Crimean Occupation Tax

(Confidential draft)

Presentation of H. Van RompuyPresident of the European Councilto the European Council

Crimean Occupation Tax (COT)

• Tax on all Russian energy imported in the EU: Oil, Gas, Coal

• Medium intensity• Gradually increasing up to 25%

Source: European Council

Benefits• Easy to understand in EU & Russia• Aimed at restoring International law &

Borders• Allows market to reduce EU energy

dependence on Russia• Generates revenue to save energy• Funds Ukraine• Russia controls cancellation

Projected COT Revenue

• €25 Billion averaged annually – €20 Billion EU– €5 Billion Ukraine (grants)

• COT -> energy efficiency fund €1 invest -> €2 gain• Countries that pay COT tax

– with most initial pain -> get most future gain– 80% of initial pain stays in country

• As of 2016 Russia funds COT 100% to preserve EU income– initial pain countries get gain pro rata

• Russia funds 50% of 2016-2020 EU energy preservation investments

Source: European Council

Energy Efficiency is KeyEstimated savings from current commitments on energy efficiency

Source: European Commission

Source: European Commission

Reaping the Benefits of a Fully integrated energy market up to 2030

Connecting and Diversifying

COT impact on Russia• Less government income

– Russian government is largely funded through energy export tax

– Less money for military • No to negative economic growth 2015-2020• Alternative customers are not easy to obtain

– Important players not really in need– China, US – No margin for Russian export tax in recent China gas deal

– Reachable only through expensive LNG transport• No margin for Russian export tax• subsidizing COT tax is cheaper for Russia

COT impact on EU• Reduced dependency on Russian energy• Stage one initial pain but funds Ukraine• Russia cannot afford to lose EU market : Russia

energy price + COT = market price• Stage two Russia funds Ukraine for duration of

Crimean occupation + 50% of EU energy efficiency effort

Source: European Council

Worst case scenario• Russian stops all energy supplies to EU• Causes Russian budget reduction of €223 billion to just €89

billion = economic suicide• EU alternatives in place: – Saudi Arabia will supply Russia oil shortfall– Coal from US, Canada, South Africa– Gas substituted through startup of 10 nuclear power

plants– Gas substituted through coal