Energy crisis: EU countries set to debate price cap on gas and its potential risks

The idea of imposing a price cap on gas imports and transactions is set to top the agenda of an informal meeting of EU countries in Prague.

It comes a day after the European Political Community, which gathered more than 40 European leaders from all over the continent, including the UK, Norway and Turkey.

On Friday, it will be just the 27 EU countries around the table, with one main question up in the air: how can the bloc curb soaring gas prices.

A letter penned by European Commission President Ursula von der Leyen is expected to serve as basis for discussions.

On Wednesday, von der Leyen suggested a new set of emergency measures to tame the skyrocketing electricity bills that households and companies are facing, which are strongly driven by gas, the most expensive fuel needed to meet all power demands.

What is the European Commission proposing?

Von der Leyen proposed not one, but two gas caps.

The first cap should apply to market transactions that take place every day at the Dutch Title Transfer Facility (TTF), Europe’s leading trading hub, in a bid to contain speculation.

The second cap should target the price of gas that is used only for the production of electricity. This appears to be similar to the Iberian model already adopted by Portugal and Spain, which partially covers the huge costs bore by gas-fired power plants.

In her letter, von der Leyen said that both caps represent a profound intervention in the market and entail risks for the bloc’s security of supply. If EU countries are willing to accept these measures, they must agree on stricter savings plans and sign legally-binding solidarity deals to cope with potential shortages.

“We need to acknowledge the risks that a cap on gas prices entails and put in place the necessary safeguards,” von der Leyen said.

The Commission chief also proposed a new benchmark for trading liquefied natural gas (LNG) and a joint procurement scheme for next winter to prevent countries from outbidding each other.

She also wants to reinforce bilateral negotiations with “reliable suppliers,” mainly Norway and the US.

Von der Leyen and Norwegian Prime Minister Jonas Støre released a joint statement on Thursday expressing a “common determination” to stabilise energy prices.

“Commercial actors can provide a sound basis for reducing prices in their contractual/business relations,” the two leaders said.

Gas cap risks

Energy experts warn that any sort of price cap would put an end to the price signals that govern the free market and force governments to negotiate over the allocation of supplies, possibly through rationing plans.

But an increasing number of member states appear ready to adopt the unprecedented caps. 

Italy, Poland, Belgium and Greece circulated their own proposal for a broader wholesale cap that would encompass all gas imports entering the bloc and all gas transactions.

In their view, the cap, which they call “price corridor,” should be flexible and dynamic, acting as “circuit breaker” rather than suppressing fees at an artificially low level.

“A cap only on gas used for electricity ignores 2/3 of the gas market, which is in industry and buildings,” the countries wrote, in a document seen by Euronews. 

However, some countries, like Germany, Austria and the Netherlands remain sceptical about the idea of capping gas prices, fearing it would incentivise consumption at a time when savings have become crucial.

Berlin’s massive €200-billion aid programme to cushion their citizens and companies from crippling energy bills could add fodder to Friday’s debate, as some capitals believe it would exacerbate unfair competition.

Polish Prime Minister Mateusz Morawiecki said on Thursday the EU’s energy policy cannot be “dictated” by Germany and described the €200-billion plan as an action that might “destroy” the single market.

“I am convinced that the vast majority of the EU countries share my views,” Morawiecki told reporters.

Besides gas caps, EU leaders are expected to discuss the latest developments in Russia’s invasion of Ukraine and the worsening economic situation across the bloc.

Since the meeting is informal, no formal conclusions will be adopted, although countries can give the Commission an orientation on how to proceed with its next set of legislative proposals.