How to read the European Commission’s Iran crisis energy emergency plan

A plan published on 22 April by the European Commission to deal with the energy shock triggered by the war in Iran and related blockade of the Strait of Hormuz seeks to turn the crisis into a catalyst for long-term change. The plan, known as AccelerateEU, pushes the European Union to go further in reducing its high dependence on volatile fossil-fuel imports, while transitioning to an energy system based on clean, homegrown sources.

In particular, AccelerateEU shows that the European Commission wants to use the Iran crisis to foster electrification in the context of the share of electricity in final EU energy consumption being stuck at around 20% for a decade. Importantly, the Commission’s analysis of the risks of the EU’s dependence on fossil fuels is ultimately correct. This contrasts with statements since the start of the Iran crisis from some national governments – including Germany – which seem to advocate continued use of fossil fuels and a slowdown in the transition.

AccelerateEU calls for quick adoption by EU decision makers of rules in the pipeline to make electricity grids more resilient, highlights planned proposals on electrification and energy taxation and stresses the need to speed up clean energy investment, including by making better use of EU funds and revenues from carbon trading. None of this will provide short-term relief, but this is arguably the most important part of the package in the long-term. 

In the short term, there is only so much the Commission can do. Responsibility for most energy and fiscal-response measures is national. AccelerateEU thus focuses on coordination in three main areas.

First, the Commission wants to coordinate efficient gas-storage filling for winter. While coordination to avoid pricey filling makes sense, filling is done by national governments and companies, with a risk of uncoordinated buying if the Iran crisis worsens. The Commission also wants to promote joint oil and gas purchasing, an old and politically difficult idea. Increasing the EU’s buying power could in theory lower prices but the impact will be limited because of the global nature of oil and gas markets.

The Commission also promises a ‘fuel observatory’ to “map the European refining capacities”. This could help tackle confusion, as shown in contradictory statements from the International Energy Agency (IEA) and the EU on jet-fuel availability.

Second, the Commission wants to shield consumers from the price shock but, as fiscal policy is national, its influence is limited. AccelerateEU outlines a range of suggested relief measures, mostly focused on household transfers and support for electrification investment. Strikingly, measures announced by national governments – such as €3.5 billion in energy VAT cuts in Spain and a €1.6 billion energy tax cut in Germany – go overwhelmingly in the opposite direction, relying mostly on untargeted fuel tax cuts.

The Commission does have influence over state-aid regulation and wants to allow countries to spend more on subsidies to firms. A temporary Iran crisis energy framework outlined on 13 April by Commission President Ursula von der Leyen is expected to allow countries to subsidise the economic sectors most affected by price spikes. Any such measures should remain temporary and targeted, and should ideally be coupled with electrification efforts to enable structural change. Otherwise, these measures will disrupt the EU level playing field and hinder the needed structural change.

Third, the Commission wants to foster voluntary demand reductions. During supply disruptions, this is a fundamental part of the solution. While higher prices themselves will result in lower demand, as was seen in 2022-2024 after Russia invaded Ukraine, it makes sense to coordinate demand reduction (as also encouraged by the IEA) because in times of scarcity, orderly demand reduction helps avoid abrupt shortages. Yet, this will depend on adoption by national governments of the necessary solutions to deliver this in an orderly manner – for example, social leasing schemes for clean technologies, such as electric vehicles.

If European governments commit to coordinate, AccelerateEU could yield tangible results, helping Europe to handle the Iran crisis while speeding up the structural change needed to foster energy security, competitiveness and decarbonisation. In particular, if Europe emerges from this crisis with a real electrification strategy, it would be a major achievement.