of all segments of the energy sector, including extraction, refining, transportation, heat and energy generation.

Chapter 5, Energy-efficient Russia’, looks at the country’s energy efficiency ratings and the energy saving potential in main sectors of the Russian economy. Russia’s energy efficiency potential is one of the biggest in the world representing almost half of the country’s current energy consumption. The chapter discusses the advantages of energy efficiency compared to extensive energy resource use. 

Chapter 6, Opportunities for Renewable Energy Sources’, is devoted to renewables. Russia is at the initial stage of creating a strong renewable energy industry. In recent years, the business community has demonstrated interest in the area, and a lot has been done in terms of legislation for development of renewables. However so far this activity has not been coordinated and is facing a number of problems, in particular, the lack of state support mechanisms and understanding on the part of society, the limited number of qualified specialists, etc. 

In chapter 7, The Energy Industry and Environmental Sustainability’, environmental impact of the fuel and energy complex is presented in the context of economic and social consequences. The situation in Russia is characterized as energy and environmental malaise. Today, Russia is a global environmental donor because the impact of its economy on the environment is much lower than the valuable input of its ecosystems into the global environmental stability, however due to the negative impact of the fuel and energy complex development Russia may lose this status.

Chapter 8, ‘The Energy Industry and Sustainable Development Indicators’, discusses the need to correct the traditional development indicators, as highlighted by the global economic crisis, and analyzes the opportunities for including the energy factor in sustainability indicators, such as energy intensity, the Adjusted Net Savings Index, etc. The authors present recommendations on using sustainable development indicators in decision making processes.

“Russia is a major player at the global energy market and a global environmental donor, and still has to find an optimum combination of energy preparedness and environmental sustainability in its own interests and in the interests of energy exporting countries,” highlighted UNDP Resident Representative in the Russian Federation, Frode Mauring.
               
Current economic recession provides new opportunities for creation and implementation of new approaches to development including the transformation of the energy sector, mainly formed in the second half of the 20th century, into modern high-tech and safe industry of the 21st century.

Contact Information

Please contact Victoria Zotikova, UNDP Communications Analyst, at 787 21 00, 769 97 91 or by e-mail at Victoria.Zotikova@undp.org

To download the report, go to http://www.undp.ru/documents/180-eng2-01-04.pdf