Equilibrium & Sustainability

EU official unveils proposals to address energy crisis amid Ukraine war

European Commission President Ursula von der Leyen gestures as she speaks on Ukraine at the European Parliament in Strasbourg, eastern France, Wednesday, Sept. 14, 2022. (AP Photo/Jean-Francois Badias)

The European Commission proposed emergency measures on Wednesday aimed at quelling a burgeoning energy crisis that is rattling the continent amid Russia’s ongoing war in Ukraine.

The plans — which individual EU member states must still approve — would serve to tackle soaring prices exacerbated by “a severe mismatch between energy demand and supply,” the commission said, attributing the circumstances to “the continued weaponization by Russia of its energy resources.”

“Russia keeps on actively manipulating our energy market,” European Commission President Ursula von der Leyen stated Wednesday in an annual State of the European Union address, where she announced the proposed measures.

“They prefer to flare the gas than to deliver it,” she continued. “This market is not functioning anymore.”

Chief among the proposed actions — which von der Leyen said could raise more than $140 billion for member states — are measures to reduce energy demand. 

EU nations would need to decrease electricity consumption by at least 5 percent during peak hours, according to the commission. That would require member states to identify the hours with the highest expected prices and seek to drive down demand at those times.

The commission did not detail exact measures for reducing demand, though it suggested they could include “financial compensation.”

The commission also proposed an overall reduction in electricity demand of at least 10 percent until March 31, 2023.

While the EU has diversified its supplies away from Russia — with the bloc now importing 9 percent of its gas from Moscow rather than last year’s 40 percent — von der Leyen stressed that these steps have proved insufficient.

“The climate crisis is heavily weighing on our bills,” she said, noting that heatwaves have boosted demand and that droughts have hampered hydroelectric and nuclear operations.

“Gas prices have risen by more than 10 times compared to before the pandemic,” she continued. “Making ends meet is becoming a source of anxiety for millions of businesses and households.”

The region’s annual inflation hit a record 9.1 percent in August 2022, according to the EU’s Eurostat agency.

While individual countries have approved subsidies, tax reductions and other forms of relief, many member states require money outside of their national budgets to help citizens pay their bills, The Associated Press reported.

Last week, U.S. Secretary of State Antony Blinken stressed that the U.S. “is doing everything in its power” to support those shouldering the fallout of Russia’s invasion.

That includes “comprehensive efforts to help Europeans get though a winter during which they’ll face heavy energy costs, making it hard for many to heat their homes,” Blinken said at a joint press conference with NATO Secretary General Jens Stoltenberg.

“We won’t leave our European friends out in the cold,” Blinken added.

It remains to be seen, however, how much liquefied natural gas the U.S. will be able to shuttle to its European allies across the Atlantic.

As the bloc braces for difficult months ahead, the European Commission on Wednesday also proposed a a profit cap on energy producers — a significant proposal that officials pitched as aiming to help consumers.

This would involve setting a temporary revenue cap of $180 per megawatt-hour on “inframarginal” electricity producers, such as renewables and nuclear facilities, which provide power to the grid at a relatively low cost.

The commission said such producers have been generating “exceptional revenues” because more expensive “marginal” producers — like gas power plants — have raised the wholesale electricity price that both marginal and inframarginal producers receive.

The agency also called for the oil, gas, coal and refinery sectors to provide a “solidarity contribution” from 2022 profits that exceed average profits from the previous three years by 20 percent or more.

“These companies are making revenues they never accounted for, they never even dreamt of,” von der Leyen said.

“But in these times it is wrong to receive extraordinary record profits benefitting from war and on the back of consumers,” she added.

Public policy experts emphasized the plan’s focus on demand and the need for emergency measures amid the ongoing energy crisis.

“As a proposal, it is not a done deal, and I imagine there will be pushback on some aspects — especially the idea to tap producer profits,” Morgan Bazilian, a public policy professor who previously served as an energy specialist at the World Bank, told The Hill in an email.

Bazilian stressed that the need for such a proposal “belies a rather broken set of markets, not just natural gas, but also power.”

“Europeans are facing an ongoing energy crisis, that U.S. pundits are happy to comment on, but are not experiencing in real time,” added Bazilian, who now teaches at the Colorado School of Mines. “Radical measures are needed as winter approaches.”

Gernot Wagner, a climate economist at Columbia Business School, said that what makes things so difficult right now is the conflicting needs to cut both demand and prices.

“Higher gas and electricity prices, after all, lower demand,” Wagner told The Hill in an email.

Ordinarily, he explained, markets are set up in such a way that decreased supplies of gas or electricity lead to higher prices — sending signals that consumers need to slash demand and suppliers need to ramp up production.

“These are not ordinary times, which calls for extraordinary measures,” Wagner said, noting that relying on such signals won’t be sufficient at the moment.

Direct price interventions, he continued, are meant to reduce the burden on both consumers and businesses.

“What’s striking is how late these interventions are coming,” Wagner said, suggesting officials should have taken energy-saving steps like asking consumers to work from home for a few weeks during the remainder of the winter heating season.

“Where were the efforts to decouple electricity from gas prices in the spring, when it was clear that Putin was using energy — and especially gas — as a weapon?” Wagner asked.

“Better late than never,” he said.

Tags Antony Blinken Climate change Energy prices European energy Morgan Bazilian Ursula von der Leyen war in ukraine

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