Can the EU agree on a plan to alleviate the energy crisis?

A few days after Russia said it would not restart gas flows through a key pipeline to Europe, the bloc’s energy ministers backed master plans for a price cap on all gas imports and a levy on energy producers.

But, at an emergency meeting late last week, they struggled to agree on the details. They still have to decide whether to limit the price of all imported gas or just supplies from Russia and how to establish a mechanism to skim the unexpected profits of energy companies enjoying record prices.

With European Commission President Ursula von der Leyen expected Wednesday in her annual State of the Union address to focus on energy, bureaucrats are trying to find common ground across 27 member states to prevent blackouts and financial woes for businesses. and consumers this winter.

Fredrik Persson, president of the industrial body BusinessEurope, said that “addressing skyrocketing energy prices and finding ways to mitigate them is an urgent matter of survival for both European industries and households”.

Why is the EU acting now?

Moscow’s announcement on Monday that gas supplies would not be restored through the Nordstream 1 pipeline until sanctions imposed after its invasion of Ukraine were lifted raised fears of a total cut in Russian gas.

Last year, the EU imported some 155 billion cubic meters of the Russian pipeline, about 40% of its total supply. It has now dropped to 9%, with small flows continuing to reach Europe via Turkey and Ukraine. The tightening on supply has helped push prices up to about 10 times the average over the past decade.

EU gas storage levels have reached 83% of their total capacity, well ahead of the 80% target set for the end of October, giving hope that there will be sufficient supplies this winter.

But there is still pressure on politicians to find solutions to the crisis. Many companies in energy-intensive sectors such as fertilizer production and steel have already closed or reduced production, while households must cut basic necessities such as food to afford their energy bills.

What was proposed?

The commission presented proposals on Wednesday that included suggestions to skim the profits of energy companies and launder the proceeds of households and businesses, a relaxation of state aid rules to bail out companies hit by high energy bills, a mandatory cut at peak demand. electricity and, more provisionally, a cap on the price of gas, including from Russia.

At their meeting on Friday, according to the Czechs, who hold the rotating presidency of the European Council until January, ministers agreed that Brussels should focus on four areas: reducing peaks in electricity demand; unexpected levies on non-gas electricity production; a larger cap on the price of gas; and provision of liquidity to energy producers who are faced with increasingly high demands for collateral.

Several EU capitals have also called for a break in the link between gas and electricity prices. Others want to temporarily cut the cost of carbon taxes that companies pay as compensation for their emissions.

How would the price caps and the extraordinary income tax work?

This is where the agreement on what should be done stops. On gas price caps, countries including Italy, Austria and Greece are opposed to a cap only on Russian imports as they fear Moscow will cut off remaining supplies.

A broader consensus was found for a cap on a larger percentage of imports, but it was not agreed whether this cap would apply to pipeline gas only or to all imports, including liquefied natural gas.

Denmark and the Netherlands are among the countries that do not like a ceiling because they fear that the reduction in prices will only serve to increase consumption.

“All these capital letters have the disadvantage of discouraging [securing] supplies from other countries, “said Hans Vijlbrief, the Dutch minister for extractive industries.

An unexpected levy on the profits of non-gas electricity producers could be structured as a revenue recovery or as more dynamic price limits that are activated when prices reach certain thresholds.

It is also debated whether the thresholds should be specific to each power generation source such as coal, nuclear, wind and solar or applied uniformly, in which case more expensive fuels such as coal would be most affected.

Will the plan help consumers?

Analysts from the Argus energy price agency said that while the EU’s desire to protect families from poverty is “commendable”, the “unprecedented pace of policy making has led to a number of proposals that do not they would achieve this goal “.

Measures such as capping the price of all imported gas, for example, could lead producers like Algeria and Norway to cut their supplies, although Norway has been open to the idea. This, in turn, could cause prices to rise further, argus analysts at Argus.

Dutch minister Hans Vijibrief
Dutch minister Hans Vijlbrief fears that a large gas price cap could prevent other exporters from supplying gas © Pro Shots / Alamy

But Henning Gloystein, Eurasia Group’s director of energy and climate, said the combination of price caps, unexpected withdrawals and reduced demand “should actually go far enough in preventing a further spiral in energy costs.”

Riina Sikkut, Estonia’s Minister of Economic Affairs and Infrastructure, said that a mandatory cut in electricity demand “offers enormous potential for lowering prices, but more important than the mandatory savings targets is the shift in consumption from hours of operation. points to off-peak hours “.

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