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How Europe is responding to Russia’s ‘energy war’ as winter comes

A gas processing plant in Norway on Wednesday. (Cornelius Poppe/AFP/Getty Images)
7 min

PARIS — European Union energy ministers agreed Friday on several emergency measures to tackle soaring prices, including a windfall levy on some energy producers and mandatory demand-reduction targets, but they remained split on calls to cap the price of natural gas.

The meeting in Brussels comes just days after the apparent sabotage of Russian pipelines feeding Europe and amid a severe energy crunch that has sent electricity prices soaring and raised concern about broader social and economic unrest.

“Europe is facing energy blackmail by Russia, and global demand for gas is higher than supply. We need to work along the whole chain to tackle the challenge,” E.U. Energy Commissioner Kadri Simson said in a statement Thursday.

Individual European countries have also pushed ahead with their own plans. Germany announced Thursday an up to $194 billion program to tackle rising energy prices, seeking to shield consumers and companies from some of the worst fallout as temperatures across Europe start to drop.

The German announcement also underlined just how varied Europe’s response to rising energy prices has been. Some member states, notably France, have had extensive price caps in place for much of the year. Germany, which heavily relied on Russian gas before the invasion of Ukraine, is only now taking comparable action.

German officials, like the rest of the E.U., were clear on what they don’t want to do: “We are expressly not following the U.K.’s example down a path to an expansionary fiscal policy,” Lindner said.

New British Prime Minister Liz Truss caused a financial market revolt earlier this week after her government proposed using borrowed money to pay for tax cuts while spending heavily to insulate consumers from soaring energy bills. In response, the British pound fell to an all-time low against the U.S. dollar.

What is the E.U. doing so far?

The E.U. plan will tax the profits of non-gas power producers when they sell above a certain price point and requires fossil fuel companies to pay a “solidarity contribution” from their 2022 earnings. This money will then be redistributed to cushion consumers. Truss has been explicit about no windfall taxes on energy companies.

To bring down demand, countries also agreed to a voluntary overall reduction target of 10 percent of gross electricity consumption and a mandatory reduction target of 5 percent of the electricity consumption in peak hours.

More than a dozen E.U. countries have urged the European Commission to propose a price cap on gas — a call it has yet to take up.

But Simson, the energy commissioner, suggested a cap may eventually be necessary. “We are negotiating with our reliable suppliers of pipeline gas,” she said Thursday. “If this doesn’t bring results, then a price cap is possible.”

How are France and Germany doing it?

The French government has required its majority state-owned energy company to sell power at an artificially low price this year, but it also intervened quickly to impose price caps.

The swift response was probably rooted at least partly in memories from the early stages of President Emmanuel Macron’s first term as president. Protests over environmental-linked fuel taxes in 2018 and 2019 quickly swelled, capturing broader concerns over social inequality and triggering the Yellow Vest movement that later turned increasingly violent.

As the country prepared for the presidential election this April, Macron’s government capped the increase in electricity prices at 4 percent and froze natural gas prices at fall 2021 levels — then kept them there after the election.

Earlier this month, French Prime Minister Élisabeth Borne said electricity and natural gas price increases would be capped at 15 percent in 2023, and 12 million low-income households will be eligible for one-off payments of up to around $200.

Overall, the price caps are expected to cost about $44 billion, and France expects to borrow a record sum — about $260 billion — to finance its expanding budget next year.

But future spending could end up being even higher in neighboring Germany, Europe’s biggest economy, which relied more on Russian natural gas than most other E.U. countries.

Following the nationalization of gas importer Uniper earlier in September, the government called off a gas levy that was due to kick in Oct. 1. Instead, it is expected to cover the cost of a price cap on gas and electricity that could bear some resemblance to the French approach. Private households, as well as small and medium-size businesses, would receive a basic amount of electricity at a subsidized rate.

However, anything above that basic amount, consumers would have to purchase at the market price. Germany is eager to maintain an incentive among households and businesses to reduce energy consumption.

German officials have called on the public to use less energy by washing clothes at 86 degrees Fahrenheit (30C), using more energy-efficient lightbulbs and heating their homes at around 66F (19C). Shorter and cooler showers have also been encouraged. Monuments, public buildings and shop windows nationwide have no longer been lit up at night.

Why was the British energy plan so disruptive?

Britain also plans to borrow heavily to shield its consumers, but it is doing so while dramatically slashing taxes, which has sent investors into a panic and shocked the currency.

“What France and Germany have approved is, on the whole, going to be more market friendly,” said Andrew Kenningham, chief Europe economist at Capital Economics, a consultancy.

Britain already has some of Europe’s highest energy prices, so its government has spent more than most to deal with the new surge. Over the past year, Britain spent 6.5 percent of its GDP to shield companies and individuals from the energy crisis — far more than most E.U. nations, according to Brussels-based economic policy think tank Bruegel.

Within days of coming into office this month, Truss announced a package of measures, including a lower than anticipated cap on energy bills until 2024.

Bank of England intervenes to avert credit crunch, economic fallout

But the tax cuts her government has proposed have prompted an unusual warning from the International Monetary Fund of an increase in inequality, compounding concerns over Britain’s ability to confront this winter’s energy crisis without a wave of public anger.

The pound’s plunging value will also make it more expensive for Britain to import from abroad, including energy.

What about Europe’s energy infrastructure?

The rising prices have reawakened a number of parallel debates over European energy infrastructure and supplies.

In Germany, Economy Minister Robert Habeck — a member of the Green Party — said this week that the country would probably not take all of its remaining nuclear power plants off the electricity grid by the end of this year as originally planned, drawing fierce criticism from within his party.

Germany’s decision in 2011 to shut down all reactors by 2022 had followed decades of Green Party pressure to abandon nuclear energy.

Habeck argues that the extension is temporary and that it is necessary because around half of all French nuclear plants are under maintenance.

France has also been under pressure from the German, Spanish and Portuguese governments to approve a natural gas pipeline project between Spain and France via the Pyrenees.

French officials have argued that existing pipelines between the two countries have enough capacity and a new pipeline would take too long to build.

But Spanish and Portuguese pipeline advocates argue that France is trying to put its own energy producers at an advantage by limiting the amount of gas Spain and Portugal can send to central Europe.

In Britain, the government lifted a ban last week on fracking, the environmentally fraught process of extracting shale gas, overturning an earlier decision that was made amid concerns over earth tremors.

Karla Adam in London contributed to this report.