European Commissions Lays Out Energy Crisis Plan, Reaffirms Commitment to Sanctions on Russia

European Commissions Lays Out Energy Crisis Plan, Reaffirms Commitment to Sanctions on Russia
European Commission President Ursula von der Leyen gives a press conference on energy at EU headquarters in Brussels, on Sept. 7, 2022. (Kenzo Tribouillard/AFP via Getty Images)
Bryan Jung

The European Commission announced on Sept. 14 its new plan to control the rising cost of energy in Europe since the Russian invasion of Ukraine, in order to prepare the continent for a difficult winter.

The proposals include mandatory cuts in electricity usage, a windfall profit tax on energy firms, and a rescue plan for power companies facing financial difficulties, in order to alleviate economic hardship throughout the 27-member bloc.

Governments in Europe are struggling to contend with high energy prices and inflation after a series of supply cuts by Russia, which gradually reduced gas exports in response to European Union sanctions.

Gazprom, Russia's energy company, said on Sept. 2 that the Nord Stream 1 pipeline, which is the main source of natural gas supplies for the bloc, would remain shutdown indefinitely.

The Russian energy firm blames EU sanctions for directly causing the technical difficulties that prevent it being from being able to provide full service through the pipeline.

Meanwhile, surging gas and power prices are pushing up inflation, curtailing industrial activity and inflicting extraordinarily high bills on households throughout Europe ahead of winter.

"Making ends meet is becoming a source of anxiety for millions of businesses and households," said European Commission President Ursula von der Leyen.

She announced new measures to cap revenues from low-cost electricity generators and to force power utilities to share any excess profits from soaring energy prices.

"In these times, it is wrong to receive extraordinary record revenues and profits benefiting from war and on the back of our consumers. In these times, profits must be shared and channeled to those who need it most," she said.

The proposal would skim off excess revenues from existing non-gas power plants by applying a price limit of €180 per megawatt hour, until March, on the earnings that they receive for energy production.

Energy prices in the EU are often set by gas plants, so the measure would apply to those companies that sell power at those prices, but do not rely on the increasingly expensive fuel source.

This will be applied only after power transactions are settled in order to avoid directly affecting prices in the EU's exchange-traded energy market.

The temporary windfall tax for energy companies would apply to 33 percent of utilities' taxable surplus profits from 2022.

The surplus will be defined as all revenue that exceeds 20 percent of a company's average taxable profits over the last three years.

The EC president said that the commission expects to raise more than €140 billion through this plan, which will cap revenues at less than half of current market prices.

Some EUE Members Resist Price Caps

A highly debated price cap on energy imports was not included in the proposal for now, with member states such as Germany, the Netherlands, and Denmark opposed to such plans, while Italy and Poland were in favor.

The EU members are divided over whether gas price caps would help or hurt efforts to secure energy supplies.

An earlier proposal to solely cap Russian gas prices was steadfastly opposed by Hungary and Austria, after concerns that Russia in retaliation would totally cut off their supplies this winter.

Norway, a member of NATO and an EU ally, also opposed price caps on energy, as it is the largest gas supplier to the bloc after Russia.

Other proposals include a mandatory target for countries to cut electricity by 5 percent use during peak hours, after members failed to voluntarily cut consumption by 15 percent.

The commission will also amend collateral requirements in energy markets to prevent utilities from financially collapsing under a liquidity squeeze, said von der Leyen.

Brussels is planning a separate overhaul of its electricity market to decouple power prices from soaring gas costs, and that it was working to establish a "more representative benchmark" price for gas to supplant the Dutch Title Transfer Facility.

Countries across the EU have already gave away hundreds of billions in tax cuts and subsidies to alleviate inflation pressures, while pressuring industries to halt production in order to save on energy.

Gas storage facilities across the bloc are, on average, at 84 percent full capacity, but this would only be enough if countries cut consumption over the winter to avoid shortages.

Von der Leyen claimed that Europe was in the process of diversifying away from Russian energy, and she directly blamed the Kremlin for "actively manipulating" the market by causing prices to multiply more than 10 times pre-pandemic levels.

The EC leadership also restated the bloc's solidarity with Ukraine, calling their commitment to its government "unshakeable" and that sanctions on Russia will continue.

"This is the time for us to show resolve, not appeasement," said von der Leyen, who will be later traveling today to meet Ukrainian President Volodymyr Zelenskiy.

"We are in it for the long haul."

The commission's final laws and proposals are expected to be voted on at a meeting of European energy ministers on Sept. 30.

Reuters contributed to this article.
Bryan S. Jung is a native and resident of New York City with a background in politics and the legal industry. He graduated from Binghamton University.