EU Pushes To Break “Energy Taboo” With Proposed Ban On Russian Coal Imports

Update (0825ET): As EU ambassadors meet on Tuesday to discuss another proposal on Russian sanctions, German Foreign Minister Annalena Baerbock insisted that the EU would “completely end” its fossil fuel dependence on Russia, starting with coal.

GERMAN FOREIGN MINISTER BAERBOCK SAYS WE HAVE AGREED AS THE EU THAT WE WILL COMPLETLY END FOSSIL FUEL DEPENDENCY ON RUSSIA, STARTING WITH COAL

GERMAN FOREIGN MINISTER BAERBOCK SAYS THAT WILL BE FOLLOWED BY OIL AND THEN GAS

— *Walter Bloomberg (@DeItaone) April 5, 2022

Of course, as we noted below, Germany is among the most dependent EU economies on Russian energy. Weaning its economy off Russian energy without triggering a major domestic crisis and “total collapse.”

US equity futures tumbled on the news as investors braced for more international fallout from increasing tensions between Europe and the Russians, which could lead to even higher energy prices.

* * *

Not to be outdone by tiny Lithuania (which claims to have officially weaned itself off Russian gas imports by building an LNG terminal), the European Commission has devised a controversial proposal to ban imports of Russian coal, along with a host of other measures comprising a new sanctions package to be introduced on Tuesday, according to reports from WSJ, Reuters and a host of other media outlets.

Along with banning imports of Russian coal, the package also calls for an import ban on rubber, chemicals and other products from Russia worth up to €9 billion a year.

If passed, the proposal would mark the first energy sanctions on Russia since the start of the conflict in Ukraine. Although it wouldn’t touch oil and gas, such a ban would break the so-called “energy taboo”, according to Bloomberg’s Javier Blas.

THE FIRST EU ENERGY SACTIONS ON RUSSIA:

Brussels is planning to propose a mandatory phaseout on **coal imports from Russia**. Details about how and when still negotiated. It doesn’t affect oil or gas, but if approved (big if), it breaks the energy taboo
https://t.co/K7DeOC6LJI

— Javier Blas (@JavierBlas) April 5, 2022

While thermal coal isn’t nearly as critical as oil and gas, it’s still a “big deal,” Blas pointed out.

Although thermal coal isn’t nearly as critical for Europe as Russian oil and natural gas is, it’s still a big deal. The EU buys more than 45% of its coal from Russia, according to Eurostat data. And global coal markets are already extremely tight, with record prices | #coal pic.twitter.com/vpA4yjm0qa

— Javier Blas (@JavierBlas) April 5, 2022

Coal-fired power plants are still being used across the EU, though most member states expect to completely phase them out by 2030. Russia has the second-largest coal reserves in the world. In 2020, it mined 328 million metric tons, making it the sixth-largest producer globally. According to Eurostat data, nearly half of the bloc’s coal comes from Russia.

Source: Visual Capitalist

Russia is the world’s third-largest exporter of thermal coal.

Despite the country’s heavy dependence on Russian energy, a German government source (according to Reuters) said the country would support a ban on Russian coal imports (so long as oil and gas are left alone). German Finance Minister Christian Lindner said Germany is “open to everything” when asked about the coal embargo, and added that more steps should be taken to break dependence on Russian energy.

Here are some other details from the proposal (as reported by Reuters):

Russian vessels and trucks will also be prevented from accessing the EU, further crippling trade with Russia, the source said, adding that exceptions will be made for energy products, food and medicines.
The EU will also ban all transactions with VTB (VTBR.MM) and another three Russian banks which had already been excluded from the SWIFT messaging system, the source said.
Dozens more individuals, including oligarchs and politicians, will be added to the EU sanction list, the source said.

Meanwhile, WSJ noted that US officials are already in Brussels to discuss sanctions enforcement and that the EU’s next round of sanctions (what would be its fifth) will steer clear of oil and gas.  WSJ also noted that there are no plans at this point to add Gazprombank or Sberbank (which handle energy payments by European firms to Russia) to the sanctions list.

Over the last 24 hours, several European leaders – most notably French President Emmanuel Macron – have stepped up calls for a ban on Russian energy exports (specifically coal and gas), per the FT.

“There are very clear indications of war crimes,” Macron said in an interview on France Inter radio on Monday. “What happened in Bucha demands a new round of sanctions and very clear measures, so we will co-ordinate with our European partners, especially with Germany.”

“I think that on oil and coal we must be able to move forward. We should certainly advance on sanctions…We can’t accept this.”

Finance Minister Bruno Le Maire reiterated that France would support the import bans, and told reporters before a meeting of EU finance ministers Tuesday that “we will see what the position of the other members will be” (EU sanctions must be decided unanimously by all 27 member states).

Of course, Germany and other states dependent on Russian energy have warned that the bloc shouldn’t jump to conclusions without carefully weighing the consequences.

Lots of pressure, passionate argument behind EU scenes today. Focus: fresh sanctions against Russia, specifically energy, as THAT is what will hurt Moscow. EU under huge pressure to take meaningful action as their voters digest the horrors of civilian suffering in Ukraine BUT /1

— Katya Adler (@BBCkatyaadler) April 5, 2022

EG Germany fears public support will drop if energy sanctions lead, as it predicts, to covid-like economic recession, meaning factory closures, job losses, even blackouts. Other EU governments eg Latvia, Lithuania impatiently planning and introducing own energy imports because /2

— Katya Adler (@BBCkatyaadler) April 5, 2022

European Commission VP Valdis Dombrovskis said earlier that oil and coal sanctions “are definitely an option”, while Commissioner for Economy Paolo Gentiloni said these sanctions definitely weren’t “off the table”.

Other potential escalations could involve blocking new machinery exports to Russia, targeting Russian oligarchs and some family members and slashing the access of Russian road and shipping goods carriers into the bloc.

Any proposal would still need backing from the bloc’s 27 member states.