Focus group№ 2 September 2017
Resources for hire
The Year of the Environment in Russia not only provides a perfect opportunity to examine green initiatives, but to assess the scale of accumulated issues and consider their long-term resolution. Iron Magazine has spoken to a group of sector experts about Russia’s capacity for the development of a circular economy, how relevant this would be and the potential benefits.
Head of the Group for Sustainable Development Services, Deloitte:
The cornerstone of a circular economy is the zero waste principle. In Russia, as was the case in the USSR, recyclables have been used in some capacity by all industries. However, the volumes are still insignificant, as a lot depends on economic efficiency and properties of the materials (i.e. the environmental impact of any process must be taken into account). Russia hasn’t yet implemented mechanisms for regulating the recycling market: there are no appropriate pricing systems that promote resource efficiency and consider environmental costs; there is no incentive for manufacturers and recyclers to work together to improve efficiency within and between specific value chains. The recycling market is still a work in progress.
The benefits of a circular economy in Russia would be similar to those that motivated the European Commission’s plan of action for the EU’s transition; namely, reducing production costs and lessening the environmental impact from emerging markets. This approach generates new jobs and increases the population’s wellbeing.
As is the case with any process of change, the transition to a circular economy brings with it significant costs, such as investing in R&D, providing subsidies to promote new business models, public investment in waste management, creating the necessary infrastructure and introducing digital technologies. In particular, SMEs need all the support they can get, as for them, the cost of green innovation is the main obstacle to overcome.
Head of the Department of Industrial Economics, Plekhanov Russian University of Economics:
The role of the environment in industrial production will undoubtedly grow in the foreseeable future. If mankind continues to pollute the environment at its current rate, the Earth’s resources will not last long, therefore every economy needs to become eco-friendly. However, appropriate innovation is needed to practically implement the principles of a circular economy. Some of the technology we do not yet have, because Russia is still technologically behind the developed world. Therefore, in most cases, it is necessary for Russian companies to seek the best technologies available on the international market.
On the other hand, business is always motivated by profit. To accelerate the transition to a circular economy, business owners need to be motivated financially with tax breaks, reduced excises, and easier customs procedures for the import of green equipment. It is difficult to get a positive response by persuasion alone, because a business must see valuable support measures and count on financial benefits.
Russia’s celebration of the Year of the Environment has prompted the launch of several major manufacturing projects. However, to be honest, these were partially launched a number of years ago. With such campaigns, there is always the risk that some plans may not materialise once the Year of the Environment is over. Such projects cannot exist on motivation alone – they need accountability and control. If the government will have, let’s say, ‘generators’ of green initiatives, then the projects will live on.
Head of the State Duma Committee on Economic Policy, Industry, Innovative Development and Entrepreneurship:
The topic of a circular economy is, of course, very relevant for modern Russia. It is receiving a lot of attention in the government and is one of the reasons why 2017 is the Year of the Environment. The number of new green industries and waste processing plants is growing. All industries are systematically moving towards a circular economy; however, there is still plenty to do, and we are relatively far from reaching our goal.
The main objective of transitioning to a circular economy is achieving environmental safety and resource efficiency, which are inextricably linked. Small companies are the only ones that can quickly profit from a circular economy. Large companies, on the other hand, can benefit in the long run, subject to a large initial investment. However, such investments are already gradually improving the environment.
In the long term, the transition to a circular economy is not an option, but a necessity. At the same time, we should not expect this to happen overnight. Here, as in many other areas, it is important to carry out the process in stages, gradually introducing new technologies. Thereafter, I’m confident we can succeed. Based on the experience of developed countries, a circular economy in Russia will bring up to 1 million new jobs, and the effect of recycling can contribute up to 15% in GDP growth.
Associate Professor of the Department of Management and Entrepreneurship of the Russian Academy of Science:
In recent years, the importance of environmental issues is growing globally, with Russia getting more involved in the global agenda. For example, the country has taken on voluntary commitments to reduce its emissions under the Paris Climate Agreement. The question now is how these obligations will be met.
Let’s consider а penalty system – if a company exceeds its emission allowance, it should be fined. Every year the emission allowance shrinks, while fines increase. At a certain stage, it becomes more profitable for the business owner to stop production altogether or modernise its equipment. In the latter case, the company will avoid the environmental fines, but the continued tightening of emissions requirements will mean that the problem is bound to return after a certain period of time. It is a vicious cycle, so the question is: how can a company carry on under such a penalty-based system?
This is why countries such as the USA and China did not commit to the Kyoto Protocol at the time, and now America can officially withdraw from the Paris Agreement. We are faced with the issue of raising the efficiency of our companies to a level that compensates for any international competitors who do not wish to comply with such stringent obligations. This is tough and requires large capital investments.
Technological support is a separate issue. Successful modernisation requires access to the best available technology. In this case, it is not about environmental protection per se, but about investing in new equipment, which brings, among other things, environmental benefits.
Member of the Public Chamber of the Russia, Director of the Centre for Monitoring Industry Development:
I see recycling and waste management as two of the most investment-attractive economic activities. Today, we see our country speaking about the transfer of technology and working on these kinds of initiatives. It is through the use of advanced solutions from the likes of Japan, Germany and Italy that companies will be able to transition their manufacturing systems to work in a closed loop, which will increase their efficiency and safety.
Nowadays more and more companies are embracing innovation, as it is unprofitable to remain environmentally unfriendly, bringing various duties and taxes. As far as I know, today the pharmaceutical and chemical industries have succeeded in making Russian industry greener, because they constantly research global achievements in this space and adopt the best international practices.
I think that, in addition to the existing environmental fines, we need a new system of governmental support for companies that plan to switch to circular principles. This would help them at the first, most difficult stage of investing. Today, Russia kicks off a new institute for best practices, which should help domestic companies reach a new technological level. Unfortunately, until we all are ready for such changes, the issue needs to be approached with caution.
It is widely known that Russia is the largest
country in the world; however, it is unlikely
that anyone can say that they have experienced
all of its wonders.
A scandal about a waste landfill in Balashikha in the Moscow region, which broke out this summer after a live ‘Direct Line’ conference with President Putin, drew attention to a question that was long overdue a good answer – what to do with Russia’s ever-growing waste? Recycling can be a solution. But Russia is only making its first steps in this direction.
A huge amount of resources is concentrated in the Arctic. And many countries in Europe and Asia are showing strong interest in accessing it.
IM talked to Mikhail Yulkin, Director General of the Centre for Environmental Investments.