EU proposes tax breaks, caps to shield users from energy rally

The rally in natural gas to power and emission permits is hurting everyone from German chemicals producers to Spanish households just as the economy is recovering from the pandemic

The European Union set out proposals for member states to help protect their most vulnerable companies and citizens from the unprecedented surge in energy prices. 
 

The rally in natural gas, power and emission permits is hurting consumers from German chemicals producers to Spanish households just as economies recover from the pandemic, boosting demand. With the bloc saying Tuesday it expects high prices through the winter, calls for coordinated action are getting louder.

The measures include short-term tax cuts for parts of the population and aid to industry to cope with rising costs, according to the proposals that will be presented to national leaders at a meeting next week. The plan is designed to support the green transition without increasing the use of fossil fuels. 

“Winter is coming and for many, electricity bills are larger than they have been for a decade,” EU Energy Commissioner Kadri Simson said Wednesday at a press briefing. “We have to make our energy system better prepared and more resilient so we don’t have to face a similar situation in the future.”

EU energy ministers will also hold an emergency meeting on Oct. 26 to discuss the crisis, according to two EU diplomats. Separately, Simson said she would travel to the Persian Gulf region in the coming weeks to discuss energy supply.
 

The surge in prices is a wake-up call, a senior EU official said before the release of the proposals, adding that the crisis requires a rapid and joint response by member states and institutions. 

But any help from countries to their citizens must not contravene rules over state aid, limiting what the EU can do in the short-term to limit the pain. Its “toolbox” of measures available to member states is not new; instead Wednesday’s announcement offers recommendations on how to use them. 

The EU has suggested that countries use increased revenues from the region’s Emissions Trading System -- some 10.8 billion euros ($12.5 billion) more so far in 2021 than a year earlier -- to help fund relief measures. The European Commission also said Wednesday that the EU would respond to the crisis by generating even more renewable energy under its Green Deal plans. 

Gas Squeeze
 

Simson said Tuesday that many analysts expect prices to fall back in spring. Gas storage levels, at their lowest in more than a decade for this time of year, are “tight” but should be sufficient to meet demand, she said. 

The EU currently has storage capacity for more than 20% of its annual gas use, but not all member states have such facilities, and rules governing their use and maintenance vary. The bloc’s executive branch will also examine medium-term options for the joint purchase and storage of gas, a move that could reduce dependence on foreign suppliers such as Russia. 

What the EU says member states can do immediately:
 

• Introduce tax exemptions or reduced rates, provided they are compatible with state aid rules
• Offer support to help industries adapt to the energy transition
• Encourage long-term power-purchase agreements of renewable electricity
• Shift the financing of renewables off electricity bills
• Bring in price caps
• Offer emergency income support to the most vulnerable