As electricity prices continue to rise within European borders, making life difficult for households and businesses, question returns decisively: Should the EU set a ceiling on natural gas prices?

Energy prices in the EU rose sharply after Russia’s invasion of Ukraine in February last year. In fact, in the past few days, the cost of electricity in the EU has been ten times higher than the average over the past decade. And that’s mostly because of her. rising natural gas prices.

As consumers bear an increasing financial burden, EU leaders are being urged to take action to reduce exorbitant energy costs. How could they achieve this? “One way is to cap natural gas prices for electricity,” Gzero notes in its analysis.

Short-term political adventure

But how could this be done? A proposal put forward by the outgoing Italian prime minister Mario Draghiis to cap the price of Russian gas bought by EU energy companies.

Such a move would limit Moscow’s negotiating position with respect to the EU, but at the same time it would also be fraught with the possibility of seeing Russian “retributions”, such as, for example, the complete cessation of Russian gas supplies to the EU through Moscow (which we have already seen examples in successive – possibly feigned – interruptions of Russian flows through Nord Stream 1).

Another option — more popular but also more populist, according to Gzero — is to cap the price of natural gas used to generate electricity, regardless of country of origin. In such a case, EU governments would pay energy companies the difference between this cap and the higher gas price so that the companies would not have to pass the cost on to consumers.

Raad Alkadiri of Eurasia Group sees this agreed ceiling as short-term political adventure what can give the leaders of the EU breath so they can move away from Russian natural gas without risking a major backlash from European consumers trying to pay their electricity bills.

Brussels, Alkadiri adds, appears to want to reduce dependence on Russian gas, but EU member states need more time to import and store enough liquefied natural gas. LNG from other sources, such as Algeria or Qatar, while including them as much as possible renewable energy sources mixture of energy takes time.

A cap on natural gas prices intended for consumers has already been in place since June in Spain and Portugal, which have been given the go-ahead by Brussels to pilot the system. However, as Gzero points out in its analysis, the Iberian Peninsula does not buy large volumes of Russian gas and is to some extent disconnected from the wider EU wholesale market.

Unwanted Consequences

However, the spread of this Iberian system to the entire EU may have some undesirable consequences, Gzero analysts warn.

Artificially “cheap” gas could encourage Europeans to consume the most, a month after EU member states agreed to “voluntarily” cut consumption by 15% by April 2023. the subsidy is unacceptable to the government.

In addition, countries like Italy and Spain are already over-indebted, by contrast, and would go even deeper if they borrow more money to protect their citizens from exorbitant energy bills while the war in Ukraine continues.

In fact, there are voices arguing that all this debate is actually undermining the EU’s plans to achieve climate neutrality by 2050.

Opponents of the plans argue that they subsidize not only consumers, but also fossil fuels, and therefore public funds are better directed to accelerate the transition to renewable energy sources.

According to Raad Alkadiri of the Eurasia Group, the price of ditching Russian gas is too high. However, even governments that consider themselves financially responsible are the last thing they want to face angry voters made even poorer by energy bills…

Source: Gzero, Eurasia Group