EU scrambles for energy cost reductions as Iran war hits the markets

Energy ministers from the European Union will meet on Monday to discuss options for reducing 'energy costs. Officials are drafting emergency plans to temper the 'impact of surging gas and oil prices caused by war in Iran. According to EU officials who are familiar with the discussions, the European Commission is developing emergency measures to protect consumers from rising energy costs. They will also examine state subsidies for industries and tax cuts at national level, as well as a revision of EU carbon markets to reduce CO2 permits. Ursula von der Leyen, the Commission president, said that Brussels is also looking at capping gas costs. Ministers will meet in a closed-door meeting on Monday to discuss measures that could be taken to reduce the price hikes caused by the closing of the Strait o f?Hormuz. This has disrupted LNG trade and led to unprecedented disruptions to oil supplies.

Europe is exposed to global price fluctuations because it imports oil and gas. No quick fix can be expected.

Joanna Pandera is the president of Forum Energii in Poland. She said that there are structural reasons for high energy prices across Europe. Prices vary widely because of different energy mixes, taxes, and countries. It's hard to find a solution that fits everyone.

Pressuring Governments

Since the Iran War began, European benchmark gas prices are up by over 50%.

Italy is one of the governments that wants a broad EU intervention, such as the suspension of the bloc's carbon market to reduce the impact CO2-emitting power plants have on electricity prices.

One EU diplomat stated that some governments expect Brussels will focus on tax cuts or domestic subsidies to "pass the ball back" to member states.

However, relying on national subsidies risks increasing inequalities among wealthy and poorer EU member states.

The problem is that not everyone can afford to pay for state aid. A senior EU diplomat stated that it's okay for those who?have deep pocketed".

According to Bruegel, 158 billion euro of the 571 billion euros that the EU spent on energy support measures in 2022 came from Germany, the largest economy in Europe.

Von der Leyen will send EU leaders this week a list of "emergency" options, before their Thursday summit.

In the long term, Brussels claims that a shift to clean energy produced locally from renewables or nuclear sources will reduce Europe's reliance on volatile fossil fuel imports.

(source: Reuters)