Reducing the Risks Associated with Rising Electricity Prices as Russia Moves Towards Carbon Neutrality by Combining Energy and Forestry Projects

This dilemma is also relevant for Russia, where the energy sector is a major source of emissions.

The purpose of this study is to develop proposals for reducing the risks of increased electricity costs in the context of Russia's transition to carbon neutrality.

The paper provides a comparative analysis of market and non-market mechanisms for decarbonization was conducted, including the replacement of traditional generation with renewable energy sources,the implementation of advanced carbon capture and storage (CCUS) technologies, and the development of promising forest-climate projects. This study demonstrates that technological solutions, such as the large-scale construction of RES facilities or the implementation of CCUS, are characterized by significant capital intensity and directly lead to a significant increase in electricity costs. The introduction of carbon taxes or special obligations also creates a steady upward pressure on tariffs for end consumers.

As an alternative, Russia is considering forestry-climate projects, which have the key advantage of significantly lower carbon unit costs compared to technological solutions, allowing for the offsetting of energy sector emissions without increasing the cost of generation and mitigating overall price increases.

The study used an assessment based on two parameters: the reduced cost of electricity (LCOE) and the additional costs of decarbonization, which are related to the reduced mass of CO2 and are calculated per 1 MWh, taking into account the specific emission coefficient for each type of generating station. This approach allowed us to compare the effectiveness of renewable energy, CCUS, and forestry projects, taking into account not only capital and operational costs, but also the cost of reducing one ton of CO2 emissions.

Five hybrid decarbonization strategies were analyzed, combining different combinations of three elements: reducing the output of thermal power plants, developing renewable energy power plants, and using natural/technological solutions to compensate for emissions. The

“phased transformation” scenario was recognized as the most balanced for Russia. This involves reducing the production of thermal energy from 62.5% to 40-50% with the use of additional compensation for 15-20% of emissions through forestry climate projects, increasing the production of hydroelectric power plants, solar and wind power plants from 18% to 2535%, and maintaining the capacity of nuclear power plants. With government support for the introduction solar and wind power plants, this approach ensures a projected price increase of no more than 3-7% per year. It allows us to avoid sharp tariff shocks for the population and businesses, and to realize the country's advantage as the largest forest potential. To realize this potential, it is necessary to integrate forest-climate projects into the energy strategy, develop hybrid scenarios, and create a regulatory framework for the carbon unit market, which can facilitate a smooth transition to carbon neutrality without socio-economic shocks or abrupt changes in tariffs.