European Union drafts emergency measures to curb energy prices as Russia cuts gas supply

To combat skyrocketing winter energy costs and record-high inflation, the European Commission is drafting emergency measures to curb power prices. The proposals, set for release on September 14, 2022, include capping revenues for non-gas electricity generators and imposing a temporary windfall tax on fossil fuel firms. However, member states remain deeply divided over a potential cap on gas prices, with Germany opposing the measure and Italy supporting it.

Timeline for emergency energy proposals

• ▪European Union energy ministers may meet on September 30, 2022, to discuss and potentially approve the emergency energy proposals set for release on September 14, 2022
• ▪The European Commission is scheduled to unveil a package of emergency proposals on September 14, 2022, to address soaring gas and power prices.

Proposed revenue cap on non-gas plants

• ▪The European Commission's draft proposal, set for release on September 14, 2022, includes a price limit on revenues for non-gas electricity generators, such as wind, solar, nuclear, and biomass plants
• ▪The proposed revenue cap on non-gas power plants would exclude coal plants due to their sharply increased fuel costs in 2022.
• ▪Revenues generated from government subsidy schemes would be excluded from the European Commission's proposed revenue cap on non-gas power plants.

Proposed solidarity contribution on fossil profits

• ▪The European Commission's proposed European Union windfall contribution would establish a minimum rate across all member states, while allowing individual governments to set higher rates
• ▪The European Commission's draft plan, set for release on September 14, 2022, proposes a temporary "solidarity contribution" requiring oil, gas, coal, and refining companies to pay one-third of their 2022 taxable surplus profits

Reducing electricity demand

• ▪The European Commission's draft proposal, set for release on September 14, 2022, includes a voluntary target for European Union countries to reduce their overall electricity consumption
• ▪The European Commission's draft proposal would mandate European Union countries to reduce electricity consumption during peak price hours this winter.

Emergency liquidity support

• ▪The European Commission is drafting emergency liquidity instruments to assist energy companies facing high collateral and margin deposit requirements.
• ▪A European Commission note published last week outlined options for emergency liquidity support, including accepting a wider range of assets as collateral and involving state guarantee schemes

Divisions over gas price caps

• ▪The European Commission's draft proposal, set for release on September 14, 2022, omitted a general gas price cap due to divisions among European Union member states
• ▪Germany, the Netherlands, and Denmark oppose a general gas price cap, warning it could threaten winter energy security, while Italy and Poland support the price cap
• ▪The European Union backed away from a proposed price cap on Russian gas after countries like Hungary and Austria feared Moscow would retaliate by cutting remaining supplies.

Impact of Russian gas cuts

• ▪Russia halted gas flows through the Nord Stream 1 pipeline in early September 2022, attributing the supply cuts to Western sanctions over its invasion of Ukraine.
• ▪The reduction in Russian gas supplies has contributed to record-high inflation, reduced industrial activity, and rising winter energy bills across Europe.

Gas demand and storage

• ▪European Union gas storage facilities reached 84% capacity by September 13, 2022, exceeding the EU's pre-winter filling target, though analysts state demand cuts are still required
• ▪European Union countries have already agreed to curb their gas demand for the upcoming winter.

Debatable claims

• ▪The European Union should implement a general cap on gas prices
• ▪A mandatory solidarity contribution on EU fossil fuel companies is justified
• ▪Capping revenues of non-gas electricity generators is an effective way to fund consumer relief
• ▪A price cap on Russian gas does more harm than good to European energy security