The Interplay Between Industrial Policy and Clean Energy Development in Russia: The Role of Policy Feedbacks

In 2013, Russia introduced a costly support mechanism for renewable energy (RE) featuring high local content requirements and aiming at constructing 5.5 GW wind and solar capacity by 2024. Given Russia’s abundant hydrocarbon resources, excess generation capacities, and unambitious climate goals, the rationale for promoting renewables has been, explicitly, to develop domestic technological competences and ultimately export potential in the RE sector. While the second funding phase of the mechanism has been recently approved, experts and policy-makers in Russia are increasingly debating the opportunity costs of focusing on wind and solar technologies – where Russia is only trying to catch up – as opposed to looking for potentially more promising ways to adapt to the changing global energy landscape, such as expanding hydrogen production. “Hydrogen economy” has been named as one of the priorities in Russia’s draft Energy Strategy until 2035, while Gazprom is exploring ways of using natural gas pyrolysis to produce zero-carbon hydrogen, and Rosatom is joining forces with the Russian Railways to use nuclear-generated hydrogen as a fuel. This paper will draw on the policy feedback literature to analyze the interplays and linkages between Russia’s industrial policy, the RE support mechanism, and the currently discussed policy options to promote hydrogen production. In doing so, it will focus on two areas where policy feedbacks are manifested: a) the power of groups and b) political agendas and definition of policy problems. The paper will argue that Russia’s renewed interest in industrial policy starting in the mid-2000s, accompanied by a significant increase of state ownership of high-technology industries and the creation of large state corporations such as Rosatom, Rusnano and Rostec with a mandate to promote technological innovation created the necessary preconditions for renewable energy development (where Rusnano and Rosatom have played a leading role). In terms of policy feedbacks (the power of groups dimension), the RE support mechanism has redistributed rents, creating RE support coalitions (including large state corporations, industry associations, RE investors and developers, and regional governors) as well as opponents (mainly large industrial energy consumers, whose higher payments on the wholesale capacity market finance the support mechanism). Positive policy feedbacks have pointed to the successful development of a new domestic technology cluster and the rising awareness of the importance of decarbonization more generally (the policy agendas and problem definition dimension), while negative feedbacks have focused on the high costs of the mechanism, lack of domestic competition and uncertain prospects for RE technology exports. These feedbacks have, in turn, set the stage for debating policy options for developing hydrogen production, where Russia could potentially become a leading producer and exporter. The underlying expectation that any new policies would feature an active involvement of the state corporations (in this case Gazprom and Rosatom) and should prioritize technological upgrading has remained unchanged. In sum, understanding the evolution of industrial policy in Russia and the related policy feedbacks is essential for making sense of Russia's contested clean energy development strategies.