The European Union is contemplating measures to manage rising vitality costs

BRUSSELS – Amid an “astronomical” rise in energy prices, European Union ministers will meet on Friday to discuss emergency measures to get their nations through the coming cold months without additional social and economic upheaval.

The European Commission has asked countries to consider five immediate steps, including a plan to redistribute some energy producers’ windfall revenues to businesses and households (in stark contrast to the UK), a price cap on Russian pipeline gas and binding targets to reduce the Power consumption during busy periods, among other possible steps.

The potential plan underscores the widespread sense of unease across Europe as the aftermath of the war continues to weigh on European economies. The European Central Bank hiked interest rates for the second time this year on Thursday in a bid to cool inflation without pushing Europe into recession.

European Commission President Ursula von der Leyen outlined the measures just days after energy giant Gazprom halted the flow of gas through a key pipeline – a move initially blamed on technical problems until the Kremlin stepped in and said it was working actually about Western sanctions.

In a defiant speech, Putin threatened Western gas and grain supplies

“We are facing an extraordinary situation because Russia is an unreliable supplier and is manipulating our energy markets,” von der Leyen said on Wednesday. “Our unity and solidarity will ensure that we prevail.”

But for all the talk of solidarity, the EU remains divided on the details, with some countries expressing skepticism about windfall taxes and others concerned about the idea of ​​a gas price cap. Some want to streamline the block’s electricity market, while others want an overhaul, including full decoupling of gas and electricity prices. “The devil is in the details,” said a senior EU diplomat, who spoke on condition of anonymity to discuss behind-the-scenes talks.

As Europe searches for common ground in the coming days and weeks, Russian President Vladimir Putin will try to exploit the diverging positions and pit countries with different reliance on Russian energy against each other to weaken the West’s response, Simone Tagliapietra said. Energy expert at Bruegel, a Brussels-based think tank. “For Russia, it’s a matter of divide and rule,” he said.

In the more than six months since Russia launched its full-scale invasion, the EU has attempted to weaken Russia’s energy levers — with mixed results.

Russian pipeline gas now accounts for nine percent of EU gas imports, von der Leyen said on Wednesday, down from the 40 percent at the start of the war. The EU last week achieved its goal of bringing gas stocks to 80 percent, well before the November weather turns. As Europe’s dependence on Russian fossil fuels wanes, EU officials say Putin is losing his footing.

For now, energy markets remain in crisis and EU countries are spending billions to subsidize electricity bills. Germany on Sunday announced plans for a nearly $65 billion aid package, with Chancellor Olaf Scholz pledging to crack down on energy utilities making “excessive profits”. Windfall tax revenues for such producers are used to lower consumer prices for gas, oil and coal.

Russia’s Gazprom says it will not reopen Nord Stream gas pipeline to Europe as planned

The Commission, the EU’s executive body, wants similar steps at EU level, according to a paper presented ahead of the summit. Von der Leyen on Wednesday outlined plans for what she called a revenue cap for companies that produce electricity at relatively low costs but sell it at high prices allowed under European market rules.

Wholesale electricity prices have skyrocketed because they are tied to natural gas costs, which have been pushed up exponentially by the Russian invasion of Ukraine. The system increases the cost of several other types of energy, such as B. solar energy or electricity from waste gasification plants.

The aim of the Commission is to level costs and standardize electricity prices across Europe. It would create a de facto windfall tax for power producers, which have made record profits from high natural gas prices, and use the proceeds to lower consumers’ energy bills.

The plan is bold, but it also carries significant risks. The fundamental problem in Europe is that the demand for energy far exceeds the supply. Addressing this problem without significantly reducing demand or bringing more energy to Europe threatens to create market distortions that could ultimately exacerbate congestion. The windfall tax, for example, could discourage companies from making new investments in much-needed energy infrastructure. Price caps that reduce energy bills can motivate consumers to use more energy, exacerbating the supply problem.

The plan addresses these issues by including a provision setting mandatory reduction targets for peak-time energy consumption. But implementing such cuts is hard work that would require countries to pay subsidies to offset the losses incurred when companies are forced to scale back production. The plan is vague on exactly how those reductions will be enforced, leaving it up to individual countries to “identify the best means of reducing overall consumption.”

Britain’s new Prime Minister Liz Truss has dismissed the idea of ​​an unexpected tax for her country because it would scare off investors. On Thursday, she announced a plan to help households deal with energy bills, saying bills would be capped at $2,875 per household per year for the next two years. But she didn’t say how the government would pay for those costs – which could rise to $150 billion.

The European Commission is also asking the bloc to cap the price of natural gas flowing into Europe from Russia. That would allow countries to continue buying Russian gas as long as the price does not exceed a certain threshold. The idea would be to set the price cap above production costs but below current prices, to encourage Russia to keep gas flowing but cap profits.

“We have to cut Russia’s revenue, which Putin is using to finance this cruel war in Ukraine,” von der Leyen said on Wednesday.

However, some countries and analysts are skeptical about how effective this would be, considering Russia already has the upper hand on gas supplies and is using it as an economic weapon against Europe. Russia could use the measure to justify further disruptions or shut off the flow of gas to Europe.

For his part, Putin has made it absolutely clear that any new measures will not go unanswered. In a speech on Wednesday, he railed against the Group of Seven industrialized nations’ price cap for Russian oil and warned of further cuts.

“We will not deliver gas, oil, coal, heating oil,” he said, “we will not deliver anything.”

Halper reported from Washington. Kate Brady in Berlin contributed to this report.

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