Can the EU agree a plan to ease vitality disaster?

Simply days after Russia mentioned it could not restart fuel flows by way of a vital pipeline to Europe, the bloc’s vitality ministers backed overarching plans for a value cap on all fuel imports and a levy on energy producers.

However, in an emergency assembly late final week, they struggled to agree on the main points. They nonetheless need to determine whether or not to cap the worth of all imported fuel or simply provides from Russia and find out how to set up a mechanism to skim off the windfall earnings of vitality corporations having fun with file excessive costs.

With European Fee president Ursula von der Leyen anticipated in her annual State of the Union tackle on Wednesday to deal with vitality, bureaucrats are looking for frequent floor between the 27 member states to stop blackouts and monetary ache for companies and customers this winter.

Fredrik Persson, president of trade physique BusinessEurope, mentioned “tackling skyrocketing vitality costs and discovering methods to mitigate them is an pressing matter of survival for each European industries and households”.

Why is the EU performing now?

The announcement by Moscow on Monday that fuel provides wouldn’t be restored by way of the Nordstream 1 pipeline till sanctions imposed after its invasion of Ukraine have been lifted has raised fears of a complete cut-off of Russian fuel.

Final yr, the EU imported about 155bn cubic metres of Russian pipeline fuel, about 40 per cent of its complete provide. That has now dropped to 9 per cent, with decreased flows nonetheless reaching Europe by way of Turkey and Ukraine. The squeeze on provide has helped push costs as much as about 10 occasions their common over the previous decade.

EU fuel storage ranges have reached 83 per cent of their complete capability, effectively forward of an 80 per cent goal set for the top of October, elevating hopes there will probably be enough provides this winter.

However there’s nonetheless stress on politicians to search out options to the disaster. Many companies in vitality intensive sectors comparable to fertiliser manufacturing and metal have already closed or decreased output, whereas households are having to chop again on fundamentals comparable to meals to afford vitality payments.

What has been proposed?

The fee put forward proposals on Wednesday that included options to skim off the earnings of vitality corporations and recycle the proceeds to households and companies, an easing of state help guidelines to bail out corporations hit by excessive vitality payments, a compulsory minimize to peak electrical energy demand and, extra tentatively, a cap on the worth of fuel, together with from Russia.

At Friday’s assembly, in accordance with the Czechs, who maintain the European Council’s rotating presidency till January, ministers agreed that Brussels ought to deal with 4 areas: reductions in peak electrical energy demand; windfall levies on non-gas energy manufacturing; a broader fuel value cap; and provision of liquidity to energy producers dealing with more and more excessive collateral demands.

A number of EU capitals additionally referred to as for a break within the hyperlink between fuel and electrical energy costs. Others need to briefly minimize the price of carbon levies that corporations pay in recompense for his or her emissions.

How would the worth caps and windfall levy work?

That is the place settlement over what ought to be executed breaks down. On fuel value caps, international locations together with Italy, Austria and Greece are against a cap solely on Russian imports as they worry that Moscow would minimize off the remaining provides.

Broader consensus was discovered for a cap on a wider proportion of imports however whether or not such a cap would solely be utilized to pipeline fuel or to all imports together with liquefied pure fuel was not agreed.

Denmark and the Netherlands are among the many international locations that aren’t eager on an general cap as they worry that reducing costs would solely serve to extend consumption.

“All these broad caps have the drawback that you just disincentivise [securing] provides from different international locations,” mentioned Hans Vijlbrief, the Dutch minister for extractive industries.

A windfall levy on the earnings of non-gas energy producers may very well be structured both as a income clawback or as extra dynamic value limits that kick in when costs attain sure thresholds.

There may be additionally debate over whether or not thresholds ought to be particular for every supply of energy era comparable to coal, nuclear, wind and photo voltaic or uniformly utilized, by which case costlier fuels comparable to coal can be affected extra.

Will the plan assist customers?

Analysts at information group Argus Perception mentioned that whereas the EU’s need to guard households from poverty was “laudable”, the “unprecedented tempo of coverage era has resulted in plenty of proposals that will not obtain this intention”.

Measures comparable to capping the worth of all imported fuel, for instance, may immediate producers comparable to Algeria and Norway to chop provides, though Norway has mentioned it is open to the concept. That, in flip, may trigger an extra improve in costs, the Argus analysts argued.

However Henning Gloystein, director of vitality and local weather at Eurasia Group, mentioned the mixture of value caps, windfall levies and demand discount “ought to really go fairly far in stopping vitality prices from spiralling additional”.

Riina Sikkut, Estonia’s minister of financial affairs and infrastructure, mentioned a compulsory minimize to electrical energy demand “affords enormous potential to deliver down costs however extra vital than obligatory saving targets is shifting consumption from peak hours to off-peak hours.”