Economic diversification in Russia's Kuzbass coal region - Policy brief September 2021
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Economic diversification in Russia’s Kuzbass coal region Policy brief September 2021
Colophon
Author About
George Safonov, This policy brief was published as part of the project
Higher School of Economics, Russia ‘The Russian Coal Sector. Challenges and Transition
Opportunities’. Convened by Climate Strategies, the
Cite this report as: Safonov, G. (2021). Economic project builds and enables knowledge exchange on the
diversification in Russia’s Kuzbass coal region, Climate current and future status of coal in Russia. Focusing on
Strategies. progress towards a low-carbon development in Russia,
the project provides insights into the macroeconomic
We thank Irina Kustova and Alexander Etkind for their and social stability of coal regions, and delineates
thoughtful comments. pathways forward given the global, ongoing low-carbon
energy transition.
Acronyms
CCS Carbon capture and storage
CO2 Carbon dioxide
CO2e Carbon dioxide equivalent
EBRD European Bank for Reconstruction and Development
G7 Group of Seven
GHG Greenhouse Gas
RES Renewable energy sources
R&D Research and Development
TOE Tons of oil equivalent
R&D Research and Development
TOE Tons of oil equivalent
Project Management
Lillian Lochner, Andrzej Błachowicz
Editors
Lillian Lochner, Sascha Brandt
Design
Michelle Haak, Miesart
© Copyright 2021 Climate Strategies
2Executive summary
• Kuzbass is the main coal producing region in Russia with large coal reserves.
• The coal sector in Kuzbass is an important source of revenue in the region, despite
its significant negative environmental and health impacts.
• The Russian government is advocating for diversifying coal regions such as Kuzbass
due to the risk of an increasing low-carbon trend and a declining coal demand
globally.
• Diversification options for Kuzbass promoted by the government are all fossil fuel-
based.
• Kuzbass has the potential to transition to a low-carbon economy, however coal
producers are only likely to diversify their business models once the demand for coal
drastically declines.
• Despite the potential for renewable energy and emission reductions in Kuzbass,
there are no signs of exploiting this potential in the next few decades.
Краткое содержание
• Кузбасс – крупнейший угольный регион России, обладающий большими
запасами и производством различных марок угля.
• Угольная отрасль – важнейший источник поступления доходов в регионе, но
оказывающий значительное негативное воздействие на окружающую среду и
здоровье населения.
• Правительство Российской Федерации предпринимает усилия по
диверсификации экономики угольных регионов, в том числе Кузбасса, ввиду
возрастающих рисков перехода к низкоуглеродной экономике и снижения
глобального спроса на уголь.
• Принятые правительством меры по диверсификации экономики Кузбасса
по-прежнему ориентированы, преимущественно, на ископаемые виды
энергоресурсов.
• Кузбасс обладает большим потенциалом для перехода к низкоуглеродной
экономике, однако производители угля не имеют достаточных внутренних
стимулов для трансформации своих бизнес-моделей, драйвером изменений
может стать лишь резкое сокращение внешнего спроса на уголь.
• Несмотря на наличие значительного потенциала возобновляемых источников
энергии и мер по сокращению выбросов парниковых газов в регионе, его
использование в ближайшие годы не планируется.
3The role of coal in Kuzbass
Kuzbass is the main coal producing region in Russia located in Western Siberia. The proven reserves
of coal are estimated at 693 billion tonnes, including large amounts of coking coal1. The coal
industry accounts for over 30% of the region’s industrial production, employing 133,000 people2.
Coal dominates Kuzbass’ energy mix, providing 96% of total fuel resources. Most coal produced is
exported (70%)3. Domestic coal consumers include primarily thermal power plants, metallurgy and
other industries, and private households, which currently have no alternative energy sources to coal
due to the existing business models and lobbying power of coal sector. Coal plays a controversial
role in regional development: it provides jobs and income to people, funds for building schools
and other social infrastructure; at the same time, it dramatically affects the local environment,
ecosystems, and human health. This has increasingly caused social unrest and protests aimed
at stopping coal mining in the region4. However, local environmental activism has not yet led to
meaningful behaviour changes of local coal businesses.
Pechorskiy basin
North Far East
West
South Yakutskiy basin
Siberia
Ural
Centre
Volga Kansk-Achinskiy basin
Irkutskiy basin
Donetskiy basin
South Kuzbass
coal region
Coal mining has significant adverse impacts on and some others) are being released into the
the environment, polluting Kuzbass with over 250 atmosphere annually9. Other environmental
different hazardous substances. Novokunetsk, challenges related to Kuzbass’ coal sector
Kemerovo and some other regional towns are include:
regularly included in the list of most polluted
cities in Russia5. Though the region does not • Water pollution: Over 550 million m3 of
have the highest levels of air pollution in the wastewater is discharged annually, containing
world, it still demonstrates high levels of PM10 hazardous pollutants, such as sulphates,
and other substances6. It is also a significant chlorides, phosphates, phenols, and lead,
source of greenhouse gas (GHG) emissions, which negatively affect local ecosystems,
especially methane and carbon dioxide from the the environment and human health. The
energy sector. The annual average emission of main sources of pollution are coal extraction
both carbon dioxide and methane in Kuzbass and processing, power and heat generation,
from combustion and extraction of coal is about metallurgy, coke chemical, and chemical
117 Million tonnes of carbon dioxide equivalent production. In 2020, the maximum allowable
(MtCO2e) or about 5 percent of annual GHG concentration of pollutants in surface waters
emissions in the country (excluding Land-Use was exceeded by 2 times in Novokuznetsk (for
Change and Forestry)7,8. The region has seen phenols and iron), by 2.8 times in Kuzbass (for
an increase in GHG emissions since 2015 and iron), and by 1.7 times in Leninsk-Kuznetsky
over 1.8 million tonnes of hazardous pollutants (for manganese)10.
(sulphur oxide, nitrogen oxides, methane,
4The role of coal in Kuzbass
• Hazardous waste: A further significant communities, as well as corporate spending on
pollution source is ash disposal from ‘social commitments’ such as building schools
coal combustion which contains high and infrastructure. Yet, decarbonisation of the
concentrations of chrome, magnesium, nickel, world economy is increasingly becoming more
cobalt, zinc, arsenic, copper, mercury, and evident, as a growing number of countries
other dangerous substances and is stored at adopt their mid-century carbon-neutrality goals,
waste deposit sites. financial institutions divest from fossil fuels,
and industries gradually switch to zero-carbon
• Air pollution: Coal export also causes alternatives. Global energy transitions to green
substantial environmental pollution in coal power and stronger sustainability requirements
regions as well as the maritime ports of the of businesses are likely to affect coal mining in
Russian Far East and North West. From 2016 Kuzbass and its revenues.
to 2020 air pollution in the regional capital city
of Kuzbass exceeded the maximum allowable Russia’s diversification plans
concentration of highly hazardous benz(a) The Ministry of Economic Development foresees
pene by 2.1-3.4 times, in Novokuznetsk by an increase in coal exports by 203515. In
3.5-6.9 times, while the concentration of contradiction to this, the Russian government’s
total suspended particulates in Prokofievsk considerations and discussions around
exceeded the reference level by 1.2-2.0 diversifying the economies of coal regions have
times11. There are also transboundary impacts deepened. The government is confronted with
of air pollution, particularly sulphur and increasing pressure on the Russian coal sector
nitrogen oxides, heavy metals, and volatile resulting from the global energy transition that
organic compounds, which can be observed at will make the coal sector less competitive and
very long distances. Another issue is the open more reliant on subsidies. The main driver of
loading of coal for export in the marine ports, economic diversification is the need to address
which has resulted in coal dust becoming a the potential risk of a decline in coal demand due
major source of pollution in the port regions to international climate policies and the carbon
of Murmansk, Nakhodka and others. Efforts neutrality goals of leading economies. The Group
to protect the port communities have been of 7 (G7) countries agreed to stop using coal by
inefficient. For instance, the Murmansk port 203016, and many others are likely to follow suit.
operator has built a protective screen of 1.5 Divestments from coal are an increasing threat
km length and 20 m height, however coal dust for Russian producers as the construction of
pollution still negatively affects the City of many coal-fired power plants will no longer be
Murmansk12. realised due to the recent decisions of the World
Bank, European Bank for Reconstruction and
The coal sector in Kuzbass is and will long Development (EBRD), and other international
be an important source of revenue for the financial institutions to end fossil fuel financing17.
regional budget and, more importantly for local At a meeting of the Russian coal industry in
Box 1. Public health13
Some open coal mines are in the centre of local towns (e.g., the town of Kiselyovsk), directly
affecting local communities. As a result of coal mining, the total mortality rate in Kuzbass was
16% higher in 2019 than the Russian average. The cancer mortality rate in the region exceeds
the Russian average by 7.4%, and annual mortality from respiratory diseases is 30% above the
national average. Furthermore, the life expectancy at birth is 3 years below the Russian average.
These environmental and health problems are recognised on the federal level, and in October
2020 the government approved the first phase of the scientific-technical programme “Clean
coal – green Kuzbass” aimed at reducing environmental impacts through the implementation of
29 innovative projects14.
5The role of coal in Kuzbass
March 202118, President Putin insisted that Diversification options for Kuzbass
diversification of coal producing regions must There are numerous opportunities for Kuzbass to
be strengthened. Specifically, the wellbeing of transition to a new environmentally and climate-
local communities and the environment should friendly economic model. Notably, all regional
be improved. President Putin has requested measures outlined in the plan of diversification
the regional government and companies to use include continued fossil fuel consumption.
coal export revenues for diversification, rapid
development of non-coal sectors, and services
to secure regional labour markets and stimulate Box 2. Renewable energy
economic growth. However, in reality regional Although fossil free renewable energy
diversification of coal regions is likely to be is currently not part of the regional
financed by an increase in coal exports. government’s diversification plans, the
technical potential of renewable energy
In early July 2021, plans for the diversification sources (RES) in Kuzbass is about 30
of the Kuzbass economy were adopted by billion tonnes of oil equivalent (toe) per
the federal government19. They provide the year21. The locally available RES includes
foundation for 78 projects in various sectors solar, wind, small hydro (small-scale
with overall public and private investments of hydropower), and biomass.
about $6 billion by 2026. Major projects include
a new plant for ammonia and urea production,
an iron and steel casting and rolling plant,
modernisation of heating systems, completion The economic and financial assessment
of a large hydropower plant, renovation of of the different development options still
Rusal’s aluminium plant, and construction of a requires further cost-benefit analyses,
logistical centre for a large retailer, Wildberries. including technological and regulatory costs,
The Federal Ministry of Economic Development environmental and climate impacts, monetary
expects these projects to generate over 13,000 valuation of human health impacts and
new non-coal sector jobs for the Kuzbass ecosystem damages. Official documents in
economy20. Renewable energy resources and open access often provide indicative information
other green projects have not been included in without comprehensive economic reviews and
the current list. justifications.
However, the adopted diversification plan Currently it is still inconceivable that after many
primarily addresses matured sectors and those decades of being the coal capital of Russia,
with slow growth, but not the fast-growing Kuzbass could become a prosperous ’green’
industries, so the impact on sustainable growth region. However, Kuzbass has great potential to
of employment and productivity of labour will diversify and transition to a greener economy
unlikely be strong. They may also not attract utilising its advantages as a transport and energy
young generations and workers due to low system hub in the geographical centre of Russia,
salaries, and thus the migration of young vast natural resources to produce renewable
professionals from Kuzbass, which has already energy and sustainable products, and highly
been very high for decades, may continue. IT, qualified technical specialists and innovators. In
education, new construction materials and the future, the federal government’s increasing
other innovative sectors have so far not been support of economic diversification plans for
considered under the regional development Kuzbass may further expand to RES and other
plans. The Ministry of Economic Development green sectors.
may include those sectors in the next
diversification phase.
6The role of coal in Kuzbass
Energy The energy efficiency and energy saving potential in the region is significant (25 million
efficiency toe/year, similar to Moscow City’s annual gas consumption22 or the annual electricity
consumption in the UK23)24. Over 40% of the current energy consumption can be saved,
primarily in power and heat generation. As all energy is coal-based, energy efficiency
may generate economic savings, social and environmental benefits, provided coal
consumption does not increase.
Coal-bed The potential for replacing coal with natural gas or coal-bed methane can be considered
methane a “bridging” solution for the region. It is an unconventional form of natural gas found
in coal deposits or coal seams25. The total reserve of coal bed methane in Kuzbass is
estimated at 13.5 trillion m3, but may be even more up to 20 trillion m3,26. The company
Gazprom dobycha Kuznetsk has already launched methane extraction from coal fields,
which can be expanded up to 4 billion m3 per year in the short term27.
Coal chemical The coal chemical industry has a promising potential of production and revenue
industry generation compatible with the current revenues from coal supplies in Kuzbass. Coal as
a raw material can be utilised to produce 130 types of chemical semi-products and over
5,000 products (carbon fiber, molecular sieves, nanotubes, nanocomponents, carbon
sorbents, etc.). There are several local producers of coal chemical products with a total
turnover of $1 billion per year. Development of the coal chemistry cluster in Kuzbass
could generate 75,000 new jobs, and over $10 billion in annual revenue28.
Carbon CCS technology refers to the process of capturing carbon dioxide (CO2) before it enters
capture and the atmosphere and permanently storing it underground or in underwater reservoirs.
storage (CCS) CCS could play a meaningful role in Kuzbass’ energy sector, but its potential has
not been investigated yet. As such, further Research and Development (R&D) in this
field could be undertaken. A pioneering feasibility study of CCS potential in Kuzbass
was initiated in 2020 under the regional program “Clean coal – green Kuzbass”29. An
analysis of injecting СО2 into coal mines has been launched, based on the international
experience with dozens of CCS projects worldwide30. Implementation of CCS
technologies may provide Kuzbass with an opportunity to produce coal-based energy
without emitting CO2, though the cost effectiveness of such measures is still unclear31.
Further perspectives
An energy transition in Kuzbass will be a long However, the seemingly short-sighted behaviour
and gradual process. The coal industry transition of Russian coal producers and the government
needs to deliver on social justice, new green may indicate a realistic future, as coal production
jobs for local miners and other specialists, better and export will continue as long as market
environment and health, the growth of new eco- demands exist. It is likely that only once there is
friendly businesses, modern education and much insufficient demand for coal exports, triggered by
more. the EU Green Deal and stricter carbon regulation
worldwide, coal producers will diversify their
Turning a blind eye to changing world energy business models. Seemingly, the short-term
markets and technological transformation, profits from expanding the Russian coal sector,
global carbon and environmental regulation, supported by significant government subsidies,
expansion of carbon pricing schemes, political will continue to finance social responsibilities
commitments for clean energy, and zero-carbon but may hinder a diversification of Kuzbass’
pathways would come at a high financial cost economy. As such, a substantive diversification
for Russia32. Whilst the regional diversification of the Kuzbass economy is unlikely to happen
plans for Kuzbass exclude renewable energy, for the next one or two decades, possibly leading
some emission reductions could still be achieved to adverse economic, social and environmental
on a fossil fuel-based pathway. Yet, for a more impacts in the medium term.
sustainable future, diversification plans should
extend the scope to RES and a wide range of
sectors.
7References
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21. Based on author’s own calculations.
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