In response to a worsening energy crisis and to try to stop inflation as the Kremlin increases pressure on western Europe, Brussels has laid out proposals for restrictions on wholesale gas prices.
The European Commission's energy office suggests member states put in place "emergency wholesale price caps" on gas supply and lays out two possibilities in a document.
One is limiting the amount that may be spent on Russian gas imports. The second would implement a capping mechanism that would vary according on each nation's energy mix.
The actions are a component of a larger strategy to lessen the impact of rising gas and energy costs brought on by Vladimir Putin's invasion of Ukraine. On Friday, EU energy ministers will debate coordinated actions, such as a mechanism intended to transfer unfairly inflated profits made by some electricity providers to customers.
The plans were presented on the same day that Russia issued a warning that gas supplies to Europe via the crucial Nord Stream 1 pipeline would be cut off unless the west relaxed its economic sanctions.
Ursula von der Leyen, president of the commission, stated on Twitter that "Putin is using energy as a weapon by cutting supply and manipulating our energy markets. He will fail. Europe will prevail."
She continued by saying that her strategy would also cover how to lessen demand for power, assist vulnerable consumers, and support electrical producers who were having cash flow issues. The entire college of commissioners has not yet given its consent to the plans.
Regardless of whether the energy is generated using gas or any other fuel, the wholesale price of electricity has surged as a result of the price of gas. The cost of gas has increased by around ten times since last year.
By announcing steps to help power producers and traders who were facing increased collateral requests from banks as a result of unstable energy prices, Sweden and Finland raised the alarm over the weekend.
According to the panel, a price ceiling on Russian gas would restrict Moscow's ability to use export revenue to finance its conflict with Ukraine.
It recommended either imposing a maximum price restriction on all Russian gas imports into the EU or creating a single buyer of Russian gas who would negotiate individual rates. Brussels warned, however, that such actions might result in "force majeure" provisions being triggered in business contracts with Russian state-owned gas provider Gazprom and a "possible escalation of geopolitical tensions."
Another option would be to divide member states into "red" and "green" zones based on those were more vulnerable to interruptions in the delivery of gas. Prices in the red zone might be limited while being high enough in the green zone to allow for flows to red zone nations.
According to the study, such a move would have a smaller impact on power costs but would be "complex to administer" and need extensive member state coordination.
Joint gas purchases made by Europe, according to French President Emmanuel Macron, will help keep costs down. He also supported capping the price of Russian gas.
Macron stated that Paris was in favor of a measure similar to a windfall tax, which Germany is also contemplating, on power corporations that have been earning exaggerated profits as a result of the EU energy market's structure.
Following his conversation with German chancellor Olaf Scholz, Macron stated, "We support a contribution mechanism that would be targeted at energy operators, those whose production costs are far inferior to the sale price on markets."
"It’s the most coherent [way] to avoid distortions between EU countries, it’s the fairest and more effective. If such an approach did not materialise at a European level, then we’d be obliged to look at it at a national level," the French president continued.
By fLEXI tEAM