Blog Post

Rising energy prices: European Union countries’ views on medium-term policies

Alongside short-term measures to shield consumers from rising energy prices, EU countries have set out their positions on medium-term measures to prevent recurrence. Here we summarise those positions.

By: , and Date: November 29, 2021 Topic: Green economy

The authors are grateful to Mia Hoffmann, Klaas Lenaerts, Catarina Martins and Pauline Weil for their comments on an earlier version of this piece.

On 13 October 2021, the European Commission published a ‘toolbox’ of possible measures for EU countries to shield consumers from rising energy prices (Box 1). The Commission divided its proposals into short- and medium-term policies, while also differentiating the recommendations between EU and national levels.

Countries have already taken various short-term steps to provide temporary relief to citizens and firms. They have also started to put forward their views on potential medium-term measures to ensure more resilience and responsiveness at the EU level in the face of price volatility in the energy market.

This debate started at the EU Extraordinary Energy Council of 26 October 2021, where EU energy ministers discussed the spike in energy prices and the possible mitigating measures at both national and EU level.

In particular, two schools of thought seem to be emerging. The first, advocated by France and Spain, is for fundamental changes in how the energy market operates in Europe. The second, pushed by Germany, highlights that the crisis is temporary and that the current market structure works well and does not require substantial changes.

This blogpost summarises these medium-term policy views, in view of informing the policy debate that will take place at the EU level in the following weeks and months.

Box 1- A summary of medium-term proposals in the European Commission’s ‘Toolbox’

(See the annex for more details)

The Commission will:

– Propose a regulatory framework for the gas and hydrogen market by December 2021.

– Consider revising the security of supply Regulation to ensure more effective functioning of gas storages across the Single Market and conclude the necessary solidarity arrangements.

– Adopt by November 2021 a Regulation setting up new cross-border regional gas risk groups to analyse risks and advise Member States on the design of their national preventive and emergency action plans.

– Support the development of future-proof energy storage as a key flexibility tool, both for short to medium–term (for example demand-response and batteries) and long-term storage options (for example hydrogen).

– Explore the potential benefits and design of a voluntary joint procurement of reserve gas stocks, in line with energy market regulation and the EU competition rules.

– Adopt a rule book for cybersecurity for electricity.

– Task Agency for the Co-operation of Energy Regulators (ACER) to study the benefits and drawbacks of the existing electricity market design and propose recommendations for assessment by the Commission by April 2022.

Study the potential of an initiative on developing fully aligned regional, or EU-wide, retail markets.

Member States could:

Support consumer empowerment, providing consumers with information and offering options on how they can participate in the energy market, be better protected and in a stronger position in the energy supply chain.

Appoint a supplier of last resort, in the event of market exit or failure of a supplier.

– Further boost the role of consumer in the energy market, by contributing to improving demand response, as well as by developing self-supply via individual renewable energy and energy community arrangements.

– Facilitate a wider market for decarbonised power purchase agreements beyond large businesses.

– Support power purchase agreements through flanking measures such as match-making, standard contracts and de-risking through InvestEU financial products.

Detailed country breakdown

Austria

Before the extraordinary European Energy Council on 26 October, Austria signed a joint statement with Germany, Denmark, Estonia, Finland, Ireland, Luxembourg, Latvia and the Netherlands underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad hoc reform of the wholesale electricity market.

For the signatories, the current price spike is primarily due to the global economic recovery and the consequent effects on fossil fuel demand and supply, but not the design of EU energy markets or climate policy.

The countries call for “a well-integrated EU energy market that functions based on market mechanisms and good interconnections as part of the solution to strengthen the resilience to price shocks. Hence, the best approach should be further interconnection with a view to the 15% electricity interconnection target by 2030, further integration of EU electricity markets.”

Austria was hesitant at the proposals of voluntary joint procurement of gas, citing competition concerns and internal market rules. They also object to including nuclear energy in the taxonomy for sustainable finance, preferring an accelerated deployment of renewable sources.

 

Belgium

Belgium called on other EU countries to refrain from a complete rethink of the EU energy market structure and to build on what is already in place. Belgium also pointed to possible capacity remuneration mechanisms by which generators receive a payment for being ready to generate electricity.

 

Bulgaria

At the EU Energy Council, Bulgaria stressed the importance of nuclear energy and said that they are awaiting the adoption of the complementary EU taxonomy delegated act. Bulgaria also cautioned about extending the EU emission trading system (ETS) to buildings, housing and transport and called for more ETS allowances to tackle the crisis. Bulgaria also highlighted the potential of greater underground storage, the Three Seas Initiative and the extension of existing Trans-European Network for Energy projects to achieve greater flexibility in the gas supply system.

 

Czech Republic

The Czech Republic stressed the importance of last-resort suppliers, with many consumers in the country already reliant on them. They also called for a serious consideration of possible adjustments to ETS and an investigation into the role of speculation. The Czech Republic also called for a relaxation of state-aid rules and welcomed the recent comments of Commission President von der Leyen on the role of nuclear energy in the EU Green Taxonomy. Prime Minister Andrej Babiš had previously joined Hungary in asking for a revision of ETS, with a cap on energy prices to be achieved through an upper limit to the price of emission allowances.

 

Croatia

Croatia underlined the importance of increasing and optimising energy storage, but so far has not shown enthusiasm for the idea of advancing an EU approach to gas storage or EU joint procurement. Croatia is part of the ten countries pressing the Commission to label nuclear power as green investment in the EU taxonomy.

 

Cyprus 

Cyprus is calling for the adaptation of state-aid rules and stressed the importance of interconnection across borders. Cyprus is pushing for the inclusion of natural gas as green investment in the EU taxonomy.

 

Denmark

Denmark is a signatory to a joint statement before the Energy Council on 26 October,  underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad-hoc reform of the wholesale electricity market (see above, Austria).

Denmark expressed interest in possible future funding of gas storage by the European Commission. It recognised that increased gas stocks would not interfere too much with markets and would therefore be a possible option in the future. Denmark is not in favour of including gas in the taxonomy on sustainable finance.

 

Estonia 

Estonia is a signatory to a joint statement before the Energy Council on 26 October, underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad-hoc reform of the wholesale electricity market (see above, Austria).

Estonia does not favour further gas storage and is hesitant of any move towards joint procurement. They called for an analysis and possible re-think of ETS to make it more flexible.

 

Finland

Finland is a signatory to a joint statement before the Energy Council on 26 October, underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad-hoc reform of the wholesale electricity market (see above, Austria).

Finland endorsed increasing gas reserves but stressed that any joint procurement of gas should be voluntary. The also emphasised the importance of nuclear energy in decarbonisation of the economy and supported its inclusion in the taxonomy on sustainable finance.

 

France

France has asked the Commission to consider a regulatory good price in order to allow storage of gas reserves, as supply contracts are not sufficient to ensure functioning of the market. For electricity, France has asked for a larger margin for manoeuvre so countries can contain prices pursuing technology neutrality (including nuclear). France thinks that the functioning of the market, especially for retail prices, might be due a revision to protect consumers.

Through the Ministry of the Economy and Finance, France is proposing the creation of an automatic stabiliser mechanism for the price of electricity, which would “make it possible to transfer the gains” that a producer can make when the price of energy is high to the supplier who could then “pass on these gains to the consumer, whether a private individual or a company”.

France also proposed the creation of a joint platform for purchasing emergency gas reserves, according to Energy Commissioner Kadri Simson in October 2021.

With Luxembourg, France also previously backed a return to long-term gas supply contracts to ensure price stability, which would demand a shift in the Commission’s current policy.

France is part of the ten countries pressing the Commission to label nuclear power as green investment in the EU taxonomy

 

Germany

Germany is a signatory to a joint statement before the Energy Council on 26 October, underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad-hoc reform of the wholesale electricity market (see above, Austria).

Germany has also cautioned against changing ETS as this could undermine its credibility and functioning as well as the commitment of the EU to net zero.

 

Greece

Greece underlined the importance of interconnection, especially with Egypt (in face of the current solar energy projects) and the importance of Liquid Natural Gas (LNG) infrastructure especially from Egypt, Israel and the EastMed pipeline. Environment and Energy Minister Kostas Skrekas had previously also announced that €100 million from the Recovery and Resilience Fund will be used to provide power to vulnerable households through the construction of photovoltaic stations by municipal energy communities.

Greece also underlined the importance of gas storage to decrease price volatility and assure supply. Prime Minister Kiriakos Mitsotakis has explicitly stated that he is in favour of a policy of joint gas purchases, as the EU had done for the COVID-19 vaccine.

Greece is among the countries that supports natural gas as the preferred fuel used in the process of transition to renewables by 2030.

Previously, Greece had called on the European Commission to consider setting up an EU-wide fund for hedging against gas price spikes. The mechanism could draw funds from advance payments of carbon emission allowances that would be allocated to EU countries based on their heating and power consumption and on their gross domestic product per capita.

 

Hungary

Hungary welcomed the Commission study of ETS, implying that it has negative impacts on citizens and businesses calling for a quick relaxation and more flexibility in the system. Hungary underlined that climate goals should include a focus on curbing energy prices and security of supply. For these reasons, it does not support the EU Green Deal proposal.

Hungary also supported further development and use of nuclear energy as well as the use of gas as a transition technology. Hungary is part of the ten countries pressing the Commission to label nuclear power as green investment in the EU taxonomy

Hungary also called for energy supply to be considered a public service with an accelerated certification procedure for state aid rules (similarly to what happened with the pandemic), raising the notification measure from the current €50 million. Hungary has also asked for an immediate release of EU funding for the green transition.

 

Ireland

Ireland is a signatory to a joint statement before the Energy Council on 26 October, underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad-hoc reform of the wholesale electricity market (see above, Austria).

Ireland has stated that the establishment of cross-border regional gas groups, or of a voluntary joint procurement framework, would need to take into consideration their effect on interaction and cooperation with third countries, in particular the United Kingdom.

 

Italy

Italy endorsed the EU Commission proposal on implementing rules on international arrangements to manage gas storage at the EU level. Italy is also favourable to joint gas procurement, but has warned against possible market distortions.

 

Latvia

Latvia is a signatory to a joint statement before the Energy Council on 26 October, underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad-hoc reform of the wholesale electricity market (see above, Austria).

Latvia also warned cautioned against extending ETS to buildings and transport and called for a renewed attention on the impact this could have on consumers. Latvia also emphasised that biomass should be considered a green source of energy.

 

Lithuania

Lithuania stressed the importance of having a set reliable energy sources as differentiated as possible. Lithuania has also drawn attention to the importance of tackling energy poverty and to alleviating the effects of carbon price spikes. Lithuania also names biomass as renewable energy source and supports further integration of the EU energy market towards a full energy union.

 

Luxembourg

Luxembourg is a signatory to a joint statement before the Energy Council on 26 October, underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad-hoc reform of the wholesale electricity market (see above, Austria).

Luxembourg has expressed doubts on a quick adoption of joint gas procurement while being more optimistic of the impact of storage regulation already in the near future. It also upheld contracts-for-difference for renewables, taking Portugal as an example, which displays lower retail prices than Spain while being in the same bidding market. While the country’s representative expressed doubts on the adoption of nuclear energy. With France, Luxembourg has also backed a possible return to long-term gas supply contracts to ensure price stability, which would demand a shift in the Commission’s current policy.

 

Malta

Malta said that the current price spike is due to market design and it is puzzling how gas can be the price-settler even though it is the energy source accounting for only 20% of the EU’s energy mix. Malta also called for a swift adoption of the complementary taxonomy delegated act on nuclear energy and natural gas.

 

Poland

The country’s representative also called for a relaxation of ETS, saying that the burden on some countries is much more than in others. Speaking at a conference in early September 2021, Prime Minister Mateusz Morawiecki blamed the EU for the recent spike in energy prices and called for a rethink of the ETS.

Poland also pointed to Gazprom as responsible for the current crisis, calling for an investigation highlighting Moldova as an example of Russia using their market power in the gas market as a geopolitical weapon. Poland also called for compulsory gas storages to avoid a repeat situation in the future.

 

Portugal

Portugal endorses joint gas procurement at the EU level and underlined the importance of energy storage, with renewables and hydrogen in mind for the medium term. Portugal also stressed the need for more interconnections to support a better integrated and functioning market, while it expressed eagerness to read the European Union Agency for the Cooperation of Energy Regulators (ACER) and the Council of European Energy Regulators (CEER) report on the functioning of the wholesale market. Portugal also considers mandatory gas reserves as a positive option for emergencies.

 

Romania

Romania supports the investigation of the Commission into possible speculation in the carbon market, increasing price of certificates and potential anticompetitive behaviour. Romania has also called for a better usage of gas reserves in the Black Sea and of nuclear, while improving gas storage regulation. Romania also noted efforts to help Moldova with storage capacity and contractual issues (possibly setting mandatory gas safety reserves for emergencies). Romania endorsed a swift adoption of the complementary EU Taxonomy delegated act underling the importance of nuclear and gas energy.

 

Slovakia

Slovakia also endorsed a swift adoption of the complementary EU taxonomy delegated act underling the importance of nuclear and gas energy, stressing gas storage as an important element of supply security. The country individuated has a necessity analysing the current marginal-pricing mechanism and called for further consideration of ETS.

 

Slovenia

Slovenia recalled the European Green Deal as part of the solution and not the problem of high energy prices. They welcomed the studies being carried out by ACER and the European Securities and Markets Authority to provide greater clarity on the benefits of the energy and carbon markets.

 

Spain

Spain called for a decoupling of the price of electricity into two prices: the marginal and the inframarginal prices which would be directly linked to the specific energy mix of countries. The country also called for a price ceiling on gas and for joint procurement of gas. Finally, Spain called for a joint portfolio of options for buying natural gas and called for an investigation into financial speculation in ETS. Spain is also favourable to the development of some form of EU-wide strategic gas reserve and pointed to the potential of LNG. Spain has also raised questions over the functioning ETS.

 

Sweden

Sweden welcomed the adoption of any fossil-free energy source such as nuclear or bioenergy. Although Sweden did not join in the statement lead by Germany it indicated support to their message to refrain from interventions in the energy market or ETS.

 

The Netherlands

The Netherlands is a signatory to a joint statement before the Energy Council on 26 October, underlining the benefits of the current internal market for gas and electricity and expressing their opposition to any measures to alter its design, such as ad-hoc reform of the wholesale electricity market (see above, Austria).

The Netherlands does not support further EU funding, but it stressed the backing of a swift adoption of the complementary taxonomy delegated act, underlying the importance of nuclear energy for the next future.

 

Recommended citation:

Sgaravatti, G., Tagliapietra, S. and G. Zachmann (2021) ‘Rising energy prices: European Union countries’ views on medium-term policies’, Bruegel Blog, 29 November

 

Annex

EU Commission Toolbox extended: medium-term proposals

– Proposal for a revised Energy Taxation Directive, tabled in July 2021, aiming at modernising energy taxation in the EU by aligning it with the EU’s climate objectives and ensuring social fairness. The revised directive would encourage investment in and use of renewable energy sources and introduce the possibility of targeted exemptions to support vulnerable and energy poor households, especially during the transition to a cleaner energy system.

– Close collaboration between the EC and Member States to facilitate a wider market for decarbonised power purchase agreements beyond large businesses, including SMEs, for instance by aggregating end-user demand, by addressing relevant administrative barriers or by providing standard contract clauses.

– To examine more closely patterns of trading behaviours and the potential need for targeted actions (in case of misconduct, ed), the Commission will ask the European Securities and Markets Authority, for a first preliminary assessment by 15 November and task it to analyse, by early 2022, the trading of emission allowances. The Commission will consequently assess whether certain trading behaviours would require further regulatory actions.

[1] Regulation (EU) 2017/1938 of the European Parliament and of the Council of 25 October 2017 concerning measures to safeguard the security of gas supply and repealing Regulation (EU) No 994/2010

– The Commission plans to revise the Regulation governing the security of natural gas supply[1]. In this context, the resilience of the EU gas market could be strengthened, for instance through provisions for an easier access to storage capacity across borders, including for renewable and low carbon gases. The Commission could explore the potential benefits of marked-based support mechanisms (e.g. involving auctions) to ensure that available gas storage capacities are optimally used. In this context, it is also key that Member States put in place the necessary technical, financial, and legal arrangements to supply gas across borders.

– The Commission will also explore the possible benefits of joint procurement of reserve stocks of gas by regulated entities or national authorities to allow pooling forces and creating strategic reserves. Participation in the joint purchasing scheme would be voluntary and the scheme should be structured in a way so as not to interfere with the functioning of the internal energy market and respect competition rules.

– Based on Regulation (EU) 2017/1938 concerning measures to safeguard the security of gas supply, the Commission intends to adopt shortly a delegated act setting up new cross-border regional gas risk groups. The risk groups will analyse risks for the next four years and advise Member States and the Commission on the measures to properly manage these risks. Particular attention will be paid to regions with unusual low storage. The risk groups will also assess the possibility of joint voluntary regional storage arrangements.

– As announced in the Commission’s Communication of April 2021, the Commission will adopt a complementary Delegated act of the EU Taxonomy Regulation covering activities not yet covered in the EU Taxonomy Climate Delegated Act. This complementary Delegated Act will cover nuclear energy subject to and consistent with the results of the specific review

process underway in accordance with the EU Taxonomy Regulation. This complementary Delegated Act will also cover natural gas and related technologies as transitional activity in as far as they fall within the limits of Article 10(2) of the EU Taxonomy Regulation. The merits of a sunset clause for transitional activities will be considered in this context. The Commission will consider proposing legislation to support the financing of certain economic activities, primarily in the energy sector, including gas, that contribute to reducing greenhouse gas emissions in a way that supports the transition towards climate neutrality, but are not eligible to be included in the Taxonomy.

Energy storage is increasingly key for the EU power sector and its sustainability. Both short to medium (batteries) and long-term storage (Power to X) options need to be exploited. Increasing electricity storage in particular supports integrating renewables into the system and smoothening peak demand. This could also lower electricity prices during peak times when generators using fossil fuels often set the price. Substantial investment need to be directed in this domain. The Commission will identify key EU actions to support the development of electricity storage as a key flexibility tool, ensuring a level playing field and adequate economic signals.

 

– Additionally, it is also important to adapt the resilience of the energy system to new evolving threats such as cyber threats or extreme weather events. The Commission will undertake actions by the end of 2022 to further improve the resilience of critical energy infrastructure in view of new evolving threats. These will include new rules on the cybersecurity of electricity fully harmonised with horizontal cybersecurity legislation, a Commission’s recommendation towards a harmonised approach to identify critical energy infrastructure, exchange of information, and available options to finance the resilience of critical energy infrastructure. It will also include the creation of a European standing group of operators and authorities on the resilience of energy infrastructure.

 

-The Commission will also study the potential of fully aligned regional, or EU-wide, retail markets. Evidence shows that greater cross-border alignment of rules and practices in the retail market boosts cross-border competition and helps keep prices under control. This work would build on two important ongoing pieces of work – Interoperability Implementing Acts. As was the case for wholesale electricity market coupling, such market alignment could initially be through cooperation between individual Member States before moving over time to a fully integrated internal energy market for consumers.

 


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