The Russian economy is very energy intensive. The improvement of energy efficiency is one of the most important political issues. One of the reasons for the low energy efficiency in Russia is the low domestic price level for energy resources. Amongst other policy reforms, the Russian government aims to liberalize the energy markets in the long run. This paper provides an assessment of the economy-wide effects of an increase in prices for some energy goods. We extend the single country CGE model “SMOD” by incorporating energy substitution into the model as well as perform a sensitivity analysis with regard to nesting structure and elasticities of substitution between capital and energy.