Vitality disaster: Ursula von der Leyen opens the door for an EU cap on fuel costs however with caveats

Ursula von der Leyen has opened the door for a focused and momentary EU-wide cap to rein in hovering fuel costs and curb market hypothesis.

However her message comes with caveats in regards to the potentials dangers the cap entails.

“Whereas fuel costs have come down previously weeks, they continue to be very excessive and are placing a heavy burden on individuals and our economic system,” the European Fee president wrote in a letter to EU leaders on the eve of a high-level assembly in Prague.

“We have to defend our single market, which has repeatedly offered resilience within the face of disaster.”

Von der Leyen envisions two completely different types of fuel caps that may work in parallel.

The primary one ought to apply to the Title Switch Facility (TTF), Europe’s main benchmark. The digital hub brings collectively suppliers and shoppers, who signal offers for speedy and future deliveries of fuel.

Costs on the TTF, that are set in euros per megawatt-hour and alter each day, function the primary reference level for Europe’s complete power sector.

The Fee believes the TTF is overly influenced by pipeline fuel as a result of EU’s long-standing dependence on Russian imports. The nations have this yr drastically shifted to liquefied pure fuel (LNG), a versatile various that’s shipped around the globe on tankers. 

Because the TTF continues to be the main hub, each sources are traded collectively, exposing LNG to the market hypothesis fuelled by Russia’s manipulation of pipeline fuel. This example, the Fee argues, makes the EU pay greater LNG costs than its opponents in Asia and America.

“The Title Switch Facility is now not consultant of the imported fuel,” von der Leyen wrote.

Whereas the Fee works to create a “complementary” benchmark for LNG, the bloc ought to impose a “worth limitation” on the transactions going down throughout the TTF in an effort to stop excessively excessive charges for firms that purchase fuel – prices which can be then handed onto shoppers.

However this market cap, the president mentioned, needs to be accompanied by extra stringent fuel discount plans – past the 15% goal agreed in July – in addition to legally-binding solidarity agreements in order that member states can assist one another out within the occasion of shortage of provides.

“We have to acknowledge the dangers {that a} cap on fuel costs entails and put in place the mandatory safeguards,” von der Leyen warned.

Gasoline cap however solely on electrical energy

A second worth cap would apply to the fuel used for electrical energy technology.

Within the EU’s liberalised market, the value of electrical energy is about by the most costly gasoline wanted to satisfy all energy calls for. On this case, this gasoline is fuel. As fuel costs surge, so do electrical energy payments.

“We should always restrict this inflationary influence of fuel on electrical energy, in every single place in Europe,” von der Leyen says.

To that finish, the Fee is prepared to debate a cap on the value that gas-fired energy crops need to pay for fuel provides. In precept, this could exclude fuel that’s used for different functions, like industrial manufacturing and heating households.

The cap resembles the targets of the Iberian mannequin adopted by Spain and Portugal: a large state support programme that partially compensates the excessive prices bore by gas-fired crops.

Nonetheless, it is nonetheless unclear if the measure proposed by von der Leyen would quantity to state support or be sustained via different means.

Bruegel, a Brussels-based economics assume tank, has warned towards this focused cap, arguing it will result in the next consumption of fuel and a spill-over of subsidised electrical energy past the EU borders.

In her letter, von der Leyen voiced related considerations and requested for extra necessary power financial savings.

Each fuel caps can be time-limited, she mentioned.

Consultants have mentioned any type of fuel cap would put an finish to free market forces and compel governments to barter over the allocation of fuel flows and coordinate rationing plans.

Joint procurement and inexperienced funding

Past the market intervention, von der Leyen advised the EU ought to step up bilateral discussions with “dependable suppliers,” like Norway and america, in an effort to negotiate decrease costs for the bloc.

The Fee chief additionally desires to arrange a joint procurement scheme that may enable the EU to behave as a single purchaser, because it was the case for the COVID-19 vaccines.

“We have now to keep away from a situation through which member states are outbidding one another and driving costs up,” von der Leyen mentioned. “Joint buying will strengthen our hand to cut back suppliers’ excessive rents.”

This concept has been touted because the starting of the disaster however has not but materialised. An EU power platform established in April has not obtained the mandatory mandate to conduct purchases on behalf of all the bloc.

Joint procurement needs to be up and operating earlier than 2023-2024, von der Leyen mentioned, when refilling fuel storages would develop into difficult within the absence of Russian fuel.

Lastly, von der Leyen known as for stronger investments in inexperienced expertise and power effectivity to slash dependency on imported fossil fuels.

The Fee will attempt to increase the general public funds allotted to the REPower EU programme, which goals to boost as much as €300 billion by the top of the last decade. Of those, €225 billion will come from unused loans taken out from the coronavirus restoration fund.

Von der Leyen’s letter is just not a proper proposal and is supposed to begin a debate forward of an off-the-cuff assembly of EU leaders on Friday.

Whereas a rising variety of member states are actively calling for a worth cap on fuel, others, like Germany and the Netherlands, stay opposed and like as a substitute to guess on joint procurement.

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