Beyond natural resources: Russia's long-term economic prospects

16. Mai 2008 zur Übersicht

Michael Cramer's speech on the 4th Europe Russia Forum in Rome.

4th Europe Russia Forum 14.05.-16.05.2008 in Rome, Italy

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Setting framework conditions for a sustainable development

Pleased to get the opportunity to share my views on this important topic of a world beyond natural resources I want to start my presentation with the following figures:

First: If we look back to recent years we've been facing the situation that 18 per cent of the world's population - namely Europe, the US and Japan - have been consuming 80 per cent of all resources.

Second: Now, for the first time, China is consuming more steal, needing more food and using more energy than the United States - not yet per capita, but in total.

Third: If for example the Chinese population ate as much chicken meat as we do, they would need a five times bigger area under cultivation. For the same amount of beef they would need area ten times bigger compared to now for agricultural production. Already at present China has to import food. In this context it is interesting to hear that the production of one litre of agrofuels requests 4 litres of water.

What can we deduce from these seemingly unrelated figures? I think that they illustrate rather well the situation we are facing. It is, first of al, obvious that the western life style has been only possible by the exploitation not only of our own resources but also of those of the rest of the world. Secondly, it shows that the developing world is no longer modest about taking its right to demand the same. Thirdly, we have to face the fact that simply changing the resource while letting the general framework unchanged will not be a solution.

If, for instance, we look at the number of cars in different world regions those three arguments become evident. The US is leading the list with about 800 cars per 1000 inhabitants. In other words: almost every person being old enough and capable of driving has their own car. China and India have seen a significant growth in private cars. Russia's car fleet is expected to double within the next seven years. Looking at the number of inhabitants though China still provides a modest relation of 5 cars per 1000 inhabitants; Russia is at 170 cars per 1000 people; Germany at 546 per 1000 people and the EU average is 463 per 1000 people. In the USA, 771 out of 1000 people own a car. We also have to consider the general CO2 production in this respect. Here again, China was overtaking the US as the biggest polluter.

Per capita though a US citizen still blows out 4 times more of the climate damaging gas into the atmosphere than a Chinese does.

At this point, countries like China, India but also Russia have to decide whether to repeat the Western way of thoughtless waste of resources or to build up their economies in a sustainable way. With the ever growing demand of oil, coal and gas we will soon face a situation in which those natural resources become unaffordable. The oil price tripled within the last 5 years to now more than 120 dollars a barrel. Only those economies being prepared will have a future under these conditions. It is therefore already now the right time to discuss and to design Russian perspectives beyond oil and gas.

I am afraid that the West once again gives the wrong example for a sustainable change out of the dependency on oil. Agrofuels are presented as the answer to rising oil prices but in fact - so far - they have only caused rising food prices. You might remember the unrests in Mexico because of rising tortilla prices as a consequence of the high demand of corn for American agrofuel production. The enormous use of water and land, the burning down of rain forests for new soya plantations caused by agrofuels questions any positive effect of these fuels in terms of CO2 reduction. You must know that 25 per cent of all CO2 emissions are caused by deforestation of the rainforests. This fact is well known, yet action in order to stop it lacks behind.

I often hear the argument that catching-up economies cannot afford to respect the environment and that they have to grow at first place as cheap - and therefore as dirty - as possible. I am convinced that this is at best true in very short term thinking. Seeing the enormous costs caused by climate change and rising energy prices a strategy towards a low carbon economy will serve the goal of sustainable growth much better. And it is a myth that environmental politics are expensive as such. As a politician specialised on transport I can tell you that major steps can be taken just by setting up the right framework conditions. Once again I am sorry to say that Europe is not giving the best example.

Transport in the European Union now accounts for almost 30% - and growing - of CO2 emissions which are harmful to the climate. Despite this, the wrong political course seems to have been set across the board: large subsidies for the climate culprits motor vehicles and aeroplanes, yet more and more new barriers and burdens for the railways. Looking at the EU cohesion and structural funds we must notice that 60% of the requested money for the transport sector is spent for road while only 20% is spent for rail- or public transport projects. Consequently, transport continues to grow, and nullifies the expensive emission reductions achieved in other sectors where we can notice a reduction of 10 % since 1990. This makes a convincing case for a sea change in transport.

However, if we are to achieve a modal shift and encourage the use of rail, the investment in to rail infrastructure will not be effective on its own. A key prerequisite is the implementation of a fair competition, especially between road and rail, but also in respect to the ever growing air sector. This is especially necessary since transport is one of the key problems to be solved in the context of climate change.

A closer examination of our mobility reveals an anachronism: the climate-damaging modes of transport are highly subsidised in everyday life, whereas the more environmentally friendly ones are subject to tax. As a result of this framework the share of road transport has been rising.

The railways are indisputably among the most environmentally friendly means of mobility. As such, they should actually be encouraged and supported, but the opposite is the case. In the EU it is mandatory for tolls to be levied on all trains on all rail tracks in the form of route prices. And yet for its keenest and most polluting competitor, road transport, however, tolls are charged mostly only on motorways and as a rule only for lorries above 12 tonnes. There is an upper limit on these tolls, external costs may not currently be internalised, and toll charging is voluntary for the member states. Poland and Slovakia have the highest rail tolls for freight transport, while the roads are toll-free or nearly toll-free. It is not surprising that freight transport in particular is at home on Europe’s roads.

The situation with air transport is also anachronistic. Despite its undeniably negative impact on the environment, air transport receives a sizeable amount of indirect subsidies, for example the lack of taxes on kerosene fuel or cross-border airline tickets. These exemptions go some way towards explaining how airlines can offer tickets at a ‘taxi price’ between major European cities.
In Russia, however, only 12 percent of cargo traffic is on road compared to a 60 per cent road share of freight in the EU. It would be a major mistake of Russian politics to not take advantage of this situation.

Greening transport policies is possible by setting the right framework. This applies also for a future oriented energy policy. An example is given by the success story of Germany’s Renewable Energy Act, which in Europe is now considered an example in terms of forward-looking energy. This Act makes fossil fuels slightly more expensive for consumers in order to promote and improve the competitiveness of renewable energy. No tax money or public funding has been necessary to boost Germany's wind and solar power capacity.

Russian politics would be well advised to choose a sustainable perspective for its economy by implementing green framework conditions already now.