The EU is considering subsidising or capping natural gas prices among a series of measures that could “deliver relief now” to the increase in European energy prices caused by conflict in the Middle East, Commission president Ursula von der Leyen said on Wednesday.
Von der Leyen told the European parliament in Strasbourg that caps or subsidies could be used to lower the impact when gas sets the price of electricity, which happens when intermittent renewables do not supply enough power to the grid.
“It is crucial that we reduce the cost impact,” she said.
This could be done via state aid measures, better use of long-term contracts in electricity markets and “exploring subsidies or even capping the gas prices”, Von der Leyen said.
Politicians from across Europe have called for caps in the wake of price fluctuations driven by the US-Israeli war with Iran. But it is a controversial measure, and opponents warn that interference in the market risks prompting higher electricity usage that could then quickly drain public finances.
In December 2022, in response to price surges caused by Russia’s full-scale invasion of Ukraine, the EU set a price ceiling of €180 per megawatt-hour for the TTF European gas benchmark, but it was never triggered because of strict strings attached to the intervention.
“Any form of gas price cap or subsidy would be highly counter-productive for Europe,” said Simone Tagliapietra, an energy analyst at Bruegel think-tank in Brussels. “Artificially lowering the gas price would stimulate demand for the scarce or pricey commodity, making the situation worse and coming at huge cost for public finances.”
The Commission has been preparing options for tackling high energy prices ahead of the upcoming EU leaders summit next week.
It committed to bringing forward proposals after an informal meeting of EU leaders at the Belgian castle of Alden Biesen last month, but the question has gained added urgency because of the near closure of the Strait of Hormuz and shutdown of energy facilities in the Middle East.
Greek Prime Minister Kyriakos Mitsotakis said on Wednesday he will impose a three-month cap on profit margins for fuel and supermarket products. “This turmoil should not lead to profiteering,” he said during a monthly meeting with the Greek president.
Von der Leyen also urged member states to consider lowering taxes on energy bills, which account for 15 per cent of the overall cost. She defended the emissions trading system (ETS), which applies carbon costs to energy prices, but said it needed to be “modernised”.
The ETS system, which has been attacked recently by member states including Italy, accounts for about 11 per cent of European energy bills. Since the Iran conflict started, Italy has renewed its calls for the system’s suspension to cut carbon costs.
“Without ETS we would now consume 100 bcm more gas — again, making us more vulnerable and more dependent. So we need ETS, but we need to modernise it,” von der Leyen said.
Additional reporting by Eleni Varvitsioti in Athens
