At their special meeting in Brussels, the energy ministers of the 27 member states of the EU agreed on emergency measures against galloping gas and electricity prices, which the EU Commission proposed earlier this month. Saving energy, levies on energy companies and mineral oil companies, national price brakes on natural gas, support for cash-strapped households and companies – these are the Union’s recipes in the fight against the energy prices on the world markets, which are perceived as unreasonable and which, according to the EU Commission, are mainly due to the lack of energy Russian energy supplies and the consequences of the Russian war of aggression. “We are in an energy war with Russia,” said Czech Energy Minister Jozef Sikela, chairing the panel.
German Minister Habeck (centre) in Brussels: We have to cut costs
Will there be a general price limit for importing natural gas into Europe?
no The EU Commission and 14 member states, including Germany, reject a price cap for gas deliveries by pipeline or liquid gas tankers from third countries. A blanket price cap carries the risk that the supply volume to Europe will fall because the USA, Norway or Qatar would then prefer to sell their gas at higher prices to Asia, for example. In addition, the EU Energy Commissioner, Kadri Simson, warned that intra-European gas trading could come to a standstill without freely negotiated prices and lead to massive supply gaps. In addition, a significant incentive to save gas would be lost if the price did not rise even with high consumption.
However, 15 EU countries, including France and Italy, are calling for a blanket cap in order to lower the price level on the world market and thus also inflation. The EU Commission warns that a price cap would result in the nationalization of the entire energy distribution in the Union. A central authority would have to be created that sets the price and decides which country is allowed to purchase how much gas and when. The European Commission and economists at the Bruegel think tank in Brussels have judged that it is too complex and too short-term not to be able to do this this winter.
Brussels restaurants are serving cold candlelit food today as a protest against electricity prices
A national price cap for end-user gas?
Yes, the EU Commission and EU ministers have agreed that the prices that households and companies pay for gas should be capped. It works like this: the customers pay a set price, which is lower than the price that the energy suppliers have to pay when shopping in the market. The state pays the difference. Spain, Portugal and Greece have already partially introduced this model. However, this national price cap means that there are no incentives to save and unequal competitive conditions arise on the EU internal market, depending on how high the national energy prices are set. The French aluminum industry is already complaining about corresponding competitive advantages for the Spanish competition. Economics Minister Robert Habeck explained in Brussels that only 80 percent of basic needs should be subsidized in Germany in order to encourage further savings. The remaining 20 percent are to be passed on at more expensive world market prices. He calls the system price brakes, not price caps.
How should the subsidies for the covers and brakes be financed?
Germany is going all out and wants to take on 200 billion euros in new debt to limit prices. Some richer EU countries are also taking on new debt. Others can hardly afford a “double boom”, as Chancellor Olaf Scholz calls the debt package, because they are very heavily indebted, like Greece, Italy and Portugal. Spain has introduced a new wealth tax. The concern of the poorer countries that the EU as a whole should finance the subsidies, similar to the aid fund against the economic consequences of the corona pandemic, has (still) been rejected by the energy ministers.
Hope through new liquid gas terminals: imports are extremely expensive
How are new levies and excess profit taxes supposed to fund subsidies?
EU ministers decided to levy a levy on energy companies that benefit from high gas prices even though they no longer have to spend to generate their electricity from wind, solar, hydro, nuclear fuel or lignite. The so-called “inframarginal” price limit should be 180 euros per megawatt hour. The income from these taxes, which are levied nationally, flow into the national budgets of the EU states. The states should use this income to support needy consumers and companies or to finance national price brakes.
The high profits are mainly due to the fact that the prices for electricity generation in the EU are linked to the most expensive energy sources. At the moment that is by far natural gas. This system, known as the “Merrit Order”, is not to be changed in order not to jeopardize energy production in the EU. According to EU recommendations, however, a long-term reform should be considered if the share of fossil fuels in electricity generation continues to fall.
Oil companies, refineries and energy traders whose profits are more than 20 percent above average profits since 2018 are to be hit with a “solidarity levy” of 33 percent. This extra tax revenue should then be redistributed to those in need. Exactly how this is done is left up to the member states. The EU Commission estimates that levies on excess profits could bring in 117 billion euros per year.
Lights out in winter? Public lighting and Christmas decorations on the savings list
How should Russian profits be curtailed?
The EU Commission recommends a price cap for gas imports from Russia, regardless of whether they arrive in the EU by pipeline or liquid gas tanker. EU countries like Hungary, which are still dependent on Russian supplies, would have to declare whether they can support such a price cap. German Economics Minister Robert Habeck said in Brussels that the measure was a “sanction” intended only to affect Russia’s war coffers. Germany, which opposed sanctions on natural gas at the beginning of the year, now only purchases little gas from Russia, as the Kremlin completely shut down the now-damaged Nord Stream 1 line weeks ago.
From the end of the year, an import ban will come into force for Russian oil that is delivered by ship. However, Hungary, the Czech Republic and Slovakia may continue to receive Russian oil via pipeline. The import of Russian coal has been banned since August.
How does the EU intend to make better use of its market power?
In the energy markets for gas, it’s everyone’s turn. Faced with the threat of supply shortages from the arbitrary halt to Russian supplies, utilities have been buying large quantities of LNG on world markets and increasing pipeline supplies from Norway or Algeria. This has led to an explosion in prices for the scarce commodity. The EU Commission has long been proposing the formation of a “buying community”, similar to what was done with vaccines against Corona. Many ministers are in favor of pooling the market power of the individual states. The practical implementation has been difficult so far because the largest customers, Germany, Italy, Austria, Italy and Spain, did not agree on the details. The EU Commission should now change this quickly. In addition, talks are to be started with the largest supplier countries for natural gas via pipeline and liquid gas tankers, i.e. Norway, the USA, Qatar and other Arab countries.
What should be saved?
The EU states have committed themselves to using five percent less electricity in the morning and evening peak periods. Ten percent of electricity should be voluntarily dispensed with throughout the day. How these savings are enforced in households and industry is regulated by the member states themselves. Some have already passed savings plans and reduced public lighting. Christmas lights are being discussed in Germany.
And what about European solidarity?
Italian Energy Minister Roberto Cingolani said after the ministerial meeting that while the decisions were good, precautions were still needed in case there was a real shortage of gas or electricity anywhere in Europe. So far, the supply, albeit expensive, has met the demand. That could change over the winter.
