EU Commission proposes new instrument to limit high gas prices
After months of pressure from EU countries, the European Commission finally presented its eagerly awaited plans for a gas price cap this week in Strasbourg. Specifically, the plan refers to a measure of limiting excessive prices of gas, thereby aiming to protect both EU businesses and households, namely the so-called “market correction mechanism”. Belgium was one of about 12 countries – Italy, Poland and Greece among others – that had demanded the EU introduce an upper limit to ensure that gas prices remained at an affordable level if necessary. Prime Minister Alexander De Croo and Energy Minister Tinne Van der Straetennever missed an opportunity to call for such a gas price brake.
However, the gas price brake proposed by Energy Commissioner Kadri Simson could prove to be a blunt weapon in practice. On Tuesday, the Commission revealed that “the market correction mechanism will be triggered when two conditions are met.” First, the gas price brake takes effect if the price exceeds €275 per megawatt hour for two weeks and, secondly, the gas price must be at least €58 higher than the reference price for liquid gas on the world market.
The upper limit of €275 was exceeded only once during the crisis, namely at the end of August this year. At that time, the price for a megawatt hour of gas on the most important energy exchange in Amsterdam was suddenly just under €350. But that was just this one time. With reference to lasting two weeks, that was also not the case at the end of August either. In other words, if the gas price brake had already existed in this form, it would never have been used before. On the basis of previous experience, one could say that this gas price cap will probably never be activated.
Nevertheless, critics have heavily criticized the Commission’s proposal. Even the 16 Energy Ministers, who have showed advocacy of a price cap, echoed criticism. This included Spain’s Energy Minister Teresa Ribera. Ahead of Thursday’s summit with EU energy ministers, she voiced that the “Commission is going to hear very tough things tomorrow from the vast majority of ministers”, adding that “we asked the Commission to bring a proposal and it comes up with this — which isn’t a proposal, but a joke.”
Consequently, this could lead to a blocking alliance of several countries, which could delay or indeed prevent the approval that the Commission needs. In order to effectively seal the package, the Czech Council Presidency has agreed to organise a specific meeting on this matter. The proposed measure could come into force as early as 1 January 2023. Whether this goal will actually be achieved remains yet to be seen.