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Europe finally takes on Russian energy

On Tuesday, the European Commission proposed a phased ban of 4 billion euros ($4.3 billion) a year on Russian coal imports as part of a fifth set of sanctions aimed at further reducing the war chest of the country. Russian President Vladimir Putin. Other proposals target Russian technology and manufacturing imports, worth an additional 10 billion euros ($10.9 billion).

Europe has imposed punitive sanctions on the Russian economy since Putin’s tanks arrived in Ukraine in late February, but has refrained from targeting Russia’s energy sector – until now. Images of unarmed civilians, tied up and shot, lying along the roads of Bucha – which was until recently under Russian occupation – convinced the leadership to change tack.

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

Sanctioning coal will bite some European countries, but it’s one of the easiest energy sources to wean off of – much of the world is already doing it. The trickier question is: what happens next?

How much Russian coal goes to Europe?

Russia was the world’s third-largest 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 tonnes of Russian coal that year, compared to 31 million tonnes for China, according to IEA data. This accounted for more than half of European coal that year, according to Eurostat.

But the EU was already turning away from the dirtiest fossil fuel in the world.

The amount of electricity generated by coal has declined steadily across the bloc in recent years, falling 29% between 2017 and 2019, according to analysis by energy think tank Ember.

And despite a brief rise last year as gas prices hit 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 invaded Ukraine.

Other countries could step in to buy Russian coal. The IEA expects coal imports from India to increase 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 blocking of Australian imports, the agency said in a December report.

What will an EU ban mean for coal prices?

Still, a supply shortage – even a gradual one – could cause headaches for countries that still use coal for much of their power generation, including Poland and Germany.

A drop in supply coupled with a rebound in demand in China helped push global coal prices to historic highs in October 2021 – before falling again, according to IEA analysis.

But high prices could prove more rigid under an EU ban on Russian imports. Rotterdam coal futures, the benchmark for European coal prices, closed at $257 a tonne on Monday but were last seen at $295, according to data from Independent Commodity Intelligence Services.

Matthew Jones, senior analyst for EU power and carbon at ICIS, told CNN Business that the coal ban “will make an already tight European supply situation even more difficult and lead to a scramble to find other sources of coal”.

“First-month Rotterdam coal futures traded on the ICE exchange are up nearly 15% and a year earlier 13%, since yesterday’s close in response to the news,” Jones added. .

Even so, Henning Gloystein, director of energy, climate and resources at Eurasia Group, thinks EU states can withstand the shock. The think tank also said on Tuesday that any purchase of Australian coal by the EU 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 that,” Gloystein told CNN Business.

What remains to be sanctioned?

Notably absent from the latest round of sanctions is Russia’s oil and gas supplies. 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”.

Already, the United States has tapped its strategic oil reserves, releasing 180 million barrels to the world market, to help lower gasoline prices and counter dwindling 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 for sanctions, in part because of differences between member states that rely heavily on Russian energy and those that want to move faster to strike at the heart of Russia’s economy.
EU leaders have pledged to cut 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 Šimonytė said in a tweet on Sunday that “from now on Lithuania will not consume a cubic centimeter of poisonous Russian gas”. Bringing in import-dependent countries like Germany and Hungary will prove more difficult.

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

“The EU is keen to be able to continue to scale up its response depending on developments in Ukraine,” he said. “If Brussels now applies maximum sanctions, how does it react to further escalation from Moscow?”

Gloystein also said targeting Russian oil and gas risks backfiring.

“There are serious and credible concerns that such actions would trigger a significant escalation by Russia, as Putin may feel compelled to act drastically and quickly, knowing that his war chest may soon dry up. .”

Mark Thompson contributed to this report.


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