Europe prepares response to the second energy crisis of four years

The European Commission plans to announce on Wednesday that it will reduce?electricity tax and coordinate the summer'refilling of countries' gas storing, in order to?adjust the energy fallout caused by the Iran War.

The draft proposals that were seen by the show that, for the time being, EU will not be taking major market interventions like capping gas prices, or taxing windfall profits of energy companies - measures they used in 2022, when Russia cut off gas supplies, and prices reached record highs.

According to drafts that could change before publication, the Commission instead plans to curtail EU?tax laws to favor electricity over oil and Gas, and make government easier to reduce industries' electricity tax to zero.

The EU will also coordinate countries' efforts in filling gas storage in coming months and provide guidance on how governments should deal with potential jet fuel shortages.

Europe's heavy dependence on oil and gas imports has exposed it to soaring prices, since the Strait of Hormuz was closed, effectively closing a vital fuel shipping route.

The benchmark gas price in Europe on Tuesday was about a third more expensive than it was before the U.S. and Israeli war against Iran started on February 28.

The EU's largest oil and gas suppliers, the U.S., and Norway, are located outside of the Middle East. The Iran crisis hasn't yet caused fuel shortages to occur in Europe. However, airlines have warned that fuel shortages could occur within weeks.

EU officials said that the EU's relatively restrained reaction reflects the fact national governments control many crisis management levers and not Brussels. This includes subsidies and cutting national taxes and levies.

The Commission's plans provide non-binding methods for governments to "immediately relieve" the situation,?including by requiring that businesses avoid air travel whenever possible.

Officials said that this response reflected their assessment that the war-driven shock to energy could last months. It was prudent, therefore, to hold off on more extreme measures.

Elisabetta Cornago is an assistant director of the Centre for European Reform, and she said that a continued closure of Strait of Hormuz could lead to "a worse oil shock than in 2022. A similar gas shock may also occur, but I think it will be a smaller electricity shock".

She said that this is because countries have increased their use of renewable energy since 2022.

Ember, a think tank, found that the EU produced 71% its electricity last year from low-carbon resources, including renewables, nuclear and solar, up from 60% in 2022.

(source: Reuters)