Vulcan Insight | Divisions on tackling energy prices continue to divide EU leaders

European leaders gathered in Brussels yesterday (20 October) for what was expected to be a tense two-day European Council Summit. As predicted, yesterday’s discussions between the 27 leaders were consumed by the issue of rising energy prices, leaving leaders in talks until the early hours of morning. Less than a week since the European Commission came forward with its latest package of emergency energy measures, Member States have now requested that the Commission go back to the drawing board and “urgently” come up with additional measures.

Member States have been wrangling over various Commission proposals for weeks now, with the most contentious issue of all proving to be that of gas price caps.

Expectations as to whether leaders would come to an agreement on the Commission’s proposals were, therefore, very low ahead of the Summit. Speaking beforehand, European Council President Charles Michel said that, while the EU has the “tools” to lower prices, “it will be difficult” to come to an agreement. Despite this, Michel noted how important it is that the EU send “a very strong signal” that it is “determined to act together”.

Notably, German Chancellor Olaf Scholz remained very sceptical of the idea of price caps, outlining his opposition to such a measure before the Bundestag just hours before travelling to Brussels.

Meanwhile, speaking ahead of the Summit, Poland’s Prime Minister Morawiecki reflected the sentiment in many EU capitals, by saying that cheap gas from Russia “was supposed to be a blessing for the German economy,” but has turned into “a curse for the whole of Europe” and that countries now “see this as the failure of German politicians”.

Prior to Tuesday, 18 October, the Commission had been wary about proposing potential gas price caps over fears for the risk of supplies and an unwillingness to meddle in the complex market. On Tuesday, however, the Commission opted for a price cap that would only apply in the case of extreme volatility. The proposed cap would act as an emergency tool and be triggered when Europe’s trading hubs pass a certain threshold, which is yet to be defined.

Unveiling the Commission’s latest package on Tuesday, Commission President von der Leyen said that the EU had already prepared well for the winter ahead and that it would now “tackle excessive and volatile prices with more security” taking “further steps towards an energy union”. It also comes as the European Commission presented its 2023 Work Programme, including the legislative proposals for the revision of the EU’s Energy Market, due in Q1 2023.

The new emergency package presented by the Commission also included the following elements:

• A joint gas purchasing mechanism to negotiate better prices.
• The establishment of a new LNG pricing benchmark by March 2023.
• Default solidarity rules between MS in case of supply shortages and a mechanism for gas allocation for MS affected by regional or Union gas supply emergency.

Following yesterday’s summit, Member States have now agreed to pursue joint purchasing of gas, the development of a new benchmark for gas prices and to accelerate efforts to cut gas demand. On the issue of gas price caps, Member States have finally come to some sort of agreement; After the introduction of many caveats, EU leaders agree that price caps can only be implemented under certain conditions – as laid out by the Commission. Leaders have now tasked the Commission with bringing forward a “concrete decision” on how this would work in practice.

Germany’s decision to get on board with the Commission’s proposal to introduce caps under exceptional circumstances will be welcome news to many. Particularly Italy, France and Belgium, who were among the 15 countries that wrote to Commissioner for Energy, Kadri Simson, in September urging the Commission to act and propose a cap.

It now remains to be seen when the Commission will come forward with new measures to reflect the European Council’s instructions, further delaying urgent action to tackle soaring energy prices across the EU. Meanwhile, EU Energy Ministers are set to meet again on Tuesday (25 October), with the Czech Presidency of the Council preparing another emergency meeting for mid-November.

The European Council Summit will continue today with leaders expected to discuss Ukraine and EU-Asia relations.

Compliments of Vulcan Consulting – a member of the EACCNY.