As expected, on Thursday 19 March European leaders tasked the European Commission with presenting a ‘toolbox’ of “targeted and temporary” measures to address the recent spikes in energy prices directly linked to the intensifying conflict in the Middle East (see other news).
“As long as the conflict continues, energy prices will continue to fluctuate. Even today, the price of gas has risen by 30% following an attack on Qatar’s gas infrastructure”, pointed out the President of the European Council, António Costa.
While the threshold of the 2022 energy price crisis has not yet been reached, pressure is mounting on the global and European energy markets. However, there is no need to touch the foundations of the European electricity market, which is based on the ‘merit order’ principle of marginalist electricity pricing (see EUROPE 13807/2), according to the leaders.
Among the proposals for “immediate relief on electricity prices” put forward by the European Commission in recent days was the possibility for Member States to mobilise the existing State aid framework.
This proposal has been cautiously assessed by European leaders, who have insisted on respect for a level playing field in the Union’s internal market, concerned that major state intervention could create market distortions.
On his arrival at the summit, the Swedish Prime Minister, Ulf Kristersson, nevertheless said that he was prepared to take action to help with electricity and fuel prices “if the effects are lasting, which requires decisions by the EU”.
In the shorter term, the Commission also did not rule out the activation of emergency measures, as in 2022, which could take the form of subsidies or caps on gas prices.
Among other things, the Commission has been pushing for many months for Member States to take action on energy taxation by reducing taxes, which make up a large part of European consumers’ electricity bills.
“In Luxembourg, we had already taken measures before the crisis, lowering taxes to a minimum and reducing network costs”, added the Prime Minister, Luc Frieden.
ETS. A long and more controversial debate concerned the revision of the Emissions Trading System (ETS) for carbon pricing, which is due to be completed by July.
In this context, the President of the European Commission, Ursula von der Leyen, has announced an “ETS Investment Booster” linked to the system, with a budget of €30 billion, which will be financed by 400 million allowances to fund decarbonisation projects.
In her view, this “Booster” should encourage speed and solidarity. “Speed means giving priority to ready-to-use projects as soon as they are finalised. Solidarity means paying particular attention to low-income Member States, which will have guaranteed access to this major financial support”, explained the President.
While positions seem to converge on maintaining the system as a flagship measure for decarbonising Europe, a majority of Member States have also recognised the need to introduce technical adjustments to influence prices.
The French President, Emmanuel Macron, defended a system that “allows us to make the transition while preserving competitiveness”, but said that, in the current context, we need to “find flexibilities”.
This vision is shared by the German Chancellor, Friedrich Merz, who welcomed the forthcoming presentation of “fundamental adjustments, not changes”.
These adjustments could involve strengthening the intervention powers of the market stability reserve, reviewing the gradual reduction “trajectory” for carbon allowances and postponing the date on which free allowances for heavy industry are phased out.
Member States such as Austria, Bulgaria, Croatia, the Czech Republic, Greece, Hungary, Italy, Poland, Romania and Slovakia want this revision to take place as soon as possible, ideally as early as May.
They are also calling for a thorough review of the mechanism, which they see as putting additional pressure on energy prices for heavy industry.
For the Czech Prime Minister, Andrej Babiš, exempting the intensive energy sector from the ETS is “the only solution” for strengthening European competitiveness. For his Italian counterpart, Giorgia Meloni, there is a need for a structural solution to the impact of the system, which is “disproportionate and unbalanced from one country to another”.
On the other hand, Spain’s Pedro Sánchez said that certain political groups and governments were using the new energy price crisis to “undermine, call into question and try to weaken climate policies”, including the carbon pricing system.
Along with Denmark, Finland, Luxembourg, the Netherlands, Portugal, Slovenia and Sweden, Spain is one of the strongest supporters of the current ETS architecture.
To see the conclusions: https://aeur.eu/f/l9l (Original version in French by Pauline Denys with the editorial staff)