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The global drive towards decarbonization of the global economy plays an increasingly significant role in Russia’s strategy for development of its energy and other carbon intensive industries. It has its own renewables, energy efficiency and environmental programs, develops national carbon laws and has major plans for hydrogen. In particular, Russia intends to lead in hydrogen production and export due to its proximity to European and Asia-Pacific markets, resource base and scientific background in hydrogen production, transportation and storage. Global hydrogen market players may look into possible technological and other partnerships with Russian businesses, as well as possible use of special investment regimes and territories that be may adapted for hydrogen production, relevant equipment manufacturing and R&D.

Energy strategy 2035

In June 2020, the Russian Government approved the new Energy Strategy until 2035. The Strategy declared a major goal for Russia to become a world leader in hydrogen production and export. It also established specific export targets of 0.2 million tons by 2024 and 2 million tons by 2030.

To achieve such targets, the Government intends to implement or incentivize the following:

  • investments in production, transportation and consumption of hydrogen and hydrogen-based energy mixes;
  • increase of hydrogen production based on natural gas, including using renewable and nuclear power;
  • development of Russian low-carbon technologies to produce hydrogen by methane pyrolysis, electrolysis and other means, including by a way of foreign technologies localization;
  • internal market demand for hydrogen fuel cells in transportation, as well as use of hydrogen and hydrogen-based energy mixes as energy storage and a conversion tool to increase efficiency of centralized power supply systems;
  • international partnerships in the hydrogen field and expansion to global markets.

Hydrogen roadmap 2024

In October 2020, the Government approved an action plan (Roadmap) for hydrogen development until 2024. Apart from various organizational and regulatory actions, the Roadmap provides for implementation of high-priority pilot hydrogen projects that envisage, inter alia:

  • development, production and use of pilot equipment for carbon-free hydrogen production;
  • development, manufacturing and testing of gas turbines for methane-hydrogen fuel;
  • development of a hydrogen-run railway transport prototype;
  • development of pilot sites for low-carbon hydrogen production at hydrocarbon processing facilities or natural gas production facilities;
  • nuclear-based hydrogen production.

According to the Roadmap, in the 1st quarter of 2021 several federal ministries should develop a more detailed hydrogen development concept and proposals for its implementation.

Regional clusters and international partnerships

Russian authorities, major businesses and experts are considering establishing several regional clusters to kick off hydrogen development, namely:

  • Eastern cluster – in Sakhalin region, an island in Russia’s Far East, to export hydrogen to the Asia-Pacific region, as well as to test its use in the internal transportation, housing and industrial markets;
  • North-Western cluster – in St. Petersburg and Leningrad region, located on Russia’s Baltic shore, to export hydrogen to the EU;
  • Arctic cluster – in Yamalo-Nenets Autonomous District, Siberian Northwest, to develop autonomous hydrogen power supplies.

The eastern cluster seems to be leading the way to date. More broadly, the authorities are considering making Sakhalin a pilot region for low-carbon development in which hydrogen will be of particular relevance. In October 2020, Sakhalin’s Governor announced that Sakhalin’s authorities, jointly with the federal Government and Presidential Administration, had started working on the draft law on ‘Implementation of a Trial Greenhouse Gas Regulation and Carbon Units Circulation’ in Sakhalin Region.

In terms of cooperation with the EU, in December 2020 Russia’s newly appointed vice-prime minister in charge of the power sector, Mr. Alexander Novak, announced the development of a Russian-German roadmap for hydrogen and the possible implementation of pilot supplies of hydrogen to Germany.

A number of Russian energy companies have their own hydrogen initiatives in partnership with prominent international businesses. Some of them have already started implementing pilot projects.

Investments perspective

Russia is currently incentivizing major capital investments through the stabilization of projects’ regulatory regimes, tax and customs benefits, access to land plots and certain infrastructure, preferential foreign employees quotas and some other stimulus measures.

Such benefits may derive from investment protection and promotion agreements (IPPAs), special investment contracts (SPICs), agreements for implementation of regional and priority investment projects, as well as territories with special status, such as special economic zones, territories of advanced development and certain R&D clusters.

The said agreements, territories and incentives are not particularly linked to hydrogen. However, businesses considering locating hydrogen projects in Russia may wish to assess the relevance of a particular regime or territory depending on the details of the project. Such a relevance may vary for production of hydrogen, manufacturing of hydrogen-related equipment and R&D, for instance, with regard to electrolyzers, fuel cells or CCS/CCUS technologies.

Author

Alexey Trusov practices in the areas of corporate, M&A and pharmaceutical and healthcare. He graduated from St. Petersburg State University’s School of Law in 1997 and received his LL.M. from Cleveland State University’s Cleveland-Marshall College of Law in 1998. He received his degree of Candidate of Science from St. Petersburg State University’s School of Law in 2002. He was admitted to the Russian bar in 1997, and currently serves as co-chair of the Association of International Pharmaceutical Manufacturers Legal Committee.

Author

Maxim Kalinin serves as managing partner of Baker & McKenzie’s St. Petersburg office and head of the Mergers & Acquisitions, Corporate, Real Estate & Construction and Employment practice groups. He was named a European legal expert in Russia by European Legal Experts 2008, and was recognized by Chambers Europe "for his expertise in M&A and real estate work". He is also cited by Legal 500, Who’s Who Legal 2009, The International Who’s Who of Real Estate Lawyers 2008 and the Private Equity Handbook 2007/2008 for his corporate and real estate work