Brussels’ plans to limit Russian gas prices

Andrey Yashlavsky

The EU is urgently laying out plans for windfall taxes and energy savings amid the energy crisis. Against this background, the head of the European Commission, Ursula von der Leyen, did not find anything better than developing plans to limit the price of Russian gas.
The EU chief executive laid out plans for windfall taxes, mandatory energy savings and capping Russian gas prices to limit Kremlin revenues.
Ursula von der Leyen laid out a five-point plan in response to the energy price crisis caused by Russia’s shutdown of the key Nord Stream 1 gas pipeline, but exacerbated by the climate crisis and the lingering effects of the COVID-19 pandemic.
Von der Leyen said low-carbon energy companies, renewables and nuclear energy providers that have made “huge profits … that they never dreamed of” from electricity generation will face a cap on their revenues.
Under EU energy rules, the price of electricity is determined by the cost of the most expensive fuel, usually gas, rather than cheaper renewables and nuclear power. As a result of record high gas prices, low-carbon electricity producers have been rewarded with significant revenue increases.
“These revenues do not reflect their production costs,” says Ursula von der Leyen. “Therefore, it is time for consumers to benefit from the low cost of low-carbon sources.” The European Commission, she said, has proposed “redirecting these windfalls” to allow member states to support vulnerable households and companies.
Oil and gas companies that made “huge profits” would also be subject to a windfall tax, which von der Leyen called a “solidarity contribution.”
Although von der Leyen did not mention specific figures, a leaked document that has come to the attention of The Guardian shows that the European Commi-ssion wants to set a cap of 200 euros per MWh on the price of low-carbon electricity. The paper says this “mimics the market results that would be expected if global supply chains were functioning normally and were not subject to energy-to-weaponization due to gas supply disruptions.”
The leaked document also shows that the EU executive wants a mandatory 5% reduction in electricity consumption during peak hours. This echoes an earlier gas savings plan, although EU member states have decided that these efficiency measures should be voluntary, raising questions about whether they will accept a mandatory target.
Finally, von der Leyen has proposed capping the price of Russian gas, stating that it is necessary to reduce the revenues received by Russia.
Since the start of the conflict in Ukraine on February 24, the EU has spent almost 88 billion euros on Russian fossil fuels, according to the non-governmental organization Europe Beyond Coal.
The plan to curb Russian gas supplies immediately ran into opposition from Czech Industry Minister Josef Sikela, who is due to chair a crisis EU meeting on Friday. “This is not a constructive proposal,” he told the Czech Senate, adding that it looks like further “sanctions against Russia, and not a real solution to the energy crisis in Europe.”
Criticizing the plan from a different perspective, Poland argues that the bloc should cap prices on all non-EU gas as it fears targeting Russia will trigger retaliatory measures that deprive Ukraine of lucrative pipeline transit fees.
As The Guardian recalls, speaking in Vladivostok, Vladimir Putin called attempts to limit oil and gas prices “completely stupid” and “complete nonsense”, while saying that Russia had enough customers in Asia to survive the damage. “Will they make political decisions that are contrary to the contracts? – The Gu-ardian quotes the Russian president. – In this case, we will not supply anything if it is contrary to our economic interests. Nothing: no gas, no oil, no coal, no fuel oil, nothing.”
In this regard, Ursula von der Leyen said that Ru-ssia has already partially or completely cut off gas supplies to 13 EU member states.
According to The Gua-rdian, Gazprom announced last Friday that it would not resume gas flows through Nord Stream 1, the largest gas pipeline connecting Russia and Europe. The Kremlin later said it would not resume full gas supplies until Europe lifted sanctions imposed in response to Russia’s special military operation in Ukraine. Before the recent shutdown, gas supplies from Russia to the EU fell to 30% of the 2016-2021 average.
Even before the start of the Ukraine conflict, Europe was already facing skyrocketing gas prices as demand for fuel in China soared as the economy recovered from the pandemic. Problems were exacerbated by a record-breaking dry summer, which led to an increase in demand for air conditioning and a reduction in the hydropower of rivers and reservoirs. Meanwhile, half of France’s aging nuclear reactor fleet has been shut down due to key pipe corrosion problems, changing the country’s traditional role as an exporter of electricity to its neighbors.
Ursula von der Leyen acknowledges that the EU sees the effects of climate change and drought and called renewables “our energy insurance for the future”.
The long-awaited plans will be discussed by EU energy ministers in emergency talks on Friday.