The potential plan underscores the widespread sense of panic across Europe as the fallout from the war continues to weigh on European economies. It comes just days after energy giant Gazprom suspended the flow of gas through a major pipeline – a move that was initially blamed on technical problems even by the Kremlin. Intervened To say that it is actually Western sanctions.
“We are facing an extraordinary situation, because Russia is an unreliable supplier and a manipulator of our energy markets,” European Commission President Ursula von der Leyen said on Wednesday, outlining the commission’s plan. Our unity and solidarity will ensure our victory.
But for all the talk of solidarity, the European Union remains divided over the details, with some countries expressing skepticism about unexpected taxes and others concerned about the idea of a cap on gas prices. Some would like to adjust the bloc’s energy market, while others want an overhaul, including a total separation of gas and electricity prices. “The devil is in the details,” said a senior EU diplomat, speaking on condition of anonymity to discuss the behind-the-scenes talks.
As Europe seeks common ground in the coming days and weeks, Russian President Vladimir Putin will look to exploit differences in positions, playing countries with different levels of Russian energy dependence against each other to weaken the West’s response, Simone Tagliafitra said. The energy expert at Bruegel, a Brussels-based think tank. “For Russia, it’s about divide and conquer,” he said.
In the more than six months since Russia launched its all-out invasion, the European Union has attempted to weaken Russia’s energy influence — with mixed results.
Von der Leyen said on Wednesday that Russian pipeline gas now makes up 9 percent of EU gas imports, not 40 percent as it was at the start of the war. European Union last week It reached its goal Gas storages will reach 80 percent before the weather turns in November. As Europe’s dependence on Russian fossil fuels diminishes, EU officials say, Putin is losing his grip.
At the moment, energy markets are still in crisis and EU countries are spending billions to subsidize electricity bills. Germany on Sunday announced plans for a nearly $65 billion relief package, with Chancellor Olaf Schultz vowing to clamp down on “excessively profitable” energy providers. Income from windfall taxes on these producers will be used to lower consumer prices for gas, oil, and coal.
The Commission, the EU’s executive body, would like to see similar moves at the EU level, according to a paper unveiled ahead of the summit. Von der Leyen on Wednesday outlined plans for what it called a revenue cap for companies producing electricity at relatively low costs, but selling it at high prices allowed under European market rules.
Wholesale electricity prices have gone up because they are currently tied to the cost of natural gas, which has skyrocketed due to the Russian invasion of Ukraine. The current system inflates the cost of several other types of energy, such as solar power or electricity generated from waste-to-gas plants.
The commission aims to level costs and achieve some consistency in electricity prices across Europe. This would impose an unexpected de facto tax on energy producers who have been reaping record profits from higher natural gas prices, using the revenue to lower consumer energy bills.
The plan is bold, but it also carries significant risks. The main problem in Europe is that demand for energy far outstrips supply. Addressing this problem without drastically reducing demand or bringing more energy into Europe risks creating market distortions that could eventually exacerbate shortages. For example, an unexpected tax can discourage companies from making new investments in much-needed energy infrastructure. Price caps that reduce the cost of energy may motivate consumers to use more of it, exacerbating the supply problem.
The plan addresses these issues by including a provision that sets mandatory targets for reducing energy use during peak times. But implementing such cuts is a heavy burden, as it will require states to pay subsidies to make up for losses incurred as companies are forced to cut production. The plan is vague about exactly how those cuts will be implemented, leaving it up to individual states “to determine how best to reduce overall consumption.”
Another item in the plan will attempt to cap the price of natural gas flowing into Europe from Russia. This will allow countries to continue buying Russian gas as long as the price does not exceed a certain threshold. The idea would be to put a price ceiling above production costs but below current prices, which would encourage Russia to keep the gas flowing, while limiting profits.
“We must cut off Russia’s revenue that Putin is using to fund this brutal war in Ukraine,” von der Leyen said on Wednesday.
But some countries and analysts question the effectiveness of this, considering that Russia already has the upper hand in gas supplies and uses it as an economic weapon against Europe. Russia could use the measure to justify further unrest or to cut off the flow of gas to Europe.
For his part, Putin made it very clear that any new measures would not go unanswered. in Speech On Wednesday, he criticized against the G7 price cap for Russian oil and warned of additional cuts to come.
“We will not supply gas, oil, coal, heating oil, and we will not provide anything,” he said.
Halper reports from Washington. Kate Brady in Berlin contributed to this report.