Coal sanctions: Europe is finally following Russia’s energy resources

On Tuesday, the European Commission proposed to ban the import of Russian coal for 4 billion euros ($ 4.3 billion) a year under the fifth package of sanctions aimed at further reducing the military atrocities of Russian President Vladimir Putin. Other proposals are aimed at importing Russian technology and production worth another 10 billion euros ($ 10.9 billion).

Europe has imposed punitive sanctions on the Russian economy since Putin’s tanks entered Ukraine in late February, but has not targeted the Russian energy sector – so far. Images of unarmed civilians bound and shot lying along the roads of Bucha, which until recently were under Russian occupation, persuaded the leaders to change course.

Next may be Russian oil and gas. European Commission President Ursula von der Leyen told EU lawmakers on Wednesday that the fifth round of sanctions “will not [the] the latter. ”

“Yes, we have banned coal now, but now we need to look at oil,” she said.

Charles Michel, who chairs meetings of EU leaders, said on Twitter that “measures on oil and even gas will also be needed sooner or later.”

More details on the new package, including the timing of the coal ban, could be obtained on Wednesday when EU ambassadors meet for talks. The measures still require the approval of all 27 member states.

The imposition of coal sanctions will affect some European countries, but it is one of the simplest sources of energy that can be weaned off – most of the world is already doing just that. The most difficult question: what will happen next?

How much Russian coal goes to Europe?

According to the International Energy Agency, Russia was the world’s third largest exporter of coal in 2020 after Australia and Indonesia, and Europe is its largest customer.

This year, the continent received 57 million tons of Russian coal against 31 million tons in China, according to IEA data. According to Eurostat, this accounted for more than half of coal in Europe that year.

But the EU has already turned its back on the world’s dirtiest fossil fuel.

According to an analysis by the Ember Energy Analysis Center, the amount of electricity generated by coal has been steadily declining across the unit in recent years, down 29% between 2017 and 2019.

And despite a brief rise last year when gas prices reached record highs, the IEA expects European coal demand to resume steady declines. Total imports were expected to decline by 6% by 2024 before Russia’s invasion of Ukraine.

Other countries could intervene to buy Russian coal. The IEA expects India’s coal imports to grow by 4% in 2024 and by more than 6% in Southeast Asia. Russia has already benefited from a jump in exports to China after blocking Xi Jinping’s imports from Australia, the agency’s December report said.

What will the EU’s ban on coal prices mean?

However, cuts in supplies – even those that are gradually emerging – could cause headaches for countries that continue to use coal to produce most of their electricity, including Poland and Germany.

Falling supply coupled with a resumption of demand in China helped push global coal prices to historic highs in October 2021 before falling down, according to an IEA analysis.

But higher prices could be more sticky if the EU bans Russian imports. Coal futures in Rotterdam, a benchmark for European coal prices, closed on Monday at $ 257 per tonne, but last saw trading at $ 295, according to the Independent Commodity Intelligence Services.

Matthew Jones, a leading EU energy and carbon analyst at ICIS, told CNN Business that the coal ban “would make the already tough situation with supplies to Europe even tougher and lead to a struggle to find alternative sources of coal.”

“Rotterdam coal futures traded on the ICE in the first month rose by almost 15%, and in the first year – by 13% since yesterday’s close in response to the news,” – added Jones.

Despite this, Henning Gloystein, Director of Energy, Climate and Resources at Eurasia Group, believes EU countries can withstand the shock. On Tuesday, the think tank also said any EU purchase of Australian coal would soften the blow.

“The coal sanction will also make life much more difficult for European utilities, which consume a lot of Russian coal, but energy companies can handle it,” Gloystein told CNN Business.

What remains to be sanctioned?

In the last round of sanctions, there are no oil and gas supplies from Russia. According to Eurostat, in 2020 the bloc imported 26% of oil and 46% of gas from Russia.

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, releasing 180 million barrels to the world market to help lower gasoline prices and counter declining Russian oil supplies. The IEA also agreed to release additional oil from its member states at an emergency meeting last week.
Natural gas remains the least likely target of sanctions, in part because of differences between member states that are heavily dependent on Russian energy and those who want to move faster to strike at the heart of the Russian economy.
EU leaders have pledged to cut Russian gas consumption by 66% by the end of this year and break the bloc’s dependence on Russian energy resources by 2027.

One country went further. The Prime Minister of Lithuania Ingrida Šimonite stated on Twitter on Sunday that “from now on and so on Lithuania will not consume a single cubic centimeter of poisonous Russian gas.” Attracting import-dependent countries such as Germany and Hungary will be more difficult.

But according to Gloystein, the bloc’s reluctance to sanction oil and gas is more than avoiding self-harm.

“The EU wants to be able to continue to escalate its response in line with the events in Ukraine,” he said. “If Brussels imposes maximum sanctions now, how does it react to further escalation from Moscow?”

Gloystein also said that focusing on Russian oil and gas risks having the opposite effect.

“There are serious and credible fears that such actions will lead to a significant escalation on the part of Russia, as Putin may feel compelled to act drastically and quickly, knowing that his military chests will quickly dry up.”

Mark Thompson contributed to this report.

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