After a ten-hour discussion, the 27 heads of state or government of the European Union Member States agreed, on Friday 21 October at around 2am, to instruct the European Commission to submit “concrete decisions” on a series of measures to combat soaring energy prices, including a cap on gas prices.
“We have reached an agreement on the energy issue (...) We have sent a clear signal to the market that we are ready to act together”, said the European Council President, Charles Michel, after the meeting.
Commission President Ursula von der Leyen and French President Emmanuel Macron also welcomed the emergence of a clear mandate to take the Commission’s work forward.
On 18 October, the Commission put forward an emergency package of measures on gas with the aim of having precise guidelines at the end of the European Council (see EUROPE 13045/1).
Taking small steps
However, the conclusions adopted by the leaders are very broad and hesitant, leaving the door open to various scenarios.
They call on the Commission to “urgently present concrete decisions” on its latest proposals, as well as on additional measures.
Amongst these, the text mentions the idea of a “temporary EU framework to cap the price of gas in electricity generation”, similar to the system in place in Spain and Portugal (see EUROPE 12968/4).
This is a victory for some Member States, such as France and Italy, which are calling for the Iberian system to be extended to the whole of the EU.
However, the conclusions link this option to a series of conditions: carrying out a cost-benefit analysis; not changing the merit order system on which the EU energy market is based; avoiding an increase in gas consumption; addressing financial and distribution aspects and its impact on flows beyond the EU’s borders.
Since it combines a subsidy to fossil fuel producers with a tax on electricity, the Iberian mechanism raises the question of its financing and the risk of leakage of subsidised electricity from EU citizens’ money to third countries connected to the EU electricity grid (e.g. Switzerland and the UK).
As with the other measures mentioned, the Commission will also have to assess the impact on existing contracts, “including the non-allocation of long-term contracts”, taking into account “different energy mixes and national circumstances”.
In order to secure the support of Germany and Hungary, two countries strongly opposed to the idea of a gas price cap, the leaders also agreed to insert a ‘confidence-building’ clause in the conclusions. It states that the European Council “remains seized of the matter”.
“We have defined clear criteria on the basis of which the energy ministers can then determine the concrete details of a joint agreement. If this does not work, we will have to go back to the European Council”, explained German Chancellor Olaf Scholz.
Support for joint procurement
The European Council also authorises the Commission to continue work on its proposals submitted in advance of the summit.
Upon arrival at the meeting, several leaders expressed their support for the joint gas purchase.
“We are in favour of grouped purchases so that we do not compete with each other”, said the Estonian Prime Minister, Kaja Kallas, echoing the words of her German, Finnish, Dutch and Latvian counterparts.
The Commission’s proposal is to provide the EU with the legal tools to buy gas jointly and thus make the EU energy platform which was set up on 7 April operational.
In particular, the institution wants to oblige Member States to jointly purchase at least 15% of the volume of gas needed to meet the EU’s stock filling target for next year - a 90% fill rate by winter 2023/2024 (see EUROPE 12980/3). This proposal is mentioned in the conclusions.
Other Commission initiatives to be further developed by ministers include: strengthening energy solidarity measures; developing an alternative benchmark to the Dutch TTF for EU liquefied natural gas (LNG) import prices by 2023; and improving the functioning of energy markets to increase transparency, alleviate liquidity stress and eliminate factors that amplify gas price volatility (see EUROPE 13045/10).
As regards the idea of a temporary dynamic price corridor on natural gas transactions, the conclusions link the measure to the consideration of the set of conditions set out in the Commission’s proposal.
The text also mentions the need for increased efforts to save energy.
Next steps
The ball is now in the court of the Member States’ energy ministers, who will meet on Tuesday 25 October to clarify certain technical issues.
However, no political agreement on the Commission’s proposals can be expected to emerge from this meeting.
Emmanuel Macron said that the mechanisms will be “clarified” at the end of October or beginning of November, while expressing his wish to move forward very quickly on the price corridor mechanism.
“I think the ministers will have to have another round of sincere discussions before we can set the exact date when we think this is feasible”, said a senior diplomat.
According to this diplomat, the EU ‘Energy’ Council on 25 October will serve rather to “set the level of ambition” of the Commission’s proposals, and a timetable.
Negotiating an agreement should then take “more than a few days”, the diplomat predicted - time to work out a compromise text supported by enough Member States - even if the legislative proposal on the table is based on an urgency procedure (Article 122 of the Treaty on the Functioning of the EU).
The Czech Presidency of the EU Council has already announced that it is ready to organise another (fourth) extraordinary meeting of ministers, probably in November, to approve the Commission’s proposal.
See the conclusions: https://aeur.eu/f/3QQ (Original version in French by Damien Genicot with Mathieu Bion, Léa Marchal and Camille-Cerise Gessant)