Coal Sanctions: Europe Finally Comes After Russian Energy

The European Commission on Tuesday proposed a phased ban of 4 billion euros ($4.3 billion) from imports of Russian coal annually as part of a fifth package of sanctions aimed at shrinking Russian President Vladimir Putin’s war fund. Other proposals target Russian technology and manufacturing imports worth another 10 billion euros ($10.9 billion).

Europe imposed Sanctions on the Russian economy Since Putin’s tanks rolled into Ukraine in late February, they have stopped short of targeting the Russian energy sector — until now. Images of defenseless civilians chained up along the Bucha Roads—until recently under Russian occupation—convinced the leaders to change course.

On Wednesday, when EU ambassadors meet for talks, more details about the new round of sanctions, including the timetable for the coal ban, are expected. The measures still need to be approved by all 27 member states.

Sanctions on coal will upset some European countries, but it’s among the easiest sources of energy to get rid of – much of the world is already doing so. The hardest question is: What will happen next?

How much Russian coal goes to Europe?

Russia It was the world’s third largest exporter of coal in 2020, after Australia and Indonesia, according to the International Energy Agency, with Europe by far its largest customer.

International Energy Agency data showed that the continent received 57 million tons of Russian hard coal that year, compared to 31 million tons for China. That amounted to more than half of Europe’s coal that year, according to Eurostat.

But the European Union is already starting to move away from the world’s dirtiest fossil fuels.

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The amount of electricity generated from coal has been steadily declining across the block in recent years, declining 29% between 2017 and 2019, according to an analysis by the Ember Energy Research Center.

Despite a slight rise last year as gas prices reached record levels, the International Energy Agency expects European demand for coal to resume its steady decline. Total imports were expected to decline by 6% by 2024 even before the Russian invasion of Ukraine.

Other countries could step in to buy Russian coal. The International Energy Agency expects India’s coal imports to rise by 4% in 2024, and more than 6% in Southeast Asia. Russia has already benefited from a jump in exports to China after Xi Jinping Australian import banThe agency said in a December report.

What does the European Union ban on coal prices mean?

However, a supply crunch – even one that is being implemented in phases – could cause headaches for countries that still use coal for much of their electricity generation, including Poland and Germany.

Declining supply paired with a rebound in demand in China helped push global coal prices to all-time highs in October 2021 — before falling again, according to an International Energy Agency analysis.

But higher prices may be more stable given the European Union’s ban on Russian imports. Data from the independent Commodity Intelligence Services showed that Rotterdam coal futures, the benchmark for European coal prices, closed at $257 a ton on Monday, but were last seen trading at $295.

Matthew Jones, lead EU energy and carbon analyst at ICIS, told CNN Business that a coal ban “will make the already tight European supply situation tighter and lead to a scramble to find alternative coal sources.”

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“The first month Rotterdam coal futures on the ICE are up nearly 15%, and the first year by 13%, since yesterday’s close in response to the news,” Jones added.

However, Henning Gloesten, director of energy, climate and resources at the Eurasia Group, believes that EU countries can withstand the shock. The think tank also said on Tuesday that any EU purchase of Australian coal would cushion the blow.

“Coal sanctions will make life more difficult for European utilities, which consume a lot of Russian coal, but energy companies can handle this,” Gloustin told CNN Business.

What is left for punishment?

Russian oil and gas supplies are notably 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 stopping oil imports is on the table: European Commission President Ursula von der Leyen said in a statement on Tuesday that the bloc was “working to impose additional sanctions, including on oil imports.”

Already, the United States has exploited its strategic oil reserves, and launch 180 million barrels on the global market, to help lower gasoline prices and counteract the decline in Russian oil supplies. The International Energy Agency also agreed to release additional oil from its member states at an emergency meeting last week.
Natural gas remains the most likely target of sanctions, due in part to differences between member states that rely heavily on Russian energy and those that want to move faster to hit the region. The heart of the Russian economy.
EU leaders pledged to Reducing Russian gas consumption by 66%. Before the end of this year, break the bloc’s dependence on Russian energy by 2027.

One country has gone further. “From now on, Lithuania will not consume a cubic centimeter of poisonous Russian gas,” Lithuanian Prime Minister Ingrida Simonetto said in a tweet on Sunday. Getting import-dependent countries like Germany and Hungary on board will be more difficult.

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But according to Glouesten, the bloc’s reluctance to punish oil and gas is about more than just avoiding self-harm.

“The European Union is keen to be able to continue to escalate its response in accordance with the developments in Ukraine,” he said. “If Brussels now imposes maximum sanctions, how will it react to another escalation by Moscow?”

Gloestin also said targeting Russian oil and gas is counterproductive.

“There are serious and credible concerns that such measures will lead to a significant escalation by Russia as Putin may feel compelled to act radically and quickly knowing that his war chest may soon run out.”

Mark Thompson contributed to this report.

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