Russian Economic Transformation: Navigating Climate Policy and Trade Restrictions

We are considering the introduction of climate policy in Russia under conditions of quantitative export restrictions. We have enhanced the model employed in the article (Burova et al., 2023) by incorporating a mechanism for quantitative trade restrictions. We demonstrate that in the case of deterioration in external economic conditions, such as a decline in the prices of Russian exports, the significance of quantitative export restrictions becomes secondary. The reason is that at low export prices the optimal physical volume of exports only marginally exceeds or may even be less than the quantitative restrictions. Without unrestricted access to global green technologies, ambitious climate policy goals may become excessively costly in terms of economic impact. In the presented model, attempting to achieve a 70% reduction in CO2-equivalent emissions from the 2016 level, coupled with decreasing prices for Russian exports and quantitative trade restrictions, could result in a deviation of GDP in 2040 by 11% from the baseline scenario, which implies maintaining the current status quo in climate policy both in Russia and globally. A more economically viable approach seems to be a moderate climate policy: achieving a 36% reduction in emissions from combustion compared to the 2016 level results in a 4.7% downward deviation of real GDP in 2040 from the baseline scenario. Only 0.3% of this decrease is attributed to the impact of domestic climate policy through an emissions trading system. The remaining 4.4% is explained by the deterioration of external economic conditions, stemming from the climate policies of other countries and quantitative restrictions on Russian exports. In the absence of a proactive climate policy, the carbon intensity of Russian GDP rises, amplifying transitional and physical risks of addressing the consequences of climate change. Essential measures to mitigate these risks involve the promotion and development of green industries, particularly those oriented towards exports.