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The European Commission proposed a fifth package of sanctions against Russia this week in response to horrific scenes of mass graves and executed civilians in Bucha, outside of Ukraine’s capital, Kyiv.
The proposed penalties would include an entry ban for Russian ships at E.U. ports, a restriction on exports of critical commodities like jet fuel and semiconductors, and further sanctions on key Kremlin officials, including Vladimir Putin’s reclusive daughters.
But the centerpiece of the new plan is a ban on Russian coal imports.
If the package passes, it will push coal prices, which are already near record highs, even higher in the coming months as European buyers scramble to find alternatives to Russian supplies.
But unlike banning oil or natural gas, the proposed coal ban won’t be nearly as devastating to European energy prices, Dmitry Popov, a senior coal analyst at the business intelligence firm CRU Group, told Fortune. A few key differences between these energy commodities mean that coal sanctions could damage Russia without wreaking havoc in Europe.
Europe’s fading reliance on Russian coal
In 2021, Russia accounted for roughly 70% of the E.U.’s thermal coal imports—that’s the kind of coal used to generate electricity—and despite attempts to diversify away from fossil fuels, around 16% of the E.U.’s total electricity production is expected to come from thermal coal in 2022, CRU Group data shows.
Those are high numbers, but they don’t tell the whole story.
While the E.U. pays roughly $850 million per day for Russian oil and gas, its daily coal bill is only around $20 million, according to recent reports. And although energy prices in Europe have soared to record highs after the invasion of Ukraine, Popov said much of that increase is due to rising natural gas prices, and not coal.
Generating power from coal has actually been cheaper than using natural gas for almost six months now, according to CRU Group data.
Additionally, since the start of the war in Ukraine, many European coal buyers have begun to move away from their reliance on Russian imports, Popov said.
“I think the shift of European buyers from Russia has already been underway since Russia invaded Ukraine,” Popov said. “Many companies have already said that they will stop new deals with Russian coal exporters.”
The recent ban on coal is largely priced into the market, Popov argued, and while prices may rise in the near term, alternatives should become available relatively quickly to steady costs. That means that a coal disruption would hurt temporarily, but the pain isn't likely to last.