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Energy crisis forces EU ministers to face up to reliance on natural gas

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<span>Photograph: Peter Kovalev/Tass</span>
Photograph: Peter Kovalev/Tass

The UK is far from alone in its energy crisis. Across Europe, governments are acting to shield consumers from soaring bills, with nerves growing about the coming winter. EU energy ministers will meet this week at an Alpine castle in Slovenia, where they will discuss global gas shortages and the union’s energy policy.

Since the start of the year, wholesale gas prices in Europe have risen by 250%, the result of a complex cocktail of economic, natural and political forces. Globally, demand for energy has shot up, as China and other major economies bounce back from the pandemic. In Europe, a cold winter and frigid spring depleted gas reserves, while a long spell of still days reduced wind power supply to the grid. Meanwhile, CO2 prices hit a record €62 this month and Russia, a big exporter, has declined to increase gas supplies. Now, across the continent, energy prices are only going in one direction: up.

The first mover in Europe was Spain, whose government last week announced emergency measures to cap energy prices and profits. Responding to a tripling of electricity prices since last December, the socialist anti-austerity Unidas Podemos government said it had a moral duty to act and promised to bring down energy bills to 2018 levels, the year the prime minister, Pedro Sánchez, came to power. The government expects consumers to benefit from €2.6bn (£2.2bn) that would have gone to energy companies.

In France, the government has pledged one-off payments of €100 (£86) to 5.8m households struggling to pay their energy bills. Italy is expected to announce a €4.5bn support programme for consumers in the coming days. In Germany, wholesale power prices have risen by 50%, although some analysts say consumers have been insulated from bill shock, as suppliers have many long-term fixed price contracts. That could change over the autumn, however, just as negotiations on a new coalition government are taking place, with Germany’s energy future on the table.

Ahead of this week’s EU energy meeting, Spain has called for a “policy menu” to help the bloc to react immediately to price surges. In a letter to the European Commission, the economy minister Nadia Calviño and her colleague in charge of ecological transition, Teresa Ribera, said “member states should not need to improvise ad hoc measures every time markets malfunction”. Spain wants measures to limit financial speculation on the EU carbon market and common action to buy gas reserves.

The EU executive is also facing calls to investigate Russia’s state gas monopoly, Gazprom, after MEPs said they suspected the company of market manipulation. Russia provides 41% of EU gas, but for months Gazprom has refused to increase supply to the spot market, where trade is for short-term needs rather than long-term contracts. The move is interpreted as the Kremlin’s attempt to twist arms for speedy approval of Nord Stream 2, the controversial pipeline under the Baltic Sea that will double Russian gas exports to Germany. Completed earlier this month, the pipeline cannot start delivering gas until it clears regulatory hurdles in Germany. In a letter to the European Commission this month, 40 MEPs said they were suspicious of the company’s “effort to pressure” Europe to quick approval of the pipeline.

Aside from geopolitical intrigue, the energy price increase is intensifying the conflict over the EU’s response to the climate emergency. Lawmakers have already blamed the spike in prices on high CO2 price, a product of EU regulation. Under the EU’s pioneering Emissions Trading System, electricity producers and energy intensive industries are required to buy pollution permits.

Poland, which is already battling the EU over coal mining, has complained about the costs of buying ETS allowances, after CO2 prices hit a record level. Earlier this month the EU’s CO2 price hit €62; it was €30 at the start of the year.

According to the EU’s top official in charge of the green deal, Frans Timmermans, only one-fifth of the current energy price rises can be attributed to CO2 prices.

His analysis is backed up by the Ember, a thinktank aimed at promoting the transition away from coal: the group has found that fossil gas prices account for most EU electricity prices from combined cycle gas turbines.

Timmermans told the European parliament last week that current energy prices showed the necessity of speeding up the shift to renewable energy. “The irony is if we had had the green deal five years earlier we would not be in this position because then we would have less dependency on fossil fuel natural gas.”

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