these EU proposals to tackle energy prices leaked

these EU proposals to tackle energy prices leaked
these EU proposals to tackle energy prices leaked

Plans to reduce energy prices are leaking from both the Member States and the Commission, in the run-up to the emergency meeting between European energy ministers. There is no lack of ambition, but every proposal also comes with a high cost price. ‘Europe flirts with the limits of what it can do on its own.’

Jorn LelongSeptember 5, 20227:00 pm

Gas prices shot up by 30 percent on Monday morning, after news that Nord Stream 1, the pipeline between Russia and Europe, will remain closed for longer. By midday, the price fell again, but the market remains very volatile. Kremlin spokesman Dmitri Peskov’s statement that gas will no longer flow through Nord Stream 1 as long as Western sanctions are in place confirmed suspicions that Russia is using gas as a political leverage.

The pressure on the energy ministers of the EU member states to come up with an appropriate response to that crisis situation on Friday will thus become even greater. In a leaked paper that news site Euractiv got its hands on, the European Commission makes two proposals to respond to pressure from Russia. The first proposal is to introduce a price cap for Russian gas. Today, Russia is exporting less and less gas to the EU, but Russia itself is not aware of this due to rising gas prices. That is what the Commission wants to tackle. There would be a price cap that is a lot lower than what is paid today, but still high enough to reimburse Russia for the costs of gas production and transport to Europe. That should also make it a more interesting option for Russia than turning off the gas tap completely.

Nevertheless, the Commission realizes that this plan may not go down well with Putin. The document speaks of a ‘quasi-sanctioned measure’, which carries the risk that Russia will completely stop gas supplies. And that’s not the only risk this plan entails. “There is already a scarcity on the gas market,” says economist Paul van den Noord (University of Amsterdam). “If we cap the price of Russian gas, the demand simply shifts to other suppliers. As a result, the gas price threatens to rise further.”

Another Commission proposal is to introduce a price cap in the most affected European Member States. Some European countries are much more dependent on Russian gas than others. As a result, there are already major regional differences at the various gas auctions. At the gas auction in Zeebrugge, the gas price for September is 40 euros per megawatt hour lower than on the leading Dutch stock exchange TTF. In other countries, such as Germany and a number of Central and Eastern European countries, the gas price is higher. The Commission is therefore thinking of drawing up a list of ‘red countries’ that can set a price ceiling if prices there threaten to go through the roof.

In contrast to a price ceiling for the entire EU, the market can continue to do its job in this way, although this arrangement would require a great deal of consultation and solidarity from the Member States to provide ‘red countries’ with gas in good time if they threaten to run into gas shortages. . The Commission itself states that it is anything but an obvious measure to introduce in the short term.

The Czech presidency of the European Council also presented a preparatory document for Friday’s meeting, after asking around the European member states. Those plans were leaked on news site Politico. One of the proposed measures therein is to encourage Member States to voluntarily reduce their electricity consumption, as was already introduced for gas in July. “That seems to me to be the low-hanging fruit, there is a good chance that it will certainly come through on Friday,” says professor of international politics Thijs Van de Graaf (UGent).

Other measures will be discussed in more detail. As with the Commission, there appears to be an appetite among some of the Member States for a price ceiling for gas from ‘specific jurisdictions’, read: Russia. Another route is to decouple the gas market from the electricity price. Today, the electricity price is determined by the gas price. “But I think that a complete decoupling between gas and electricity prices is unnecessarily complex,” says energy expert Joannes Laveyne (UGent). “It seems more likely to me that people will want to push the price down by skimming the profits of nuclear and renewable energy producers.”

These companies are surfing today on the high gas price and are making huge profits. The EU could claim some of those profits and use those funds to lower citizens’ energy bills. “The question is also to what extent that is legally feasible, because de facto you impose a maximum profit on companies,” says Laveyne. “Europe is flirting with the limits of what it can do itself.”

There are also proposals to provide credit to gas suppliers, who are tied to fixed contracts that they have concluded while they themselves have to pay sky-high prices on the gas market. A number of Central European countries are even calling for temporary auctioning of more emission rights through the emissions trading system (ETS). “As a result, the electricity price would fall slightly, but the CO2emissions in Europe would then rise,” says Van de Graaf. “And this makes it a bit more difficult to reduce emissions in the EU by 55 percent by 2030.”

Whatever it will be on Friday, it turns out that pushing energy prices also comes with a cost.

Image for illustration.Image Getty Images

The article is in Dutch

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