EU energy policy: A problem shared is a problem halved

Germany argues that its huge €200 billion package to protect businesses and homes from high energy bills is not selfish: the benefits for Europe’s largest economy will trickle down to everyone else. Besides, everyone is there. Spain, Portugal and France have all taken action to contain prices.

But the problem is the relative size of the package. Germany has the debt capacity to enforce subsidies that fiscally constrained countries like Italy can never replicate. A piecemeal approach is not a good idea.

First, it distorts the competitive landscape. Companies should gain market share because they do their job better, not because they are based in a rich or generous country. Second, it might not be wise to keep even fiscally unwary countries dry: it might encourage them to break ranks and take a kinder view of Russia.

One solution could be some kind of European financing facility to lend money to national governments to subsidize energy prices. But the scope of support should be as limited as possible. It is unwise to remove price signals from a market suffering from insufficient supply. And debts must be paid back.

This is important given that these are potentially very large numbers. First look at the gas sector. The European market consumes around 4000 terawatt hours annually. Gas now costs about 145 euros per megawatt hour. Catching the difference at historical prices of around €20/MWh would cost €500 billion annually. It seems both unprofitable and undesirable for Europe to raise this kind of money: it would support gas demand at a time when Europe needs to ration.

However, focus on industry, which accounts for about 20% of European gas demand, and borrow Germany’s proposed price cap of €70/MWh for 70% of consumption and costs shrink to a more manageable €42bn. The remaining price risk would also provide some incentive to reduce demand. This is crucial in view of the tense supply conditions in Europe.

If you are a subscriber and would like to be notified when Lex articles are published, simply click on the ‘Add to myFT’ button that appears above the headline at the top of this page. EU energy policy: A problem shared is a problem halved

Adam Bradshaw

TheHitc is an automatic aggregator of the all world’s media. In each content, the hyperlink to the primary source is specified. All trademarks belong to their rightful owners, all materials to their authors. If you are the owner of the content and do not want us to publish your materials, please contact us by email – The content will be deleted within 24 hours.

Related Articles

Back to top button