London (CNN Business) – European leaders have planned to phase out Russian coal imports in response to the harrowing scenes in Bucha, a suburb of Kyiv.
The European Commission on Tuesday proposed a phased ban of 4 billion euros ($4.3 billion) on Russian coal imports a year, as part of a fifth sanctions package designed to further decrease Russia’s president’s war chest. , Vladimir Putin. Other proposals target imports of Russian technology and manufactures, worth another 10 billion euros ($10.9 billion).
Europe has imposed sanctions punishing Russia’s economy since Putin’s tanks rolled into Ukraine in late February, but have stopped short of targeting Russia’s energy sector — until now. Images of unarmed, bound and shot civilians strewn along the streets of Bucha, which until recently was under Russian occupation, have convinced leaders to change course.
More details on the new wave of sanctions, including the timetable for the coal ban, are expected on Wednesday when EU ambassadors meet for talks. The measures still need the approval of the 27 member states.
Punishing coal will affect some European countries, but it is one of the easiest energy sources to abandon; much of the world is already doing just that. The more complicated question is: What will happen next?
How much Russian coal goes to Europe?
Russia was the world’s third-biggest coal exporter in 2020, behind Australia and Indonesia, according to the International Energy Agency, with Europe by far its biggest customer.
The continent received 57 million tons of Russian coal that year, compared to 31 million tons from China, IEA data shows. This represents more than half of Europe’s coal that year, according to Eurostat.
But the EU was already moving away from the world’s dirtiest fossil fuel.
The amount of electricity generated by coal has steadily declined across the block in recent years, falling 29% between 2017 and 2019, according to an analysis by energy think tank Ember.
And despite a brief rebound last year, when gas prices hit record highs, the IEA expects European coal demand to resume its steady decline. Even before the Russian invasion of Ukraine, total imports were expected to fall 6% by 2024.
Other countries could step in to buy Russian coal. The IEA expects coal imports from India to rise by 4% in 2024 and by more than 6% in Southeast Asia. Russia has already benefited from a jump in exports to China following Xi Jinping’s blockade of Australian imports, the agency said in a December report.
What will an EU ban on coal prices mean?
Still, a supply shortage, even one that has been phased in, could cause a headache for countries that still use coal for much of their electricity generation, including Poland and Germany.
A drop in supply, coupled with a rebound in demand in China, helped push global coal prices to record highs in October 2021, before falling again, according to IEA analysis.
But the high prices could prove even more rigid under the EU’s ban on Russian imports. Rotterdam coal futures, the benchmark for coal prices in Europe, closed at $257 a tonne on Monday but were last trading at $295, data from Independent Commodity Intelligence Services showed.
Matthew Jones, lead analyst for EU energy and carbon at ICIS, told CNN Business that the coal ban “will make an already constrained European supply situation even tighter and lead to a struggle to find alternative sources to coal.” ”.
“Rotterdam coal futures for the prior month traded on the ICE exchange are up nearly 15%, and a year earlier 13%, from yesterday’s close in response to the news,” Jones added.
Still, Henning Gloystein, director of energy, climate and resources at the Eurasia Group, believes that EU states can withstand the impact. The think tank also said on Tuesday that any purchase of Australian coal by the EU would cushion the blow.
“Sanctioning coal will also make life much harder for European utilities, which consume a lot of Russian coal, but energy companies can cope with this,” Gloystein told CNN Business.
What remains to be punished?
Russia’s oil and gas supplies are conspicuously absent from the latest round of sanctions. The bloc imported 26% of its crude 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 tapped into its strategic oil reserves, releasing 180 million barrels on the world market, to help lower gasoline prices and offset declining Russian oil supplies. The IEA also agreed to release additional oil from its member countries at an emergency meeting last week.
Natural gas remains the most unlikely 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 attack the heart of the Russian economy.
EU leaders have pledged to cut Russian gas consumption by 66% before the end of the year and break the bloc’s dependence on Russian energy by 2027.
One country has gone further. Lithuanian Prime Minister Ingrida Šimonytė said in a tweet on Sunday that “from now on, Lithuania will not consume even one cubic centimeter of toxic Russian gas.” Getting import-dependent countries like Germany and Hungary on board will be more challenging.
But, according to Gloystein, the bloc’s reluctance to sanction oil and gas isn’t just to avoid hurting itself.
“The EU wishes to be able to further intensify its response in accordance with the developments in Ukraine,” he said. “If Brussels now imposes maximum sanctions, how will it react to further escalation from Moscow?”
Gloystein also said targeting Russian oil and gas risks failure.
“There are serious and credible concerns that such actions could trigger a significant escalation by Russia, as Putin may feel compelled to act drastically and quickly knowing his war chest could soon dry up.”
— Mark Thompson contributed to this report.