The European Commission has prepared a plan to cap wholesale gas prices to contain the growing energy crisis and curb inflation. The document, seen by the Financial Times, offers EU member countries two options to do this:
- set a price ceiling for gas imported from Russia;
- introduce a system of price restrictions that will vary from country to country depending on their energy balance.
The measures are part of a larger plan to soften the blow of soaring energy prices as a result of Vladimir Putin’s war in Ukraine. On Friday, EU energy ministers will discuss steps to combat the crisis, including redistributing excessive profits made by some electricity producers to consumers.
EC President Ursula von der Leyen also said the plan includes measures to reduce electricity demand, help the most vulnerable consumer groups and financial support for power producers facing liquidity problems.
Wholesale electricity prices in Europe have increased by an order of magnitude, since they are tied to the price of gas, regardless of what actual sources are used to generate it. And gas now costs about 10 times more than a year ago.
Restrictions on the price of Russian gas will reduce Moscow’s revenues from exports, undermining the ability to finance the war in Ukraine, the EC believes.
The Commission proposes either setting a maximum price for Russian imports at the EU level, or creating a single buyer of Russian gas that will negotiate specific prices. At the same time, the EC notes, such an approach could provoke force majeure under the contracts of European companies with Gazprom and “possible geopolitical escalation.”
Another measure involves dividing EU countries into “red” and “green” zones depending on how much they might be affected by gas supply disruptions. In the red zone countries, a gas price cap may be introduced, but in the green zone it will remain high enough to stimulate inflows into the red zone countries.
Such a move would reduce the impact on electricity prices, but would be difficult to administer and would require a fundamentally high level of coordination between countries, the EC document says.
French President Emmanuel Macron supported the introduction of a ceiling on the price of Russian gas. He also believes that joint gas purchases at the European level will help reduce the cost of energy resources.
On Friday, the G7 countries agreed to prepare a mechanism to limit prices for oil and petroleum products from Russia.