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Section 3. Economics, organization and management of enterprises, branches, complexes
https://doi.org/10.29013/EJEMS-20-3-24-31
Karzanova Irina Viktorovna, PhD (Economics), Associate Professor, RUDN University, Moscow, Russia E-mail: karzanova-iv@rudn.ru Kasimovskaia Elena Nikolaevna, PhD (Economics), Associate Professor, Lomonosov's Moscow State University, Moscow, Russia
E-mail: kasim@iaas.msu.ru Roginko Sergey Anatolyevich, PhD (Economics), Leading Researcher, Institute of Europe, Russian Academy of Sciences, Financial University, Moscow, Russia E-mail: roginko@bk.ru
ENERGY EFFICIENCY STRATEGY IN RUSSIA: LOW CARBON CHALLENGES AND CORPORATE RESPONSES
Abstract. In this article the main directions of the Russian government policy to improve the energy efficiency of the economy are discussed. Key trends of the energy efficiency policy in Russia and the energy saving activities of the leading Russian iron & steel companies are addressed. Two case studies of the energy saving and energy efficiency policies of the largest metallurgical companies in Russia (Magnitogorsk Iron & Steel Works, MMK, and Novo-Lipetsk Iron & Steel Works, NLMK) are considered. These Russian companies successfully use the whole range of internationally approved energy saving instruments tailored to the domestic context, drastically upgraded the energy efficiency of operations and their experiences worth disseminating across the iron and steel industry.
Keywords: Energy efficiency, energy saving, energy efficiency management, energy service contract, low carbon development, corporate response, institutional drivers, Russia.
Introduction
Russia as a part of the Paris Agreement sets ambitious goals in greenhouse gas (GHG) abatement, resulting in absolute GHG emission cap, bringing
the national emissions by 2030 to 70-75% compared to the 1990 level.
Roadmaps for the future low carbon development in Russia are tailored to the national peculiarities of economic structure, that is fully in
line with the principles of the Paris Agreement. Russian industry is heavily dominated by energy-intensive export -oriented sectors, including mining, metallurgy, chemical industry, etc. Large volumes of this primary processing products, being exported to the EU countries, are transformed there into hightech products, thus making Russian and EU economies interdependent and operating as one vertically integrated system, where the difference in energy efficiency between the parts is determined by the technological nature of the respective processing stages. Based on the figures of energy intensity that are much higher in Russian than in the G 7 countries, the Russian national and corporate strategists
consider the energy efficiency as a key factor in the respective national and corporate GHG abatement policies and measures. The goal of this research is to assess the key trends in the energy efficiency policy in Russia, and notably - the corporate activities in this field, using the experience of the leading Russian iron & steel companies.
Methodology
The problems of energy efficiency in general and in the iron & steel in particular are widely studied in Russia in the works of Shevelev L. [17, 59-67], Brodov A. [2], Porfiriev B. [15, 963-971], Makarov A. [8] and other researchers. The algorithm of the research is shown in (Figure 1).
Energy Efficiency Strategy: how to assess
i
Methodology: Phenomenological Paradigm System Analysis Qualitative Approach
Figure 1. Research Mind MapSource: developed and compiled by the authors
Methodology of the research is based on systems analysis, treating a research object (iron & steel companies) as a system, reacting to the external impacts (challenges, requirements, etc.) and interacting with its environment (legal, institutional, others). Components of each of the systems are analyzed, with overall goal of producing comparative phenomenological study, tracing similarities and differences between them and fixing the actual trends of their development.
Results
Institutional Drivers: State Energy Efficiency Policy and State Management in Russia.
In 2010-2017, marked by proactive energy efficiency policy, the Russian Federation increased significantly its RISE (World Bank Regulatory Indicators for Sustainable Energy) energy efficiency rating, moving from the oflow energy efficiency country group to the group of countries with average results (46th position among 133 countries). National energy intensity measured as MJ/GDP USD PPP 2011 during the period of 1990-2015 dropped down from 10 to 8.6 [19].
The key priorities in the energy efficiency policy of the Russian Government were defined by the Decree of the President of the RF of June 4, 2008 No. 889 and subsequent documents of the RF, including the Federal Law No. 261-FZ of November 23, 2009 "On Energy Saving and Improving Energy Efficiency", and the State program "Energy Efficiency and Energy Development", approved on April 15, 2014. These documents define strategic national goal - reduction of energy intensity of GDP by at least 40% from the 2007 level by 2020. Targets were set for several industry indicators, such as oil processing depth, losses of electric energy in electric grids, other specific indicators of fuel and energy consumption.
Energy intensity of Russia's GDP during the period of2012-2017 has decreased by about 5%. Further strategies were defined in 2018 by the Ministry of Economic Development of Russia within the Comprehensive Plan to Improve the Energy Efficiency of the Economy in the RF, focused on increase the energy efficiency of the economy by using the best existing
world practices. The key elements of the national energy efficiency government policy currently include:
• management system, based on several energy efficiency indicators, used by the government programs, to provide respective feedback to the respective federal executive bodies;
• legal regulation in the production, transfer and consumption of energy resources (energy audits, energy service contracts, etc.);
• technical regulation and standardization, incentivizing modernization of the key industries;
• financial mechanisms (subsidies for energy efficiency related activities; special financing mechanisms supporting energy saving projects);
• support mechanisms (energy saving promotion, training of population and the workforce).
Ministry of Economic Development of the RF is monitoring the situation in the energy-intensive sectors of the Russian economy, including all relevant sectors in 89 regions of the RF. The scope of this monitoring is wide: the energy efficiency of oil and gas extraction, processing, transportation, electric and thermal energy generation, power transmission, coal mining in the oil and gas sector. The Ministry established and monitors control system; technical regulation, standardization, and methodological support; financial arrangements; supporting mechanisms. The following indicators in energy saving and energy efficiency are traced: depth of oil refining, energy losses in electric networks, consumption of equivalent fuel for the supply of electric and thermal energy, energy saving in oil transportation, total fuel consumption of energy resources per ton of coal production. Targets for each indicator improvement are set for each year within the program [5].
One of the promising ways to improve energy efficiency is the use ofbest available technologies (BAT) -a practice widely used by the international leaders. This practice is actively used in Russia within the Federal
Law on BAT No. 219, adopted on July 21, 2014. The information on existing BATs is accumulated by the National Bureau of BAT, the Bureau composed the sectoral lists of BATs and guides the respective work on BATs introduction on the corporate level.
The ratification of the Paris Climate Agreement by the RF in 2019 initiated a series of discussions on additional policies directly targeting the GHG emissions
One can conclude that the state energy efficiency policy in Russia is comprehensive and detailed, it is developing fast and is open for new initiatives. In many aspects it reflects the best international practices, described in the World Bank document "Policy matters. Regulatory indicators for sustainable energy" [18]. The key issue is how these policies and measures are supported on the corporate level? Let us analyze the corporate policies and practices of key metallurgical corporations of Russia, notably the Magnitogorsk Iron & Steel Works (MMK) and Novolipetsk Iron & Steel Works (NLMK).
Efficiency Energy Instruments and Corporate Response: two case studies.
PJSC Magnitogorsk Iron & Steel Works (MMK) and Novolipetsk Iron & Steel Works (NLMK) are among the world's largest steel producers and occupy leading positions among Russian iron and steel enterprises. Both MMK and NLMK are vertically integrated companies with full production cycle from iron-ore processing to downstream production of rolled steel and other high value added (HVA) prod-
e and other energy saving and energy efficiency issues.
e One currently discussed issue deals with the Carbon
e Tax, proposed by some corporate stakeholders. Oth-
k ers consider this measure premature and argue that this tax may result in additional financial burden for
y the enterprises. The levels of financial burden due to
- this measure for the key metallurgical corporations of
s Russia are shown in the (Table 1) below.
- ucts. Production in 2018, for MMK and NLMK have I, reached 12.7 and 18.2 million tons of steel, respec>. tively, added by sizeable amounts of rolled steel and 1 other HVA products.
t These activities, seriously affecting the environ- ment, require adequate response, therefore, the res spective environmental policies and measures are ? undertaken. Both MMK and NLMK apply best s practices of environmental safety. In 2000-2018, y MMK allocated over 58 billion rubles for environ-d mental activities, which finally led to a decrease of gross emissions into the atmosphere by 1.6 times and
- gross emissions of pollutants into water basins - by 2.4 times over the period [1, 96-99]. Both compa-
) nies employ state-of-the-art closed loop supply sys-
e tems for their process water. Today, 100% of indus-
y trial wastewater from MMK facilities and 95% from
- NLMK facilities are used in the recycled water sup- ply. Figure 2 depicts the general approach to energy i saving used by both companies.
f As for MMK air pollution policies, they aim
- to drastically reduce emissions. According to this
Table 1.- Potential financial losses of the leading Russian metallurgical corporations at different carbon tax rates
Corporation Financial losses at the rate of $15 per 1 t. of CO2 Financial losses at the rate of $35 per 1 t. of CO2
Magnitogorsk Iron & Steel Works $330 million p/a $770 million p/a
Cherepovets Iron & Steel Works $285 million p/a $665 million p/a
Novolipetsk Iron & Steel Works $283 million p/a $662 million p/a
West Siberian Iron & Steel Works $195 million p/a $455 million p/a
Chelyabinsk Iron & Steel Works $135 million p/a $315 million p/a
Source: [17, 59-67]
policy, by 2025 low levels of air pollution in city of Magnitogorsk should be achieved. Similarly, NLMK corporate Environmental Program presumes dropping emissions of harmful substances by 5% from 19,8 kg per ton of steel produced in 2019 to 18,8 kg by 2023. NLMK Group funding of environmental goals is also impressing: the company plans to spend
24 billion rubles on environmental projects within coming 4 years. As for the Energy Saving and Energy Efficiency, both MMK and NLMK share the vision of necessity of the best international practices, including: ISO 50001 energy management system; personnel environmental management; motivation and engagement (rationalization proposals) [13].
Figure 2. Components of the general approach to energy saving strategy Source: developed and compiled by the authors
ISO 50001 energy management system was introduced at the MMK in 2016 when the Group was certified for compliance with the requirements of the international standard ISO 50001. The standard procedures helped streamlining the management of the energy saving activities, allowing the company to save annually significant amount of energy and effectively reduce GHG emissions. In 2017 and 2018, the total economic effect from the implementation of energy efficiency projects at MMK amounted to around 1 billion rubles and 0.5 billion rubles respectively. Specific benefits of ISO 50001energy management standard have resulted by 2018 in 8.1% rise of energy performance improvement over three years;
$38,596,000 of the total energy cost savings over three years; 698,186 metric tons of the total CO2-eq. emissions reductions; total pure water savings -7.9% [10; 11].
As for NLMK it has introduced the ISO 50001en-ergy management standard even earlier -in 2012, being the first large Russian iron & steel company to be certified in accordance with this standard. Within 2014-2015 all the production facilities of NLMK have undergone the ISO 50001 energy management standard certification procedure, with impressive energy saving results achieved since then.
Both companies have followed the leading trend of personnel involvement in the corporate environ-
mental and energy saving activities, introducing sion named Ideas Management Block. This allowed
various incentives to fortify results achieved and to successfully work with energy efficiency propos-
activities performed. To improve the effectiveness als and design ideas, reduce the time for approving
of personnel management MMK has created at the proposals and increase the number of implemented
Energy Management Platform (EMP) in 2016 a divi- ideas (Table 2).
Table 2.- Energy Management Platform activity
Year Rationalization proposals submitted, number Implemented projects, number Economic effect, mln rubles
2016 390 138 68
2018 680 139 73.25
Source: [12; 13]
For the same purpose NLMK has created the corporate Internal Environmental Improvement System, that focuses attention on prevention of environmental hazards as well as proposes and implements respective measures. Proposals and other activities of the personnel are rewarded - number of rewarded persons has reached 200 in 2019.
Environmental and energy saving practices of MMK and NLMK have some differences reflecting the internal priorities of the companies concerned: MMK activities are more focused on energy service contracts [4, 6]. The respective work started in 2014 and included a series of energy service contracts: modernization of the lighting system in rolling shops, installation of frequency regulation on smoke exhausters of converters, modernization of the automated power supply system, etc. This type of contract proved to be an effective means of cost sharing for the energy efficiency projects, using external financial sources. NLMK has focused on environmental audit of the supply chain. A system of environmental indicators was established for all suppliers of the Group and every supplier underwent a thorough environmental auditing in line with these criteria. All new suppliers of the Group underwent this procedure in 2018-2019.
Conclusions
Analysis of the energy saving policies and practices of the MMK and NLMK, the key Russian iron & steel corporations, thwarts some popular visions depicting Russian companies as lagging behind the key global trends. On the contrary, one can easily trace similarities between the policies of two companies and their counterparts in the West and East. The energy & environment policies and strategies of the companies concerned can be assessed as responsible and aggressive. They are supported by a high level of involvement of senior management and ordinary staff and are organized using modern management systems. As a result, the indicators of the energy efficiency and carbon footprint of the Russian iron & steel companies are getting quite close to those of the EU companies. The difference between them in 2016 was around 12%. The companies are facing tough international challenges and serious government pressure that in some cases may seem counterproductive, exposing the companies to excessive regulatory and financial risks. Still, the corporate efforts described are in line with the global changes, and the policies concerned deserve serious attention as examples of adequate policies in the field of energy saving and energy efficiency.
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