Brussels has outlined plans to cap wholesale gas prices to tackle a wider energy crisis and curb inflation as the Kremlin tries to increase pressure on Western Europe.
In a document seen Monday by the Financial Times, the European Commission’s energy agency recommended member states implement “emergency wholesale price cap” measures on gas supplies and set out two options for doing so.
One involves raising the limit to be paid for gas imported from Russia. The second will introduce a capping system that will vary from country to country based on their energy mix.
The measures are part of a broader plan to cushion the blow of rising gas and electricity prices caused by Vladimir Putin’s invasion of Ukraine. Coordinated moves, including a system designed by some power producers to funnel artificially inflated profits to consumers, will be discussed by EU energy ministers on Friday.
The proposals were put forward the day Russia warned that gas supplies to Europe via the major Nord Stream 1 pipeline would be halted until the West lifted its economic sanctions.
“Putin is using energy as a weapon by cutting supplies and manipulating our energy markets,” said commission chair Ursula von der Leyen tweeted, “He will fail. Europe will prevail.”
He said his plan would also include ways to reduce power demand, help vulnerable consumers and assist power producers facing liquidity difficulties. The proposals have not yet been approved by the full College of Commissioners.
Wholesale electricity prices have skyrocketed because they are linked to the price of gas, whether or not the electricity is generated from gas or other means. Gas prices are about 10 times higher than a year ago.
Sweden and Finland sounded the alarm over the weekend by introducing measures to bail out electricity producers and traders facing high collateral demands from banks due to volatile electricity prices.
According to the commission, a price cap on Russian gas would limit Moscow’s income from exports to finance its war against Ukraine.
Either a maximum price cap could be set on all EU-wide Russian gas imports or a buyer of Russian gas could be established who would negotiate specific prices, it suggested. But Brussels noted that such an initiative has triggered an “unforeseen event” clause and a “potential escalation of geopolitical tensions” in company contracts with Russian state-owned gas supplier Gazprom.
Another measure would involve separating member states into “red” and “green” zones, according to which were most exposed to gas supply disruptions. Prices can be restricted in the red zone while remaining high enough in the green zone to facilitate flow into red zone countries.
The paper said such a measure would have less impact on electricity prices, but would be “complicated to administer” and would depend heavily on coordination between member states.
French President Emmanuel Macron said joint gas purchases at the European level would help reduce costs. He also supported a cap on Russian gas prices.
Macron said Paris was supporting an EU-level levy on power companies, which are taking advantage of increased profits due to the way the EU’s energy market is structured – a measure similar to an unexpected tax. which Germany is also considering.
“We support a contribution mechanism that will be targeted at energy operators whose cost of production is much less than the selling price on the market,” Macron said after speaking with German Chancellor Olaf Scholz.
“It is the most relevant [way] To avoid distortions between EU countries, it is most reasonable and more effective. If such an approach does not materialize at the European level, we will be obliged to look at it at the national level,” the French president added.