On Tuesday, the European Commission proposed a phased ban on Russian coal imports worth 4 billion euros ($ 4.3 billion) a year as part of a fifth package of sanctions designed to further reduce the military basket of Russian President Vladimir Putin. Other proposals focus on imports of Russian technology and production worth another 10 billion euros ($ 10.9 billion).
Europe has imposed sanctions on the Russian economy since Putin’s tanks entered Ukraine in late February, but has not targeted Russia’s energy sector so far. Pictures of unarmed civilians tied up and shot dead on Bucha’s roads, which until recently were under Russian occupation, have convinced leaders to change direction.
More details on the new round of sanctions, including the timetable for banning coal, are expected on Wednesday, when EU ambassadors meet for talks. The measures still need approval from all 27 member states.
Sanctioning coal will affect some European countries, but it is one of the easiest sources of energy to get rid of – much of the world is already doing just that. The more complicated question is: What happens next?
How much Russian coal goes to Europe?
Russia was the world’s third-largest coal exporter in 2020, after Australia and Indonesia, according to the International Energy Agency, with Europe being its largest customer.
In the same year, the continent received 57 million tons of Russian coal, compared to 31 million tons for China, according to IEA data. That’s more than half of Europe’s coal this year, according to Eurostat.
But the EU has already given up the world’s dirtiest fossil fuel.
The amount of electricity generated by coal has steadily decreased throughout the unit in recent years, falling by 29% between 2017 and 2019, according to an analysis by the energy think tank Ember.
And despite a brief rise last year, when gas prices reached record highs, the IEA expects European coal demand to resume its steady decline. Total imports were expected to fall by 6% by 2024, even before Russia’s invasion of Ukraine.
Other countries could intervene to buy Russian coal. The IEA expects coal imports in India to grow by 4% in 2024 and by more than 6% in Southeast Asia. Russia has already taken advantage of the jump in exports to China after blocking Xi Jinping for Australian imports, the agency said in a report in December.
What will the EU ban on coal prices mean?
However, supply cuts – even those that are being phased in – could cause headaches for countries that still use coal for much of their electricity production, including Poland and Germany.
The drop in supply, combined with renewed demand in China, helped raise world coal prices to their highest levels in October 2021 – before falling back, according to an IEA analysis.
But higher prices could prove more sticky if the EU bans Russian imports. Rotterdam’s coal futures, the benchmark for European coal prices, closed at $ 257 a tonne on Monday, but were last seen trading at $ 295, according to Independent Commodity Intelligence Services.
Matthew Jones, the EU’s chief analyst for electricity and carbon at ICIS, told CNN Business that the coal ban would “make the already limited supply situation in Europe even tougher and lead to a struggle to find alternative sources of coal.” coal ‘.
“Rotterdam’s coal futures traded on the ICE in the first month rose by almost 15% and 13% the year before after closing yesterday in response to the news,” Jones added.
However, Henning Gloystein, director of energy, climate and resources at Eurasia Group, believes EU countries can withstand the shock. The think tank also said on Tuesday that any EU purchase of Australian coal would soften the blow.
“Sanctioning coal will also make life much harder for European utilities, which consume a lot of Russian coal, but energy companies can handle it,” Gloystein told CNN Business.
What’s left to sanction?
Oil and gas supplies from Russia have been significantly absent since the last round of sanctions. The bloc imported 26% of its crude oil and 46% of its gas from Russia in 2020, according to Eurostat.
But blocking oil imports is on the table: European Commission President Ursula von der Leyen said in a statement on Tuesday that the bloc was “working on additional sanctions, including on oil imports”.
The United States has already used its strategic oil reserves, launching 180 million barrels on the world market, to help reduce gasoline prices and counter the decline in Russian oil supplies. The IAEA also agreed to release additional oil from its member states at an emergency meeting last week. Natural gas is still the least likely target of sanctions, in part because of differences between Member States that rely heavily on Russian energy and those that want to move faster to hit the heart of the Russian economy. EU leaders have vowed to reduce Russian gas consumption by 66% before the end of this year and break the bloc’s dependence on Russian energy by 2027.
One country has gone further. Lithuanian Prime Minister Ingrida Shimonite tweeted Sunday that “from now on, Lithuania will not consume a single cubic centimeter of toxic Russian gas.” Attracting import-dependent countries such as Germany and Hungary will be a bigger challenge.
But according to Gloystein, the bloc’s reluctance to sanction oil and gas is more than just avoiding self-harm.
“The EU wants to be able to continue to escalate its response in the light of events in Ukraine,” he said. “If Brussels imposes maximum sanctions now, how will it react to further escalation from Moscow?”
Gloystein also said focusing on Russian oil and gas risks backfire.
“There are serious and credible fears that such actions would cause a significant escalation on the part of Russia, as Putin may feel compelled to act drastically and quickly, knowing that his military basket may soon dry up.
– Mark Thompson contributed to this report.
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