Europe's response in the face of Iran war energy crisis

On Wednesday, the European Commission will release a package of actions to counter the soaring energy prices. This comes as the world grapples with the greatest shock in energy market history - the war against Iran.

The European Union has a plan to respond.

ELECTRICITY FIRST

The EU's proposals are centered on reducing the reliance on fossil fuels to protect against price spikes and disruptions in supply. According to an earlier draft of the Commission plan, it will "set out plans" to change EU tax laws to ensure that 'electricity' is taxed lower than fossil fuels.

This is to encourage consumers and businesses to switch to electric cars, heat pump systems, and other electrically powered devices. According to the draft proposal, it will be easier for governments in the short term to reduce electricity taxes on energy-intensive industries to zero.

It will also be necessary to encourage countries to invest in smart grid technology to help bring in more clean energy to the power mix.

Brussels will confirm plans on Wednesday and publish legal proposals by May. EU tax rules can be difficult to change politically because they require the unanimous approval of all 27 member countries.

According to a report by the think-tank Strategic Perspectives, electricity taxes and levies are on average twice as high in Europe as natural gas.

Before summer, the Commission will propose an electrification goal to encourage industries to switch to electricity from fossil fuels.

OIL AND GAS STOCKS

According to a draft, the EU will coordinate the efforts of countries to fill up gas storage in upcoming months. This includes the timing of purchases.

It is important to avoid price increases that could result from companies buying?at the exact same time.

The EU wants the gas storage to be 80% full by winter, and yet companies are slow to replenish their stocks at a time when prices are high.

The draft also stated that Brussels would facilitate the possible release of oil stock by coordinating timing and volume in the EU. The International Energy Agency, which includes most EU countries, agreed to release 400,000,000 barrels of crude oil last month in an effort to calm the oil markets.

JET FUEL

About 40% of the EU's jet fuel is imported, and half of that comes through the Strait of Hormuz. Airports warned that a jet fuel shortage could occur within a few weeks. Brussels is now preparing guidelines on how to deal with this situation. The guidance will address issues like airlines losing slots at airports due to cancellations, and the EU anti-tankering regulation, which prevents planes from loading fuel in low-cost locations.

This will clarify if a fuel shortage is considered to be exceptional enough by airlines for them to avoid paying compensation for cancellations.

In its draft plan, the European Commission said it would monitor Europe's refinery capacity and implement measures "to make sure that existing capacity is fully utilized".

'IMMEDIATE RELIEF'

The draft proposals contain a list that includes recommendations for "immediate relief" but it is up to the individual governments to implement them. The draft proposals include a list of recommendations to provide "immediate relief", although it will be up to?individual governments to take them up.

STATE AID

Separately from the plans that will be announced on Wednesday, the EU has been drafting plans to allow countries to subsidise fuel prices and fertilisers more. The EU's temporary state-aid rules allow governments to cover up to 50% of the fuel and fertiliser price hikes that companies have paid since the Iran War began.

To avoid the public budgets being strained by massive and untargeted subsides, only certain sectors are eligible. These include farming, fishing, and road transportation.

Subventions must be awarded this year, and may include grants, tax benefits, loans, and guarantees.

The draft EU plan also allows for a greater intensity of assistance to help pay the electricity bills by industries. (Reporting and editing by Kirby Donovan; Kate Abnett)

(source: Reuters)