Brussels pushes for EU-wide caps on gas price

Brussels has outlined plans for caps on wholesale gas prices to tackle a widening energy crisis and curb inflation as the Kremlin seeks to ramp up pressure on western Europe.

In a document seen by the Financial Times on Monday, the European Commission’s energy agency recommends member states implement “emergency wholesale price cap” measures on gas supplies and sets out two options for doing so.

One involves putting a limit on what can be paid for gas imported from Russia. A second would introduce a capping system that would differ from country to country depending on their energy mix.

The measures are part of a broader plan to soften the blow of soaring gas and electricity prices due to Vladimir Putin’s invasion of Ukraine. Co-ordinated steps, including a system designed to funnel artificially inflated profits generated by some electricity producers to consumers, will be discussed on Friday by EU energy ministers.

The proposals were put forward the day that Russia warned gas supplies through the key Nord Stream 1 pipeline to Europe would be halted unless the west lifted its economic sanctions.

“Putin is using energy as a weapon by cutting supply and manipulating our energy markets,” commission president Ursula von der Leyen tweeted. “He will fail. Europe will prevail.”

She added that her plan would also include ways to reduce electricity demand, help vulnerable consumers and aid electricity producers experiencing liquidity difficulties. The proposals have yet to be approved by the full college of commissioners.

Wholesale electricity prices have skyrocketed because they are linked to the price of gas, whether or not the electric power is produced with gas or other means. Gas prices are around 10 times higher than a year ago.

Sweden and Finland sounded the alarm over the weekend by introducing measures to bail out power producers and traders facing higher collateral demands from banks due to volatile electricity prices.

A price cap on Russian gas would limit Moscow’s income from exports for funding its war against Ukraine, according to the commission.

Either a maximum price cap could be set on all EU-wide Russian gas imports or a single buyer of Russian gas could be established that would negotiate specific prices, it suggested. But Brussels noted such initiatives risked triggering “force majeure” clauses in company contracts with Russian state-owned gas supplier Gazprom and a “possible escalation of geopolitical tensions”.

Another measure would involve separating member states into “red” and “green” zones, according to which were most exposed to gas supply disruptions. Prices could be capped in the red zone while remaining high enough in the green zone to facilitate flows to red zone countries.

Such a measure would lessen the impact on electricity prices but would be “complex to administer” and would rely upon a huge amount of co-ordination between member states, the paper said.

French president Emmanuel Macron said joint gas purchases at a European level would help bring down costs. He also backed a cap on Russian gas prices.

Macron said Paris was supporting an EU-level levy on power companies that have been reaping inflated profits due to the way the EU energy market is structured — a measure akin to a windfall tax, something Germany is also considering.

“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,” Macron said after speaking with German chancellor Olaf Scholz.

“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 added.