EU Ministers call for a united front on the energy crisis

The European Union Finance Ministers will coordinate their response on Friday to the energy price surge caused by the Iran 'war. They will ensure that the measures help the most vulnerable and?move Europe away from fossil fuels while keeping fiscal costs and demand under control.

Since the U.S. and Israeli strikes against Iran began on 28 February, oil and gas prices have risen dramatically. This is similar to the energy crises Europe experienced after Russia invaded Ukraine 2022.

In a document preparing for the ministers' discussions, the European Commission stated that "EU-level cooperation is essential to avoid?market fragmentation? and leverage economies?of scale. This will reduce the overall need?for intervention".

Because they don't know for how long oil and gas will be unable to flow through the Strait of Hormuz, European governments are being 'cautious in launching costly fiscal policies that may soon be unnecessary but which will be difficult to reverse.

The EU Finance Ministers invited Fatih Birol to give a briefing on the latest developments.

The Commission stated that "short-term measures" to help consumers (households or industries) might be considered. The Commission said that a lesson learned from the energy crisis of 2022-2023 was that many measures were untargeted and broad, resulting in inefficiencies and high fiscal costs.

EU BETTER PLACED BUT STILL VULNERABLE

The Commission stated that the EU has improved its position since 2022, as renewable energy sources now make up 48% of their energy, compared to 36% in 2021.

Most of Europe's vehicles and trucks run on petrol and nearly 20% of Europe’s oil comes from the Gulf. The Gulf is now largely closed to business.

The Commission suggested that, to reduce the impact of more expensive oil, governments should support the incomes of households most at risk. This would help maintain market signals and not cause too much distortion.

You could also encourage energy-saving measures, like?the use public transport?,?housing improvements?, and energy-efficiency in industry.

EU countries can also reduce their electricity taxes, but it is important to use this measure with caution as it could result in a reduction of budget revenues at a time when many EU countries are already struggling with high debts and slow growth.

The Commission suggested that governments could also consider a two-tiered pricing system for electricity and natural gas for consumers or firms at risk.

It would be a relief to consumers and firms who are vulnerable, while still encouraging them to conserve energy.

According to the Commission, any such measure should have a clearly defined end date. These measures could be funded by the Carbon Emissions Trading System revenue, or taxing any windfall profits that energy companies may have derived from high energy prices. (Reporting and editing by Andrei Khalip, Jan Strupczewski)

(source: Reuters)