EU energy ministers approved a first package of emergency measures on Friday in a bid to curb soaring electricity bills and coordinate member states’ responses to the energy crisis.
The package, negotiated in less than a month, includes mandatory energy savings, a cap on excess market revenue and a levy to capture excess corporate profits.
An EU-wide price cap on gas imports remains, for the time being, under consideration.
“Today the EU has managed to keep its promises,” said Jozef Síkela, Czech Minister for Industry and Trade. The country holds the rotating presidency of the Council of the EU and is responsible for moderating the internal talks.
“We have completed another part of the puzzle but certainly not the last,” added Síkela. “It’s an immediate fix.”
The agreement comes as inflation in the euro zone hit double digits – 10% – for the first time in the history of the single currency, mainly driven by skyrocketing energy bills.
The EU intends both to reduce electricity consumption during peak hours to rebalance the mismatch between supply and demand and to capture some of the revenue that power plants and fossil fuel companies have made due high prices.
After a brief discussion on Friday morning, ministers reached an agreement and kept the core content of the package intact, with amendments focusing on flexibility and practical implementation.
The three measures are all time-limited and cover:
- A European plan to introduce energy savings: a mandatory target of 5% at peak times, when gas plays a more important role in setting prices, and a voluntary reduction of 10% in overall electricity demand.
- A cap on excess income manufactured by power plants that do not use gas to generate electricity, such as solar, wind, nuclear, hydroelectric and lignite. The cap will be uniform and set at €180 per megawatt hour. All revenues that exceed the barrier will be collected by governments.
- A solidarity mechanism capture some of the excess profits made by fossil fuel companies (crude oil, gas, coal and refinery). Authorities will be able to impose a 33% levy on the profits made by these companies in the 2022 financial year – but only if profits represent a 20% increase on the average since 2018.
The additional funds obtained through the second and third instruments will be redirected to households and businesses in financial difficulty in the form of subsidies, reduced tariffs or income support.
Countries that have already implemented similar solutions at the national level will be allowed to continue their programs if they pursue the same objectives as the EU package.
While the package represents a breakthrough in the EU’s response to the energy crisis, there is broad consensus that further action is needed before the winter season arrives.
“We have to continue our work,” Síkela said. “We are in an energy war with Russia.”
His French counterpart, Agnès Pannier-Runacher, echoed the call. “I’m going to be very clear: we’re going to have to go much faster, much further and make other proposals,” she told reporters on Friday morning.
What about a price cap that divides gas imports?
After Friday’s meeting, all eyes were on a move to impose a price cap on all gas imports entering the EU, regardless of their geographical origin, and on all gas transactions taking place in the single market.
The unprecedented measure gained ground across the bloc and was this week approved by a group of 15 Member Statesincluding France, Italy, Spain and Belgium.
As the most expensive fuel to meet all electricity demands, gas sets the final price of electricity, even when cheaper and greener sources contribute to the total mix.
By capping gas prices, electricity bills will be artificially contained, say the signatories.
So what happened with the gas cap?
For the time being, the idea continues to be studied by the Commission services, who fear that the cap could scare away suppliers, jeopardize the EU’s security of supply and encourage gas consumption at a time when savings have become crucial.
“We had a frank discussion,” said Kadri Simson, European Commissioner for Energy. “While views differ across member states, there is also common ground. We agreed that the market was not working normally and intervention was needed.”
Simson said the cap suggested in the joint letter was “radical” and required a series of preconditions, such as an “unambiguous” mandate to bolster the EU’s gas cuts plan. beyond the current target of 15%.
As a safer alternative, the commissioner proposed a targeted price cap on gas used exclusively for electricity generation, as well as a separate benchmark for trading in liquefied natural gas (LNG). Details on both proposals remain scarce and will be developed in the coming weeks.
“These are far-reaching measures that substantially affect the functioning of the European gas market,” said Simson. “We don’t offer this lightly.”
Although Síkela, as representative of the EU Council presidency, did not express his country’s position on the increasingly heated debate, he said there were “serious concerns”. among the Member States regarding the Commission’s lack of action on the petrol cap.
In the morning, Teresa Ribera, Spanish Minister for Ecological Transition, was more explicit.
“We are disappointed with the Commission’s non-proposal,” she said. “The Commission is aware that this is a sensitive subject and has failed to find the space in which all countries can react positively.”
But not everyone wants to cap gasoline prices. Austria, Hungary, the Netherlands, Denmark and, above all, Germany are among those opposed, fearing a complete disruption of supply.
“Putting a hard cap on the price of gas can only apply if you say what happens if there is not enough gas in Europe. Because that is my counter-question,” said German Vice-Chancellor Robert Habeck at the end of the ministerial meeting.
“And the only answer I always hear is that the [gas] shortage will then be spread over the whole of Europe. But I don’t think it’s politically viable. It would bring Europe to its limits, probably to its end.”
In a document published on the eve of the meeting, the Commission explained that a cap on all gas imports and transactions would upset market forces and require the creation of a “new entity” to ensure a fair and uninterrupted distribution. supplies between the 27 Member States. states.
“Deciding administratively on gas flows is unprecedented in Europe and there is currently no one at EU level (…) who has this experience and technical capacity to undertake this task,” the document states.
Simone Tagliapietra, a senior fellow at the Bruegel think tank, was equally skeptical, saying the wide cap would run into the “complexities” of the gas market and leave Europe “worse”.
“Today’s measures represent a good compromise solution to maintain price signals for demand reduction while freeing up resources that countries can use to reduce energy bills for families and businesses,” said Tagliapietra at Euronews.
“But that’s not enough to solve all the problems we have of course. We really don’t have a silver bullet here. We need a mix of solutions to come out of the woodwork.”
This article has been updated to include new feedback and developments.