The Impact of Transitional Climate Risks on Exports: Empirical Evidence from Russian Regions

Abstract

In the conditions of exclusive attention of the state to the issues of export development, the study of determinants of export operations of Russian regions comes to the forefront. Exporting companies face the following limiting factors: technological backwardness, inconsistency of goods quality with international demand, complexity of customs procedures. In the context of the modern climate agenda, there is a new type of economic risks for exporters – transitional climate risks. This group of risks is emerging as a result of states’ intentions to achieve the climate goals set out in the Paris Agreement and move towards low-carbon development. Transition risks for exporters can appear in the form of trade restrictions, environmental requirements for goods, and the willingness of importing countries to substitute more carbon-intensive exported products. Evaluating the export development of Russian regions in the context of transitional climate risks is a non-trivial task. The global energy transition can generate both risks and opportunities for Russian exports. The purpose of this paper is to model the impact of transitional climate risks on the dynamics of Russian regional exports based on data for the period 2013-2021 using an extended gravity model of international trade. The study has two distinctive features: a comprehensive analysis is conducted, introducing three types of transitional climate risks: the spread of carbon regulation, alternative energy development and electrification of transportation; regional factors determining the sign of the impact of transitional climate risks on export volumes are identified. The study reveals that the impact of transitional climate risks on the export performance of Russian regions is diverse. Firstly, carbon regulation of trading partners poses risks for many Russian regions, but promotes exports from regions with the most favorable socio-economic conditions for innovation and active regional climate policies. Secondly, the production of alternative energy sources in partner countries reduces reliance on Russian energy imports, which jeopardizes the sustainability of the economies of regions specializing in the extraction of traditional energy resources. Meanwhile, Russian mineral-rich regions are making a significant contribution to global energy transition trends as suppliers of critical mineral resources and are increasing their exports.