March 21, 2023

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EU countries are arguing over a cap on gas prices

EU countries are arguing over a cap on gas prices

  • European Union approves energy windfall profits tax
  • Countries are looking to set a ceiling for gas prices as the next step
  • Countries are divided over how to contain the exorbitant prices

BRUSSELS (Reuters) – European Union countries differed on Friday over whether and how to end runaway gas prices, with Germany among those opposed to the measure 15 other countries said was needed to tackle Europe’s energy crisis.

Ministers from the 27 member states of the European Union, who met in Brussels on Friday, approved duties on energy companies’ windfall profits in a bid to contain rising energy prices exacerbated by Russia’s war against Ukraine.

The agreement covers a tax on excess profits for fossil fuel companies made this year or next, another tax on excess revenue generated by low-cost energy producers from rising electricity costs, and a mandatory 5% cut in electricity use during peak periods.

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But the Czech Republic said that was not enough and that many EU countries expect a proposal from the bloc’s executive European Commission on setting a ceiling for the price of gas.

Speaking after the meeting, EU Energy Commissioner Kadri Simsun said there was no agreement on what that cap would look like.

“We will try to negotiate a price corridor rather than a fixed ceiling that will allow us to lower costs for our consumers,” she told a news conference.

“Wholesale gas is a legitimate option but it requires radical market intervention,” she said, adding that many “non-negotiable terms” would need to be put together with such a cap in order for it to work.

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Italy’s energy minister said a group of countries would discuss among themselves ideas next week for a cap or “smart indexing” to help the commission craft a legal proposal that all countries could support.

“The priority now is to reduce the price of gas. But there is a second priority: to avoid that this kind of measure leads to a shortage of gas,” said Roberto Cingolani.

15 countries, including France, Italy and Poland, this week asked Brussels to propose a price cap on all wholesale gas transactions to contain inflation.

German Economy Minister Robert Habeck said he believed EU ministers could find a “better solution” to price caps before their next meeting on October 11.

“A fixed cap on the price of gas can only succeed if we answer the question of what will happen if not enough gas reaches Europe… The only answer I have heard is that the amount will be split then. I don’t think this is a possible political thing.”

‘Stop this fighting’

The Commission warned countries this week that the broad cap would require “significant financial resources” to fund emergency gas purchases if market prices exceed the EU ceiling.

Denmark, Austria and the Netherlands sided with Germany in opposition to the idea, which they said could leave countries struggling to buy gas if they cannot compete with buyers in competitively priced global markets.

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Brussels has indicated that the EU could go ahead with setting a tighter price ceiling, for example by capping Russian gas supplies, but countries such as Belgium and Hungary opposed this. Another idea, similar to what Spain was already doing at home, was to specifically target gas used for power generation.

By introducing EU-wide measures, Brussels hopes to bypass governments’ asymmetric national approaches to the energy crisis, which has seen richer EU countries spend more than poorer ones distributing money to struggling businesses and consumers struggling with bills.

Germany, Europe’s largest economy, put in place a €200 billion package on Thursday to tackle rising energy costs, including the brake on gas prices.

Claude Turmes, Luxembourg’s energy minister, has urged the European Union to step in and stop the “crazy” spending race between countries.

“This is the next frontier to get more solidarity and stop this infighting,” Turmes said. (1 dollar = 1.0182 euros)

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(Additional reporting by Kate Abnett, Gabriella Bazincka, Philip Blinkensop, Bart Meijer, Marien Strauss, Elvis Armellini, and John Chalmers; Editing by Alex Richardson

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