Electricity Reform in Russia and Greenhouse Gas Emissions: Club Convergence Analysis

In this paper the authors have analyzed the effectiveness of Russian electricity reform from the viewpoint of changes in greenhouse gas emissions. Even though reducing carbon dioxide emissions is one of the most important declared long-term goals of the world community, previous academic works have not examined the results of electricity reforms in this fashion. This paper should be informative in developing the current approach to evaluating any economic reform. Although reducing the industry’s environmental footprint was not one of the main goals of the liberalization of Russia’s energy sector, the paper hypothesizes that it may have made such a contribution. The authors identify two main mechanisms for reducing emissions. The first is by increasing the efficiency of electricity generation through wholesale market forces which favor more efficient producers, and this is reinforced by the desire of new (private) owners in the electricity generation sector to reduce costs. Both of these factors contribute to greater use of efficient power plants, which results in higher utilization rates of their installed capacity and helps to reduce greenhouse gas emissions. The second mechanism is a program of investment in new, more modern capacities, which was one of the conditions for the privatization of enterprises undertaken during Russian electricity reform. The authors propose using the club convergence method, which has the advantage of simplicity and a minimal required set of necessary data, for identification of the relationship between Russian electricity reform and the dynamics of greenhouse gas emissions. Based on their analysis, the authors conclude that the reform of the electric power industry in Russia could be one of the factors that affected the dynamics of greenhouse gas emissions.

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