EU probes possible energy-price manipulation
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'Fossil fuel prices are spiking. We need to speed up the green transition, not slow it down,' said EU energy commissioner Kadri Simson (Photo: EC - Audiovisual Service)
The European Commission confirmed on Wednesday (13 October) that it was investigating possible "manipulative practices or abuses" by companies producing and supplying natural gas to Europe and whether certain trade patterns have influenced the carbon price increase.
The announcement was part of a 'toolbox' of measures at both national and European level to mitigate the impacts of skyrocketing energy prices on businesses and vulnerable households.
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"Rising global energy prices are a serious concern for the EU. As we emerge from the pandemic and begin our economic recovery, it is important to protect vulnerable consumers and support European companies," said EU energy commissioner Kadri Simson.
The EU's energy market is currently in turmoil as a result of a surge in gas and electricity prices, mainly driven by an increase in the global demand of gas and partly by a rise in carbon prices under the EU's emissions trading scheme (ETS).
Under the ETS, based on a cap-and-trade system, a price is put on carbon emissions and emission-allowances are then auctioned. This year, the carbon prices doubled from around €30 to €60 per tonne of CO2.
But according to the EU commission, the effect of the gas price increase on the electricity price was nine times bigger than the effect of the carbon-price increase.
The situation has prompted most member states to take action at national level, capping prices, imposing temporary tax breaks, and intervening in markets.
But the commission has called on EU governments to also use the extra revenues from the internal carbon market to support their most vulnerable consumers, for example, through issuing vouchers or by paying parts of their energy bill.
From September 2020 to August 2021, revenues generated from the auctioning from ETS allowances amount to €26.3bn.
Additionally, member states could defer energy-poor consumers' payments temporarily or put forward measures that prevented operators from disconnecting people's gas or electricity supply even if they could not pay their bills, the EU executive said.
A labour organisation last month found that nearly 3 million workers in the EU cannot afford heating their homes.
But overall, some 34 million Europeans are struggling to pay their heating bills.
Other measures put forward on Wednesday to reduce the social impact of the price surge included reducing taxes for the most vulnerable, establishing targeted aid to affected industry players, or providing more flexibility to smaller companies to access renewable sources.
Spain, which has seen electricity prices triple this year, recently reduced a special electricity tax from 5.1 percent to 0.5 percent until the end of the year and the overall tax on household energy from 21 percent to 10 percent.
Common gas purchase?
Under its new communication, the EU Commission insisted that the current surge of prices was not a result of the Green Deal, but was due to Europe's dependency on fossil fuels - pointing out that the decarbonisation of Europe's energy system would reduce future exposure and risk of price volatility.
"Fossil fuel prices are spiking. We need to speed up the green transition, not slow it down," Simson said.
Natural gas represents around a quarter of the EU's energy consumption, but 90 percent is imported from third countries, in particular Russia and Norway.
As the EU executive acknowledged that gas had a role to play in the green transition, strategic gas reserves have gained relevance, especially since storage is not available in all EU states.
Brussels also confirmed on Wednesday that it would explore the possibility of voluntary joint procurement of gas, prompting a more integrated approach to storage that could help mitigate volatility in prices.
The current storage capacity covers only 20 percent of the EU's annual gas consumption, however.
Decoupling gas and electricity prices
Under the current market rules, gas sets the overall electricity price, but some member states, such as France, have called for decoupling of electricity from gas prices.
The EU commission said that it will assess this proposal, while arguing that this pricing model was currently seen as the most efficient one.
"Intervening in the existing European electricity market design as a way to cope with the current price crisis is likely to be inappropriate, as it would require altering a very sophisticated set of rules which took more than a decade to be agreed upon," Nicolò Rossetto, a research fellow at the Florence School of Regulation in Italy, told EUobserver.
Gas prices are projected to remain high during the winter and to begin to fall from April next year.
The toolbox of measures will be discussed at the next EU summit on 21 to 22 October.