Russian exporters would not suffer any noticeable "fiscal" losses from cross-border carbon regulation (TUR) in the European Union (EU). They will be able to recover almost 90% of the financial losses from the payment of the carbon levy by increasing product prices, analysts of the Petromarket research group found out.

"The introduction of the import carbon levy in the EU will cause an increase in prices for most Russian export products covered by the TUR, which will largely offset the importers' costs of paying the levy. The only exception will be electricity. Altogether, we estimate that over the 10 years from 2026 to 2035, import duties on the aluminium industry, gas chemicals, cement production and ferrous metallurgy will account for just over Rb 760bn in 2021 prices. During the same period, the increase in prices for the products of the above industries induced by the implementation of TUR will bring exporters at least 650 billion rubles and thus cover 86% of the losses from the levy," the study says.

According to the experts, Russia's hypothetical losses when exporting electricity to the EU will also turn out to be insignificant: by the start of TUR payments, electricity exports from Russia to the EU will radically decrease due to the Baltic states leaving the energy ring of Belarus, Russia, Estonia, Latvia and Lithuania by 2025 and Finland's plans to stop importing electricity from Russia by 2030.

At the same time, the key risk for Russia from the introduction of the TUR is not related to the presence of the import carbon charge per se, but to the possible loss of the European market for Russian exporters in the long term. The introduction of the TUR actually creates a new field of competition between producers of goods on the EU market, in which those who are able to decarbonize their production to the greatest extent will have the advantage. European producers have the best chance of winning this battle: at the moment they are the ones most incentivized to decarbonize, PetroMarket notes.

According to researchers, the best option for Russia in this situation is a carbon export tax applicable to the export of goods from the country outside the Eurasian Economic Union (EAEU), that is a "mirror" Russian TUR. It should apply to goods of the same nomenclature, at the same rate and using the same formula as the EU TUR. Experts believe that this would make it possible to zero out the European import duty when exporting goods from Russia.

"In addition, it is reasonable to limit the Russian export TUR to industries with large export volumes to the EU and, accordingly, with large potential aggregate payments to the EU budget under the European TUR - the aluminum industry, ferrous metallurgy and gas chemistry. In this case, the benefit to the Russian economy from the interception of the cross-border fee as a whole for the period from 2026 to 2035 would be almost 700 billion rubles in 2021 prices," says the study.

However, the authors emphasize that such a mechanism has one significant drawback: it would apply to the entire volume of export of goods subject to it (except for export to the EAEU countries), and not only to supplies to the EU. Therefore, the total amount of carbon export duties to be paid by Russian producers for the period from 2026 to 2035 will be 2.8 times higher than if they pay only the carbon import duty in the EU.

Earlier, the European Commission published a draft of cross-border carbon regulation. The purpose of the project is to prevent "carbon leakage". By 2026, the EU plans to introduce a levy on imports of certain goods whose production required high CO2 emissions. From 2023 to 2025 there will be a transition period in which importers will have to report quarterly the actual emissions associated with goods imported into the EU and any payments for carbon emissions abroad.

Made in Russia // Made in Russia

Author: Karina Kamalova