EU chiefs channel energy at cutting off Russian gas

EU chiefs channel energy at cutting off Russian gas

 

At summit, leaders agree on ‘special treatment’ to ease price-pinch in Spain and Portugal.

 

BY DAVID M. HERSZENHORN AND ZOSIA WANAT

March 25, 2022 11:36 pm

https://www.politico.eu/article/eu-chief-channel-energy-cut-russia-gas/

 

EU leaders spent an inordinate amount of energy on Friday arguing over how best to protect voters and business from soaring energy prices.

 

In the end, at the close of a two-day summit that focused on Russia’s war against Ukraine, the leaders settled on an everything-under-the-sun approach that most immediately would allow Spain and Portugal to cap prices on gas and, according to their prime ministers, quickly bring relief to cash-strapped households.

 

Over the long term, the measures endorsed by the leaders are designed to end, once and for all, Europe’s addiction to fossil fuels supplied by Russia — an aspiration that existed prior to President Vladimir Putin’s invasion of Ukraine, but that is now an urgent security imperative. Germany, for example, wants to be free of Russian oil and coal by year’s end.

 

“We will further increase our support to Ukraine,” European Commission President Ursula von der Leyen said at the summit’s closing news conference. “We will sharpen our sanctions and we will break free from Russian fossil fuels.”

 

Earlier Friday, von der Leyen appeared in Brussels with U.S. President Joe Biden to announce a plan for the U.S. to help Europe end its reliance on natural gas piped from Russia. They laid out a goal of an additional 15 billion cubic meters (bcm) of liquefied natural gas from the U.S. to EU markets this year, and 50 bcm more annually through 2030.

 

Russia now sends the EU 155 bcm a year, or about 40 percent of the total gas consumption of EU member countries. The announcement with Biden signaled the EU’s seriousness from a political perspective, but there were immediate questions about whether the U.S. could ever meet the ambitious targets that the leaders described.

 

Leaders spent much of the rest of Friday wrestling with the particular demands of Spain and Portugal, countries that literally find themselves “off the grid” when it comes to the broader EU energy system.

 

“The Iberian Peninsula has a very special situation — there the energy mix is with a high load of renewables,” von der Leyen said. “And with very few interconnections only. And therefore we agreed on a special treatment that is possible for the Iberian Peninsula so that the Iberian Peninsula can deal with this very specific situation they are in.”

 

The EU electricity system pegs the price of power to the last fuel used to satisfy demand, which is usually natural gas, and that’s led to high power prices as the price for natural gas rose eightfold over the past year.

 

The decision by the European Council stopped short of granting Spanish Prime Minister Pedro Sánchez and Portuguese Prime Minister António Costa the flexibility they had demanded to fully break, “decouple” or “unbundle” the price of gas from consumers’ electricity bills — or to intercede with the widest possible authority to impose price controls.

 

But the Council’s decision to permit “emergency temporary measures” was enough of a victory that Sánchez and Costa appeared together for a triumphant joint news conference.

 

"Our conversations and the proposals raised with the energy ministers have borne fruit in a very beneficial agreement for the Iberian Peninsula,” Sánchez said, adding: “We have led the debate and the objective that we had set, we have fulfilled in this Council.”

 

Countries that had opposed government interventions in the energy markets won concessions that will give the European Commission authority to assess the proposed emergency measures and require that it make sure any such steps do not undermine trading conditions in a way that is “contrary to the common interest.”

 

In a way, the outcome was a classic EU fudge, giving all of the leaders the ability to claim some kind of victory, and pushing off some of the potentially most difficult policy decisions.

 

The steep rise in energy prices, exacerbated by the war in Ukraine, has exposed the extremely limited ability of Brussels to help, given the extremely different conditions of energy markets in different EU member countries. At the news conference, von der Leyen acknowledged that there was no cure-all solution and that any approach had downsides.

 

“We looked at various options to cushion the impact of high energy prices on consumers and businesses — measures such as income support or state aid, vouchers, reduced taxation, price caps, modulating prices, contracts for difference, etc.,” she said. “All options we presented have pros and cons.”

 

Among the steps the EU leaders agreed upon was a plan to pool the purchasing power of the 27 countries.

 

“The energy mix ... in our member states is very different,” von der Leyen said. “But we need to work together.”

 

French President Emmanuel Macron said of the proposal for joint purchasing of gas that working "together [on] a long contract is the best tool to decrease gas prices.”

 

In addition to the short-term measures, von der Leyen said the Commission was also looking at “the design of our energy market” — i.e. “the question of decoupling the gas price from the overall electricity price.” On that complex issue, she said: “We will present options for that in May.”

 

Sánchez and Costa gave no details about their plans. The two prime ministers said they would quickly come forward with proposals to help reduce utility bills for citizens and businesses, but it was impossible to predict just how much relief consumers might expect.

 

The lengthy debate over ending the EU’s dependence on Russian energy showed leaders are insistent on countering Putin’s war in Ukraine. On Thursday, there were back-to-back-to-back summits of NATO, the G7 and the European Council focused on the war, and by the end of Friday’s discussions many of the leaders were bleary-eyed with exhaustion.

 

German Chancellor Olaf Scholz told reporters that making Germany independent from Russian energy “is a big but solvable task.”

 

While he didn’t give any predictions of how much time that would take, Scholz stressed “it will happen much faster than some people are worried about.” He then added in the direction of Russia: “It will also happen much faster than some people might want it to be.”

 

Scholz added: “That everyone now wants to make themselves independent [of Russian energy] means, of course, a strategic worsening of Russia’s situation also in economic terms … it’s a dramatic change in Russia’s development and income prospects. The war already has dramatic costs for Russia and is a big mistake.”

 

During the summit, the heads of state and government reelected Charles Michel to a second two-and-a-half-year term as Council president. And Macron, at his own closing news conference, made a surprise announcement that France, Greece and Turkey would undertake an evacuation mission to rescue people from Mariupol, a Ukrainian city on the Sea of Azov that has been almost totally destroyed by bombing.

 

In their summit conclusions, the heads of state and government also addressed concerns that the war in Ukraine could lead to a global food crisis, in particular because of shortages in wheat, of which Ukraine is a major producer.

 

The leaders also discussed plans for a summit meeting with China on April 1. But much of their conclusions were dedicated to the war and related security concerns. They demanded that Putin immediately end military hostilities, and they approved a new blueprint for EU security policy called the “Strategic Compass.”

 

Maïa de La Baume, Jacopo Barigazzi, Lili Bayer, Giorgio Leali, Paola Tamma and Hans van der Burchard contributed reporting.