EU’s von der Leyen pulls back on gas price cap, outlines windfall tax proposals

Pictured: LNG tanker storage in Greece. Stock photo

In her annual State of the Union speech before the European Parliament in Strasbourg on Wednesday (14 September), Commission President Ursula von der Leyen said negotiation would be a more efficient way to lower gas prices, which are set on the global market.

EU energy ministers, meeting last week in Brussels, expressed reservations about a gas price cap, saying it risked undermining the EU’s ability to negotiate supply deals with alternative suppliers.

A new task force will be set up to negotiate deals with Norway and other gas suppliers so that “we lower in a reasonable manner the price for gas,” said von der Leyen, the former German defence minister who took the helm of the EU executive in December 2019.

The move was welcomed by Simone Tagliapietra, a senior fellow at the Bruegel economic think tank in Brussels.“She is right: this is the way to go – possibly with via EU joint action to leverage the size of the European gas market,” he told EURACTIV.

In parallel, von der Leyen announced the creation of a new gas market benchmark to reflect the EU’s rapid shift from imported pipeline gas to liquified natural gas (LNG), which is traded on the global market and shipped from faraway places such as Qatar and the United States.

“We have to diversify away from Russia,” she insisted, noting that pipeline gas supplies from Moscow have now fallen to 9% of EU gas consumption from around 40% last year.

In the face of soaring gas prices, EU countries have poured billions into social protection measures in order to shield the most vulnerable households.

To help finance this, von der Leyen announced the creation of a windfall tax on the “revenues of companies that produce electricity at a low cost” – typically renewables and nuclear. A draft proposal, seen by EURACTIV, puts the limit at €180/MWh, the same level that has been introduced in Spain.

A separate “solidarity contribution” will be demanded of oil and gas companies, which have reaped extraordinary profits from soaring prices on global energy markets.

“Our proposal will raise more than €140bn” for EU member states to cushion the blow of the energy crisis on European consumers, von der Leyen announced.

European Hydrogen bank

At the same time, the Commission president warned against repeating the mistakes of the 1970s oil crisis by investing too much in new fossil fuel infrastructure.

“Only a few visionaries realised the problem was the fossil fuels themselves – not their price”, she said. “We kept driving on the same road” and “fossil fuels were massively subsidised,” she warned. “That was wrong and we are still paying the price for that.”

To ensure investments in future clean energy infrastructure, von der Leyen announced the creation of a “European hydrogen bank” that will “guarantee” the purchase of hydrogen thanks to funds drawn from the EU carbon market, the Emissions Trading Scheme (ETS).

The new bank “will be able to invest €3bn to help build the future market for hydrogen,” von der Leyen said.

It is expected to be modelled on the German H2-Global foundation, financed with €900m, which is expected to enter operation soon. The bank offers a guaranteed price for hydrogen for up to ten years by covering the difference between production costs and the sales price.

Long-term electricity market reform

Turning to the power market, von der Leyen emphasised the need to “decouple the dominant influence of gas on the price of electricity ” in order to ensure consumers “reap the benefits of low-cost renewables”.

Prices on the EU electricity market have soared more than tenfold since Russian gas supplies started decreasing last year.

“My diagnosis is that the current electricity market design based on the principle of merit order, is not fit anymore, it’s not fit for consumers anymore,” von der Leyen said, confirming plans announced earlier this year to fundamentally redesign the EU’s electricity market.

Taxonomy walkouts 

The speech came on the same day that five civil society organisations decided to leave a European Commission-led expert group on sustainable finance, saying the EU executive has interfered politically in decisions such as the controversial inclusion of gas and nuclear power in the EU’s green finance taxonomy.

The resigning organisations are the European Consumer Organisation (BEUC), Birdlife Europe and Central Asia, Environmental Coalition on Standards (ECOS), Transport & Environment (T&E), and the World Wildlife Foundation (WWF) European Policy Office.

The five NGOs announced their decision in a letter on Wednesday, saying the European Commission has interfered in their work and “acted against evidence despite its legal obligation to follow science-based advice.”

“The governance of the Commission’s relationship with the Platform has been very unsatisfactory,” reads the letter sent to Mairead McGuinness, the EU commissioner for financial services.

The expert group was set up in June 2018 to assist the EU executive in drawing up technical criteria under the EU’s green finance taxonomy, a rulebook aimed at defining the technologies that can be labelled green investments and those that cannot.

But the NGOs pointed the finger at the Commission for repeatedly ignoring the expert group’s recommendations, without providing any scientific justification for these decisions. This was particularly noticeable when it came to forestry, bioenergy, gas-fired power and nuclear power, the NGOs pointed out.

Frederic Simon, EurActiv.com

This article first appeared on EurActiv.com, an edie content partner