Brussels proposes to limit the price of gas throughout Europe in an emergency | International

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The European Commission will propose next week an extraordinary intervention in gas prices across the continent in the event of a supply emergency. The measure is part of the arsenal that Brussels is preparing to face a possible interruption in the arrival of Russian gas. The plan also includes “coordinated rationing and a reduction in demand”, according to the project that the Community Executive expects to approve on the 18th and to which EL PAÍS has had access. The cap on the price of gas would set, through administrative means, a maximum price for the fuel dispatched to companies and consumers. The regulated rate, adds the document, would only be in force while the emergency lasted.

From the outset, the Commission proposes that the measures adopted in most of the Member States to mitigate the impact on households and companies of the rise in energy prices be maintained. Brussels, which last year considered the rebound as temporary, now indicates that it will last until at least 2025, according to the draft of the document with the new proposals.

The same document acknowledges that the measures adopted so far are only suitable for raising prices, but they would be clearly insufficient if the confrontation with Moscow over the Russian invasion of Ukraine leads the Kremlin to close the gas pipelines that supply Europe.

“It may be necessary to consider a different battery of measures in the event of a sudden and large disruption of Russian gas supply or even a total disruption leading to unaffordable prices or inadequate gas supply,” says the Commission document, titled Short-term interventions in the market and long-term improvements in the design of the electricity market.

uncharted territory

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The text assumes that the EU is entering uncharted territory and the most extreme proposals, unthinkable just three months ago, are set out in an epigraph whose eloquent heading already serves as a warning: “Preparing for a total interruption of Russian gas supply”.

Brussels points out that in the event of this complete rupture with Moscow, even the national emergency plans drawn up according to the security of supply regulation, which include measures at the national and regional level, would not be enough. The Commission indicates that if supply problems affect several Member States at the same time “additional measures would be necessary”.

Firstly, the Commission proposes “a coordinated rationing and a reduction in demand based on principles for the entire EU”. And he adds that the measure to cut consumption will concern all states, not just those directly affected by the cut decreed by the Kremlin. “Based on the principle of solidarity, it should consider a reduction in gas demand in the least affected Member States for the benefit of those most affected, even in those cases in which this rationing had not been undertaken based on the national plans of emergency”, stipulates the project of the Commission.

The Commission believes that this type of drastic intervention in the market would, in all probability, require “a maximum regulated price for gas dispatched to European consumers and companies to cover the period of the emergency declared by the Union.” Brussels recalls that, according to the security of supply regulation, the Commission is competent to declare a state of emergency at European level if a State requests it. And that it must imperatively declare it if at least two States demand it.

One possibility, according to the document, would be to limit the price at which gas is traded on European Stock Exchanges. But he adds that the cap could “be introduced in different ways” and “intervene at different levels of the gas value chain.” And he warns that, if public compensation is required, “and unless it is accompanied by a significant cut” in consumption, “it could require significant financing.”

The formula echoes a recent proposal from Italy, which has suggested that the EU harness its enormous power as a customer to set a joint maximum price to pay for its gas imports. Diplomatic sources consider that this would only be possible with an international agreement with other large consumers, in particular with the United States.

The Community Executive, always a defender of the free market, also warns in the draft of the risks of intervention. “An EU price cap of this kind […] it would have the advantage of limiting the harmful effects of the interruption in prices for consumers and companies to pre-established levels”, he weighs. “But it would also present a number of challenges.”

Brussels believes that after declaring the emergency it would be necessary to guarantee that the introduction of the limit does not worsen the EU’s access to world supplies of gas and liquefied natural gas, a “vital” flow, since any reduction of hydrocarbon in a situation of scarcity “It would cause further deterioration.” The text also warns of another collateral effect in the laws of the market: setting a maximum price, it warns, “would automatically limit the potential for reducing gas demand based on prices [es decir: cuanto más caro, menos gas se compra]”, impacting on “the balance between supply and demand”.

The example of the Iberian exception

The Commission is also launching another battery of proposals to act in the wholesale electricity market, in order to curb the contagion effect of the gas blow and the war on electricity prices. Among them is the mechanism agreed by Spain and Portugal with Brussels to lower the electricity bill, a caliber intervention considered anathema in the community capital until a few weeks ago. The mechanism involves setting a limit on the price of natural gas that feeds thermal power plants, which in turn causes a reduction in consumers’ electricity bills.

The document demands that these temporary “subsidies”, which “some Member States” already provide, be designed in a way that does not distort competition or imply a breakdown of the internal market, and asks that the mechanism be agreed with neighboring countries that could be affected and are combined with other measures to reduce electricity demand.

The Commission also insists that it considers it “justified” for the Member States to assess the so-called profits Fallen from the sky from power companies, inflated by unusually high gas prices in times of war. With these revenues, the capitals can “finance specific and temporary measures to support vulnerable households and businesses,” says the draft. With the current perspective of cuts, and in the face of a particularly dark scenario for winter, the Commission considers that these measures can be extended beyond June 30, 2022 “to cover the next heating season”.

The energy crisis that is looming over the community territory has also caused Brussels to even assess a review of the electricity market, a request that Spain has led, along with other countries such as France, since last summer.

In light of a report by the Agency for the Cooperation of Energy Regulators (ACER) published at the end of April, in which the EU opened up for the first time to tweak the design of the electricity market, the document proposes “possible reforms ” to “optimize” its operation, which “deserve a deeper analysis”. The Commission outlines in the draft the areas that could be addressed throughout this review process, among which the possibility of protecting consumers against price volatility through risk coverage mechanisms, which would be activated in extreme situations, stands out. .

In addition, it proposes considering formulas to guarantee, in this time of interventionism and uncertainty, investments in electricity generation through renewable energies and low CO2 emissions “compatible with the climate objectives of the Union”; proposes to give greater power to consumers and “promote collective and individual self-consumption schemes” of solar energy; and considers the creation of localized electricity market price signals that reflect the growing weight of renewable energies in the energy mix.

The Commission, the document concludes, calls for the preparation measures to be accelerated in the face of a scenario of supply cuts and proposes to the Twenty-seven, whose leaders will meet in Brussels at a summit at the end of May, that they take action on the matter.

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