Cutting Russia's fossil fuel exports: Short‐term economic pain for long‐term environmental gain

Abstract

In response to the invasion of Ukraine, most OECD countries have announced punishing sanctions against Russia. In addition to targeting financial markets and service sectors, some countries have begun to impose restrictions on exports of Russia's fossil fuels. We analyse a scenario whereby most OECD countries put major restrictions on Russia's energy exports. The short‐term implications are likely to be non‐trivial for the EU – Russia's largest energy export destination. Households' real income could drop by 0.7 to 1.7 percent (relative to the reference case) with energy prices growing by as much as 11 percent. But in the longer run, the cost of such restrictions for the EU is expected to be more modest (0.04 percent slowdown in the annual growth rate of real income over the 2022–2030 period), even as they lead to substantial environmental benefits reducing CO2 (6.6 percent in 2030) and air pollutant emissions (2.8 to 5.9 percent in 2030). Such emission reductions would take the EU more than halfway to its Green Deal mitigation target, reducing the necessary carbon price by around 40 EUR per tCO2. Adverse impacts on the Russian economy would be overwhelming and, in relative terms, 10 time larger than that for EU.

Designing ‘optimal’ sanctions on Russian imports

“…Using computable general equilibrium (CGE) models, a number of recent contributions have conducted applied policy analyses to estimate the economic effects of Allied import measures on Russia, the Allies and non‐sanctioning countries ( see , e.g. Chepeliev et al, 2022; Evenett & Muendler, 2022; Felbermayr et al, 2022; Langot et al, 2022; Mahlstein et al, 2022; WTO, 2022). These papers have either modelled complete import bans by Allies ( see , e.g.…”

“…These papers have either modelled complete import bans by Allies ( see , e.g. Chepeliev et al, 2022; Felbermayr et al, 2022; Mahlstein et al, 2022), or simply assumed tariff increases of a certain magnitude (Evenett & Muendler, 2022; WTO, 2022, Scenario 2(b)). In addition, all these papers have, without fail, developed assumptions about the Russian export sectors that would be targeted by Allies.…”

Conflict-related environmental damages on health: lessons learned from the past wars and ongoing Russian invasion of Ukraine

“…This will cause changes in energy policies in the EU to decrease fossil fuel power generation. A recent analysis showed a long-term environmental benefit of reducing CO 2 (6.6% in 2030) and air pollutant emissions such as fine particulate matter and sulfur dioxide [ 17 ]. On the other hand, the destruction of buildings and fires would generate greenhouse gasses as it has been in 1943 during the Hamburg bombing where it has been estimated that between 3.5 and 21 million t CO 2 were emitted [ 18 ].…”

Cutting through the value chain: the long-run effects of decoupling the East from the West

“…( 2022 ) and Chepeliev et al. ( 2022 ), who simulate the effects of decoupling from Russian energy exports, we investigate the impacts of a general decoupling that is not limited to energy trade. By revealing the true cost of an escalating trade war between China and Russia on one side and the EU and the US on the other, the findings are highly relevant for policymakers.…”

“…Instead of modelling a global decoupling, this paper investigates the impact of NTBs that are imposed between two very specific groups of countries. In contrast to Bachmann et al (2022) and Chepeliev et al (2022), who simulate the effects of decoupling from Russian energy exports, we investigate the impacts of a general decoupling that is not limited to energy trade. By revealing the true cost of an escalating trade war between China and Russia on one side and the EU and the US on the other, the findings are highly relevant for policymakers.…”