It goes on full of energy. Whether and how the EU should intervene in the electricity and gas markets was one of the most important points of contention in Brussels in recent weeks. Only shortly before Christmas, on December 19, was agreement reached on an EU gas price cap. Despite this breakthrough, the rules governing Europe’s energy markets will remain a hotly debated topic. Important decisions are also pending in other areas of economic policy in the new year. An overview:
gas market
The EU’s gas price cap is scheduled to come into force in mid-February. It is not aimed at consumers, but at gas traders and suppliers. They are not allowed to conclude any contracts on gas exchanges at prices beyond the limit. The flexible cap is activated as soon as the price exceeds 180 euros per megawatt hour for three days in a row and is 35 euros above the global average. At the moment gas costs at the main EU Stock Exchange TTF but less than 90 euros, so not even half.
There is also another hurdle for the controversial limit: Acer and Esma, the EU supervisory authorities for the energy market and stock exchanges, will present an investigation into possible dangers in mid-January. And Energy Commissioner Kadri Simson promised that the EU Commission would stop the introduction of the cap that had just been decided if the study showed “that the risks outweigh the benefits”. Such an emergency brake would of course lead to an outcry from all the EU governments that fought for the upper limit.
Much less controversial is the new initiative that member states should jointly order part of their gas for storage. The reservoirs have to be refilled from spring onwards. In the summer of 2022, the countries drove up prices because they outbid each other. In order to reduce this risk, a joint purchasing platform is now to collect offers. Each member state has to let at least 15 percent of its gas storage requirements run over it. The gas importers, such as the nationalized Uniper group in Germany, will communicate their wishes to the platform. This obtains offers for the total quantity. In the end, however, the importers can decide whether they really want to buy or whether they don’t like the offers.
electricity market
By March, the Commission will also present reform proposals for the electricity market. So far, the most expensive power plant determines the price on the electricity exchanges. Since these are gas-fired power plants, the gas drives up the price of electricity. At the same time, cheap green and nuclear power providers are making lavish profits, with the EU states agreeing in the autumn to skim off some of these profits. The Commission has long defended the mechanism by which prices are formed, although some EU governments have vehemently called for the influence of gas prices on electricity prices to be reduced.
The Neckarwestheim nuclear power plant near Heilbronn. EnBW produces electricity there. So far, the price for this has been de facto based on the gas price.
(Photo: Marijan Murat/dpa)
Now, however, the Brussels authority wants to comply with these wishes in an electricity market reform. This emerges from discussion papers by the Commission. The low-cost green and nuclear power providers should no longer be remunerated solely via the market price, but rather conclude long-term contracts that provide for a fixed fee. The contracts would be put out to tender so that competition between the power plants drives down the price. These systems would continue to sell the electricity on the exchange. However, if the stock exchange listing is lower than the contract price, the companies are reimbursed the difference. This is similar to the German green electricity subsidy. If, on the other hand, the market price is higher, as it is now, the companies have to pay back the money. This obligation does not yet exist in the German system. The Commission’s model is called Contracts for Difference, or symmetrical market premiums; the approach aims to reduce electricity costs for consumers while offering reliability to cheap electricity producers.
industrial policy
Another hotly debated topic is how Brussels should respond to the US government’s massive subsidy package. The so-called Inflation Reduction Act (IRA) promotes the green transformation of the economy, but disadvantages European companies that want to export environmentally friendly products to the USA, such as electric cars. Because President Joe Biden wants to support American factories in particular with the program. Therefore, EU companies could relocate plants to the US. The Commission suggests relaxing subsidy rules and providing more EU funding in response to Biden’s law. At their December summit, the 27 heads of state and government called on the authority to present comprehensive proposals by the end of January.
In mid-March, the Commission also intends to present a draft law on critical raw materials. The aim is to become less dependent on large supplier countries such as China for rare earths and other raw materials. The legal act aims to speed up permitting processes for strategically important mines in Europe; Reserves are to be built up for essential raw materials.
finance and debt
By the summer, the Commission wants to cash in and check whether the multi-year EU budget plan for 2021 to 2027 needs to be increased. The heads of state and government agreed on this in 2020 after laborious negotiations. However, the Ukraine war and inflation have meant that money is now very tight. In addition, Commission President Ursula von der Leyen wants to set up a European sovereignty fund that supports strategic industrial projects – also a reaction to Biden’s subsidy program. However, this pot must first be filled. Either the member states add money to the EU budget, or the Commission is given permission to take on new common debt again, as for the Corona aid fund. Both approaches would be very delicate for the federal government.
Federal Finance Minister Christian Lindner (FDP): The EU stability pact is being discussed in Brussels. There is a rough concept that Lindner doesn’t like.
(Photo: Britta Pedersen/dpa)
There are also fierce debates about the reform of the Stability Pact. The Commission plans to present draft legislation by March to make these sound financial management rules more flexible, realistic and enforceable. However, the schedule is unlikely to be kept; there is still too much need for discussion with the governments. Because the authority presented its rough concept back in November – and met with great reservations from some finance ministers, such as Christian Lindner (FDP).
contest
In May, the groundbreaking law on digital markets comes into force. The EU legal act, which is abbreviated to DMA in English, allows the Commission to so-called powerful Internet platforms such as Amazon gatekeepers to explain. These companies are gatekeepers and guideposts to the web for citizens. They can exploit this position to favor their own offers and disadvantage smaller rivals. That is why the law imposes special rules of conduct on gatekeepers. These are based on the Commission’s experience in competition proceedings against corporations such as Google’s parent company Alphabet or Apple. The commission will decide who is the gatekeeper in the summer. Presumably it will be Alphabet, Amazon, Apple, Booking.com, Facebook parent Meta, Microsoft and Tiktok.