The new EU toolbox to tackle soaring energy prices
The ongoing energy price crisis in the aftermath of COVID-19, which has curtailed industrial production and left consumers across Europe facing higher heating bills as winter approaches, has ramped up pressure on the EU and EU Member States to urgently address the problem. Governments in Spain, France, Italy, and Greece have already announced measures to support low-income households with their energy bills. As this crisis is the result of multiple causes including the increasing demand following the post-COVID economic recovery coupled with insufficient natural gas supply, low levels of water and wind over the summer affecting wind power production in certain countries and (to an extent) price increases on the EU's Emissions Trading System (ETS), the issue calls for a wide range of measures.
On 13 October 2021, the European Commission (Commission) published a toolbox of measures ranging from emergency income support to households and state aid for companies to targeted tax reductions to tackle surging energy prices. The toolbox took the form of a Communication of the Commission, meaning that the Commission did not exercise its legislative powers, but rather chose a policy instrument to promote a coordinated approach across the EU and provide guidance to Member States as to the measures they can take without violating EU law. The toolbox also discusses contemplated EU actions, in response to some Member States' calls for a bloc-wide response.
The Commission’s toolbox on energy pricing
The toolbox features: (i) short-term national measures, mainly focused on alleviating pressure on vulnerable consumers and businesses (eg emergency income support to households, state aid for companies, and targeted tax reductions), and (ii) medium-term measures revolving around the energy transition and investments in cleaner energy sources. Through the toolbox, the Commission sought to not only coordinate the response of the Member States, but also to reaffirm its position about Europe’s clean energy transition and convey its message that it views this as a means to protect the bloc from potential future price shocks.
Some of the measures proposed by the Commission in the context of the toolbox are the following:
Immediate measures to protect consumers and businesses:
- provide emergency income support for energy-poor consumers, for example through vouchers or partial bill payments, which can be supported with EU ETS revenues;
- authorize temporary deferrals of bill payments;
- put in place safeguards to avoid disconnections from the grid;
- provide temporary, targeted reductions in taxation rates for vulnerable households;
- provide aid to companies or industries, in line with EU state aid rules;
- enhance international energy outreach to ensure the transparency, liquidity and flexibility of international markets;
- investigate possible anti-competitive behavior in the energy market and ask the European Securities and Markets Authority (ESMA) to further enhance monitoring of developments in the carbon market;
- facilitate a wider access to renewable power purchase agreements and support them via flanking measures.
Medium-term measures for a decarbonized and resilient energy system:
- step up investments in renewables, renovations and energy efficiency and speed up renewables auctions and permitting processes;
- develop energy storage capacity, to support the evolving renewables share, including batteries and hydrogen;
- ask European energy regulators (ACER) to study the benefits and drawbacks of the existing electricity market design and propose recommendations to the Commission where relevant;
- consider revising the security of supply regulation to ensure a better use and functioning of gas storage in Europe;
- explore the potential benefits of voluntary joint procurement by Member States of gas stocks;
- set up new cross-border regional gas risk groups to analyze risks and advise Member States on the design of their national preventive and emergency action plans;
- boost the role of consumers in the energy market, by empowering them to choose and change suppliers, generate their own electricity, and join energy communities.
The toolbox is currently being discussed as part of the ongoing dialogue among EU institutions and Member States about surging energy prices. Member States have already started putting together measures to tackle the crisis and the toolbox should be useful to shape their approach. However, it seems that national policies alone are not enough to tackle the problem and a common EU strategy and political courage on the part of its institutions are needed to create a united front to tackle the causes of the crisis. The toolbox may be a starting point for such an EU response. It remains to be seen how this framework evolves to tackle the ongoing crisis and whether more measures will be included in the coming months as per Member States’ suggestions.