The selection of the EU ETS, Nordic carbon taxes, and Sakhalin pilot stems from their diversity in policy design and relevance to Russia. The EU ETS provides a regional trading model with long-term emissions reduction success, while Nordic countries demonstrate how taxation can drive decarbonization. The Sakhalin pilot offers the first domestic example of a regulated carbon price, enabling scenario calibration. These cases were selected based on effectiveness, data availability, and provide context-specific insights for designing scalable and fiscally viable carbon pricing policies in Russia.

The study draws on selected international experiences to assess carbon pricing feasibility in Russia. The Nordic countries — Finland, Denmark, Sweden, and Poland — were the first to implement carbon taxes in the early 1990s, with Norway joining in 1991. In Norway, carbon tax revenues have exceeded $33 million, with coverage extending to 65% of CO₂ emissions. The proceeds are managed via the sovereign wealth fund, contributing roughly 20% of the national budget and supporting clean energy and welfare programs.

Fuel taxation and climate policy in these countries have made fossil-fuel-based thermal generation increasingly uncompetitive, leading to a shift toward renewables. In some cases, such as Sweden and Norway, wind and hydroelectric investments now proceed without subsidies.

The EU ETS, launched in 2005, applies a cap-and-trade model across all EU member states. It currently covers about 38% of the EU’s CO₂ emissions, with gradually tightening emission limits and rising penalties for non-compliance. This framework creates a dynamic carbon price signal and has contributed significantly to emissions’ reduction across regulated sectors.

Carbon taxes and emissions trading systems internalize emission costs, incentivizing cleaner energy. Globally, approximately 36 countries implement carbon taxes, covering a wide range of CO₂ emissions from an estimated 0.15 megatons of CO₂ equivalent (Mt CO₂eq) in Liechtenstein to 694 Mt CO₂eq in Canada. In contrast, ETS is implemented in around 33 countries or regions, addressing a larger emissions volume, ranging from nearly 5 Mt CO₂eq in Switzerland to nearly 5,000 Mt CO₂eq in China (World Bank, 2023b). In 2023, ETSs and carbon taxes covered approximately 17.6% and 4.7% of global greenhouse gas emissions, respectively (World Bank, 2023b).

A carbon tax imposes a direct fee on the carbon content of fossil fuels, thereby providing a predictable price signal that encourages businesses and individuals to transition toward low-carbon alternatives. In contrast, an ETS establishes a cap on the total volume of greenhouse gases that can be emitted within a regulated region. Emission allowances are either distributed or auctioned, allowing companies to trade them based on their needs. This market-driven approach incentivizes emission reductions where they are most cost-effective, fostering technological innovation and efficiency improvements (Parry et al., 2021b; Doda, 2016; Ekins and Speck, 2011).

Both carbon taxes and ETS aim to align financial interests with environmental sustainability by making carbon-intensive activities economically less viable. However, while these mechanisms have demonstrated effectiveness in some regions, they also present notable challenges that impact their broader implementation. Despite their theoretical advantages, carbon pricing mechanisms face several obstacles:

Effectiveness in emissions reduction: While these instruments contribute to emissions’ mitigation, they have yet to significantly reverse the upward trend in global emissions. Market fluctuations and economic slowdowns often lead to volatility in carbon prices, reducing immediate pressure on industries to innovate.

Public resistance and economic impact: Carbon taxes can lead to increased energy costs, disproportionately affecting lower-income households and businesses. Historical instances, such as the 2018 “Yellow Vest” protests in France and similar demonstrations in Chile, underscore the socio-economic challenges associated with carbon taxation.

Revenue allocation and carbon leakage: Effective reinvestment of carbon tax revenues remains a key concern. Some nations struggle to channel these funds into sustainable projects or compensation mechanisms for vulnerable populations. Additionally, carbon leakage — where industries relocate to countries with weaker environmental regulations — undermines global emission reduction efforts.

The primary function of carbon taxes remains incentivization, pushing companies to adopt low-carbon technologies and reduce fossil fuel dependency. International experiences with carbon taxes and cap-and-trade systems provide valuable lessons for evaluating and refining these mechanisms and are described in the following section.

The first countries to introduce a national carbon tax were Finland, Denmark, Poland, and Sweden, followed by Norway in 1991. The implementation of these taxes was largely influenced by regional agreements and international climate commitments, including the United Nations Framework Convention on Climate Change (UNFCCC) and the Kyoto Protocol (1997). Furthermore, participation in the EU ETS reinforced these nations’ commitments to emission reductions. These international agreements, combined with the domestic political will to combat climate change, laid the legal foundation for the introduction of the carbon tax (Stern, 2007; Hassett and Metcalf, 2006). Fig. 1 illustrates the price trends of carbon pricing instruments across the jurisdictions analyzed in this study, along with selected others. The data reveal that carbon prices do not follow a strictly monotonic trajectory; rather, they fluctuate over time in response to evolving policy, economic conditions, and market dynamics.

Fig. 1.

Price trends for the selected instruments, 1991–2024 (U.S. dollars). Note: BC — British Columbia; the provincial tax was effectively canceled on April 1, 2025. Source: Compiled by the authors using data from World Bank, 2023b.

By 2022, Norway, Sweden, Denmark, and Finland had achieved an average renewable energy consumption share of approximately 56.2%, significantly exceeding the 22% average for the 27 EU member states (Eurostat, 2023). Norway’s $90.86/ton tax (2023) on fossil fuels and ETS for industry had reduced net emissions by approximately 23% since 1990, supporting investments in renewables and electric vehicles (EVs), with Norway leading globally in per capita EV adoption (Norwegian Environment Agency, 2024; World Bank, 2023b). Notably, Norway utilizes carbon tax revenues through its sovereign wealth fund, the Government Pension Fund Global, which contributes around 15–20% of the national budget annually, supporting social welfare and addressing economic inequality (Norwegian Environment Agency, 2024).

With Norway’s carbon tax ($90.86/ton, 2023), net GHG emissions, including all sources and sinks, reduced to 31.6 Mt CO₂eq in 2023, a 23% decrease from 1990. Covering about 60% of total GHG emissions, carbon tax generates­ approximately $1.4 billion in 2023 (~0.25% GDP in 2023; Norwegian Environment Agency, 2024, 2025; World Bank, 2023b; Statistics Norway, 2025b). This funded a 7.8 GW renewable increase (mostly hydro) over nearly a decade and EV adoption (~65% of new cars in 2021 and ~82% in 2023) (International Energy Agency, 2023b; Statistics Norway, 2025a). Sweden, with ~$125.56/ton tax, cut emissions by ~38%. Covering about 36% of total GHG emissions, carbon tax yields ~$2 billion/year (~0.4% GDP, 2023 GDP $597 billion) (Swedish Environmental Protection Agency, 2025; World Bank, 2023b). Russia, with 1,680 Mt CO₂eq/year, could achieve a 20% cut (336 Mt CO₂eq) at $50/ton, generating ~$84 billion (~4.2% GDP), per IMF estimates (IMF, 2023; Crippa et al., 2023). However, Norway’s 96% hydro-based grid contrasts with Russia’s 67% fossil­ fuel mix, limiting direct applicability (IEA, 2023a). Russia’s export dependency (~50% vs. Norway’s 36%) and weaker monitoring (~45% digitized firms vs. ~83% in Norway) suggest higher transition costs and resistance, necessitating phased rates and CCS integration (World Bank, 2024; Kommersant, 2023).

The analysis of potential for implementing key carbon pricing mechanisms in the Russian jurisdiction requires consideration of the country’s economic, social, political, and environmental specifics. Below, each mechanism is evaluated, including its advantages, disadvantages, influencing factors, numerical estimates, and comparisons with international experiences.

The introduction of a carbon tax, which involves charging a fee for each ton of CO₂ or equivalent greenhouse gas emissions, has not yet been implemented ­nationally in Russia, though it is under discussion within the framework of the Paris Agreement and the Low-Carbon Development Strategy until 2050. A pilot project in Sakhalin (launched in 2022) could serve as a foundation for assessing its feasibility. This mechanism offers simplicity in administration, as it can be integrated into the existing tax system, reducing the costs of establishing new structures. According to the IMF (2023), a carbon tax in Russia could generate 4.3–4.4% of GDP by 2030 (approximately 7.4–7.6 trillion RUB, given a 2023 GDP of 172 ­trillion RUB2). It also incentivizes decarbonization by motivating companies to reduce emissions to lower their tax burden. However, Russia’s heavy reliance on hydrocarbon exports (around 45% of exports in 2022; CREA, 2024) means a tax could undermine the competitiveness of the oil and gas sector. Additionally, rising energy and goods prices could disproportionately affect low-income populations (12.4 million people below the poverty line in 2023³), and large corporations like Gazprom and Rosneft may resist this policy due to increased costs. Key influencing factors include the economy’s dependence on fossil fuels (about 15% of GDP) underdeveloped emissions monitoring infrastructure, and a political preference for “soft” regulation.⁴ Compared to Sweden, where a carbon tax of $125.56 per ton contributes ~0.4% of GDP annually, Russia might start with a lower rate of $15 per ton, though reaching $50–70 would be necessary for comparable impact (Swedish Environmental Protection Agency, 2025).

The cap-and-trade mechanism, which sets an emissions limit and allows companies to trade quotas, is being tested in Russia through the Sakhalin experiment since 2022 (Library of Congress, 2022). Here, 35 companies with emissions exceeding 20,000 tons of CO₂ annually received quotas, with a fee of 1,000 RUB per ton for exceeding limits.⁵ This system offers flexibility, enabling firms to either reduce emissions or purchase quotas, and leverages market dynamics to encourage innovation (Lissovolik, 2021). If successful in Sakhalin, with regional emissions of about 12.3 million tons of CO₂ yearly (Library of Congress, 2022), it could be scaled nationally. However, it requires sophisticated emissions tracking and a trading infrastructure. The current quota price (1,000 RUB/ton) is significantly lower than the EU’s $80/ton, risking inefficiency (European Commission, 2024). Sanctions also limit integration with global systems like the EU ETS (Beuerle, 2024). Scaling the Sakhalin model nationwide, with total emissions of 1.8 billion­ tons of CO₂ annually, could yield 1.8 trillion RUB yearly at 1,000 RUB/ton, though a price increase to 5,000–7,000 RUB/ton would be needed for meaningful reductions. In contrast, the EU ETS (since 2005) covers 11,000 enterprises and cut emissions by 35% by 2020 at $80/ton (European Commission, 2024).

Carbon credit trading schemes became operational in Russia in September 2022 with a voluntary carbon unit registry, allowing companies to sell credits from climate projects like reforestation.⁶ This voluntary approach minimizes business resistance and could help exporters avoid the EU’s CBAM. Demand remains low without mandatory quotas, and Russia’s market is nascent compared to the global carbon market under mechanisms like the Kyoto Protocol. Verification for international credibility is also lacking. Russia’s forests (absorbing approximately 560 million tons of CO₂ yearly) offer potential (Sorokina et al., 2023), but sanctions and low awareness ­hinder progress. Approximately 12.5 billion metric tons of carbon permits were traded globally in emissions markets — comparable to the volume in 2022 — but the total market value increased due to record-high prices in regions like Europe and North America, as reported in the LSEG Carbon Market Year in Review 2023.7 Meanwhile Russia’s traded volume was under 1 million units in 2023.

Bans and restrictions, such as limits on coal-fired plants or flaring of ­as­sociated gas, align with Russia’s 2050 Strategy to reduce carbon intensity by 9% by 2030 and by 48% by 2050. These measures ensure direct emissions cuts and require minimal monitoring costs. However, coal contributes 15% to electricity generation, within a 65% fossil fuel energy mix,⁸ and phasing it out could harm regions like Kuzbass, risking 150,000 jobs (Ministry of Energy of the Russian Federation, 2016). Substitution with gas (50% of the energy mix) is feasible but costly, and regional political resistance is likely. The UK’s plan to close all coal plants by 2025, cutting 20 million tons of CO₂ (UK BEIS, 2023) suggests Russia would need to decommission 30 GW of coal capacity for similar results.

Carbon capture and storage (CCS) initiatives are in early stages in Russia, with pilot projects by Metafrax and Rosneft aiming for 2028 deployment. The Intergovernmental Panel on Climate Change (IPCC, 2005) projects that up to 30 gigatons of carbon dioxide could be stored underground by 2050. However, a study from researchers at Imperial College London suggests a much lower optimistic estimate of only 5 to 6 gigatons (Zhang et al., 2024). The study challenges the IPCC’s figures, calling them unrealistic, especially in terms of expectations for China’s future carbon capture capabilities. Compatible with the oil and gas sector, CCS could enhance oil recovery, and Rosneft targets a 20-million-ton reduction by 2035 (Rosneft, 2023). Yet, Russia lacks commercial-scale experience and costs are prohibitive. According to The National News,⁹ the total investment for the Al Reyadah project was approximately AED 450 million, equivalent to around $122 million. This funding covered the development of CO₂ capture, compression, and transportation infrastructure, including a 43-kilometer pipeline directing captured CO₂ to ADNOC’s onshore oilfields for enhanced oil recovery. Geological suitability (depleted fields) and state funding are critical. Globally, investments in carbon capture and storage have surpassed $83 billion, with 41 commercial-scale facilities currently in operation — most of which are managed by major fossil fuel corporations. However, according to a report from the Institute for Energy Economics and Financial Analysis, many CCS projects worldwide have underperformed, often failing to meet their projected outcomes (Robertson and Mousavian, 2022; Natter and Merrill, 2023; IEA, 2025). Against this backdrop of global underachievement, Russia’s slower pace in CCS deployment appears less consequential. The country has recently launched its first climate-focused carbon capture and storage project, and around a dozen additional initiatives are currently under evaluation by domestic companies.10

In conclusion, taxes and cap-and-trade offer the most immediate potential due to their simplicity and revenue generation, though Russia’s hydrocarbon dependency, sanctions, and low carbon prices pose challenges. Starting with modest rates ($15/ton for taxes, 5,000 RUB/ton for quotas) and scaling up, alongside CCS investment and better monitoring, could balance economic and environmental goals. Russia can draw from the EU’s hybrid approach and China’s voluntary market, tailoring them to its unique context.

The Russian case offers a distinct mix of challenges and opportunities for implementing a carbon tax (Chuzhmarova, 2023). Several critical factors shape its feasibility:

• Economic structure: Russia’s economy relies heavily on fossil fuel exports, with hydrocarbons contributing approximately 20% of GDP. A carbon tax could impair the competitiveness of energy and manufacturing sectors, necessitating a balanced approach — e.g., starting at $15/ton and scaling to $50—70/ton — to avoid economic disruption while encouraging green diversification (Parry et al., 2021a).
• Energy mix: With coal and gas dominating the energy supply (50% gas, 15% coal), 11

• a carbon tax must incentivize a shift to renewables. Russia’s vast geography offers potential for wind and solar, which could be integrated into tax-driven decarbonization strategies.
• Regional variability: Industrial regions like Siberia emit more than urban centers­ like Moscow, reflecting stark disparities. A flexible tax design — ­potentially with differentiated rates — could address these differences, ensuring equitable application across diverse economic and energy profiles.
• Social equity: Fossil fuel subsidies lower living costs for low-income citizens. Replacing them with a tax risks public backlash unless offset by compensatory measures, such as direct transfers, to protect vulnerable households and secure social acceptance.
• Political readiness: Centralized governance and energy sector influence may resist carbon pricing. Strong political will and clear communication of benefits­ — e.g., 4.3–4.4% GDP revenue by 2030 (more than 7 trillion RUB) are essential to overcome opposition.
• International pressure: Commitments under the Paris Agreement and looming EU carbon border adjustments push Russia toward a tax to curb emissions (under the intensive scenario, Russia will reduce emissions by 36% by 2030, and by 2050 will reduce them by 48%, to 1.6 billion tons of CO ₂eq ¹²) and maintain export competitiveness.
• Revenue use: Tax proceeds could fund renewables and efficiency upgrades, aligning with global benchmarks ($50–70/ton for impact). Reinvesting in social programs could mitigate economic strain, supporting a just ­transition.

In conclusion, a calibrated carbon tax, starting low and rising gradually, could leverage Russia’s resources while addressing its structural and social challenges, aligning with global climate goals.

The Russian Federation currently lacks an explicit carbon emissions tax but employs various environmental taxes and payments based on negative environmental impacts. According to Rosstat Methodological Guidelines (Rosstat, 2023b), these are categorized into: environmental taxes (e.g., energy, transport, pollution, and natural resource taxes) and other environmental payments (e.g., land use, resource extraction payments, and fines), as detailed in Table 3. Energy taxes, such as fuel excises, implicitly influence carbon emissions by raising fossil fuel costs, though they lack the direct per-ton CO₂ pricing of an explicit carbon tax.

Since 2022, Russia has piloted carbon pricing on Sakhalin Island, aiming for carbon neutrality by 2025. Companies exceeding CO₂ quotas (set for 35 firms with emissions > 20,000 tons/year) face a penalty of $11/ton CO₂eq (Sakhalin Government, 2022). This initiative tests scalability for national application. Russia’s electricity market, reliant on fossil fuels (50% gas, 15% coal in 2023), could shift toward renewables with a carbon tax, as higher fossil fuel costs enhance renewable competitiveness. Revenues — potentially 4.3–4.4% of GDP by 2030 (more than $85 billion, given 2023 GDP of approximately $2.1 trillion; IMF, 2023) could fund renewable projects, reducing emissions (1.7 billion tons CO₂/year; Rosstat 2023a) and creating jobs.

A carbon tax could align with existing Russian taxes:

• tVAT/excises: Applied at the consumer level, raising electricity prices like fuel excises;
• transport tax: Producer-level tax with rates varying by fuel type, indirectly affecting costs;
• corporate profit tax: Producer-level tax on profits, incentivizing cleaner generation without direct price hikes.

The adaptation of tax principles to carbon taxes in Russia is presented in Table 4. The profit tax model, taxing profits minus emissions (per Article 247, Tax Code), avoids consumer price shocks and incentivizes low-carbon technolo­gy, especially as loss-making firms pay no tax. Sweden’s phased carbon tax (from $30/ton in 1991 to $130/ton in 2023) and British Columbia’s rebates (British Columbia Government, 2025) suggest Russia start at $15/ton, rising to $50–70/ton, with exemptions for early adopters (e.g., 3-year relief). Border carbon adjustments, like the EU’s CBAM, could prevent industry relocation, while a carbon fund (e.g., Norway’s model, Norwegian Environment Agency) could redirect payments to renewables, offering tax relief.

Russia’s vast geographical diversity necessitates a flexible carbon tax, with lower initial rates or quotas in coal-dependent regions (e.g., Siberia, producing about 50% of electricity from coal, 2023). A phased approach, supported by renewable infrastructure investments, ensures a just transition. Revenues should balance immediate social support for low-income citizens with long-term renewable subsidies, mitigating regressive impacts while driving sustainability. High transition costs remain a barrier, requiring targeted workers retraining to shift coal-reliant regions to renewable jobs.

Carbon tax revenues, projected at 4.3–4.4% of GDP by 2030 ($42–60 billion annually from $25–35/ton on 1.7 billion tons CO₂/year, though IMF estimates suggest $73–75 billion with higher effective rates or broader coverage) provide a predictable fiscal stream despite declining emissions over time. Strategic allocation can balance economic stability, environmental goals, and social equity:

• Redistribution to households: Direct transfers to 12.4 million low-income citizens mitigate the tax’s regressive impact (~$4 billion/year could halve energy cost increases), though this supports consumption rather than long-term growth.
• Investment in renewables: Allocating funds to renewable projects could add 16 GW capacity by 2029 (~$40 billion at $2.5 billion/GW; IRENA, 2023), potentially raising GDP by 5% by 2035 (according to the authors’ assessment), despite short-term consumption dips.
• Balanced approach (Bashmakov, 2018): Splitting revenues (~30% social, $22 billion; 70% renewables, $51 billion) ensures equity and sustainabi­lity, as seen in Sweden’s tax cuts and wind funding (15 GW added; SSwedish Environmental Protection Agency, 2025).

Suggestions for the distribution of carbon tax revenues are presented in Table 5.

Profit tax-based allocation minimizes consumer price impacts while incentiviz­ing cleaner production. However, as emissions fall (e.g., 20% revenue drop by 2040), revenues must fund green infrastructure to sustain impact (Tarasova, 2023). Integrating this into environmental tax reform, e.g., a dedicated fund for energy efficiency and R&D, could amplify systemic change, unlike VAT/excise models that raise electricity costs. Challenges include high initial renewable costs (~$2–3 billion/GW) and resistance from coal sectors (about 15% of electricity), requiring targeted support for affected regions and workers.

Carbon pricing could drive Russia’s energy transition under distinct scenarios, leveraging revenues (projected at 4.3–4.4% of GDP by 2030) to shift from fossil fuels (which were about 65% of electricity in 2023) to renewables.

• Baseline (Fig. 2): Current plans prioritize thermal power expansion, 13

• maintaining fossil fuel dominance without carbon pricing. Adding 5 GW of coal and gas power plants by 2029 increases emissions by ~10 Mt CO ₂eq/year (2 Mt CO ₂eq/GW coal average), with no GDP decarbonization gain.
• Minimalist (Fig. 3): From 2026, revenues redirect 30% of new capacity investments to renewables (e.g., wind, solar), scaling to 100% by 2029, adding ~8 GW of renewable capacity while reducing thermal reliance by 3 GW annual­ly. 8 GW renewables cuts ~16 Mt CO ₂eq/year (2 Mt CO ₂eq/GW displaced coal), creating ~40,000 jobs (5,000/GW; IRENA (2023) estimate), with a 0.5% GDP boost by 2035 (the authors’ estimate).
• Optimistic (Fig. 4): Combines investment shifts with retiring inefficient thermal­ plants (3% yearly from 2026, 10% by 2029), yielding 16 GW of new capacity by 2029 — split across nuclear (5 GW), hydro (5 GW), and renewables (6 GW, solar/wind). Nuclear leverages Rosatom’s 1 GW/year pace; hydro taps 300 GW potential; renewables scale from 4 GW, prioritizing solar/wind. 14

• These 16 GW reduce ~32 Mt CO ₂eq/year, adding ~80,000 jobs and 1% GDP growth by 2035, retiring 10% of 60 GW thermal capacity (~120 Mt CO ₂eq baseline).

Financially, a $25/ton tax on 1.7 billion tons CO₂/year could fund this shift, with $42.5 billion annually supporting 14–21 GW of clean capacity (at ~$2–3 billion­/GW, global average; IRENA, 2023). Sweden’s revenue-funded wind growth (15 GW since 1991) suggests viability, though Russia’s coal regions (e.g., Siberia) require phased implementation — starting in high-readiness areas (e.g., solar-rich South) to limit price shocks and build acceptance.

Fig. 2.

Generation fleet for Baseline scenario. Source: Authors’ calculations based on Ministry of Energy of Russia Order No. 1095 of November 30, 2023. https://minenergo.gov.ru/upload/iblock/202/document_226117.pdf

Fig. 3.

Generation fleet for Minimalist scenario. Source: Authors’ calculations based on Ministry of Energy of Russia Order No. 1095 of November 30, 2023. https://minenergo.gov.ru/upload/iblock/202/document_226117.pdf

Fig. 4.

Generation fleet for Optimistic scenario. Source: Authors’ calculations based on Ministry of Energy of Russia Order No. 1095 of November 30, 2023. https://minenergo.gov.ru/upload/iblock/202/document_226117.pdf