Stepping up economic pressure on Russia, the EU outlines plans to tackle surging gas prices and bolster energy resilience
On 8 March 2022, in response to Russia’s threat to cut Europe’s gas supplies, the European Commission outlined plans to reduce EU demand for Russian gas by two thirds before the end of the year and eliminate dependence on Russian gas well before 2030. By implementing the measures proposed by the plan, the Commission aims to address the soaring energy prices as well as the threat to security of energy supply. The plan to reduce dependence includes both additional guidance on emergency measures as well as new measures under the REPowerEU initiative.
1. Energy prices toolbox
The Energy Prices Toolbox of October 2021 helped in mitigating the impact of high energy prices on people and businesses during the previous winter season. The Commission introduced a “toolbox” of policies containing immediate measures to protect consumers and businesses as well as medium-term steps towards a decarbonised and resilient energy system. These measures will be continued, and the Commission is looking into providing additional guidance for member states. The guidance provides the possibility of temporary price limits in exceptional circumstances as well as setting out how member states can redistribute revenue from high energy sector profits and emissions trading to consumers.
2. EU state aid rules
EU state aid rules provide support to companies affected by high energy prices via short-term relief and help to reduce exposure to price volatility in the medium to long-term. The Commission will also be looking into consulting member states on the need for and scope of a new, self-standing Temporary Crisis Framework. This could include:
- liquidity support for all undertakings affected by the crisis and aid to undertakings;
- expanding the list of eligible sectors under the Emissions Trading System State aid guidelines; and
- temporary tax measures on windfall profits to finance such emergency measures.
3. Underground gas storage
A legislative proposal is anticipated by April 2022 to require underground gas storage across the EU to be filled up to at least 90% of its capacity by 1 October each year. An increase in the rebate level to 100% is proposed as an incentive to refill storage and an EU gas storage policy will ensure fair allocation of security of supply costs. The legal proposal is envisaged to identify ownership risks for gas infrastructure. Member states will have to require relevant authorities to certify that ownership by a person(s) from a third country does not put at risk the security of supply.
REPowerEU is a proposal for joint European action for more affordable, secure and sustainable energy, and to eliminate dependence on Russian gas before 2030. The plan is based on two pillars:
- Diversifying gas supplies, via higher liquefied natural gas (LNG) and pipeline imports from non-Russian suppliers, and higher levels of biomethane and hydrogen.
- Faster reduction in the use of fossil fuels by boosting energy efficiency, increasing renewables and electrification, and addressing infrastructure bottlenecks.
Full implementation of the ‘fit for 55’ proposal (see here for more) would reduce annual fossil gas consumption by 30%, equivalent to 100 billion cubic metres (bcm) by 2030. The Commission now wants to achieve this objective by the end of this year, cutting gas imports from Russia by two-thirds.
In accordance with the REPowerEU initiative, various measures concerning both the diversification of gas supplies and faster reduction of fossil fuel dependency are being discussed. In particular, these measures include the following:
a) Diversifying gas supplies
Diversifying gas supplies can improve security of supply and reduce dependence on Russian gas. The considered diversification measures are:
- The EU could import 50 bcm more of LNG on a yearly basis from countries such as Qatar, the US and Egypt and West African nations, and an additional 10 bcm yearly with diversification of pipeline sources from Azerbaijan, Algeria and Norway. LNG could replace 60 bcm of Russian gas within the next 12 months.
- Doubling the objective of ‘fit for 55’ for biomethane would lead to the production of 35 bcm per year by 2030. This could replace another 18 bcm of Russian gas.
- Increasing the production and importation of renewable hydrogen, by 10 million tons (mt) from diverse sources and by 5 mt produced in Europe. This is on top of the 5,6 mt foreseen under the ‘fit for 55’ and can replace 25-50 bcm per year of imported Russian gas by 2030.
b) Faster reduction of the dependence on fossil fuels
REPowerEU will also be focusing on accelerating the move to clean energy sources, with proposed measures including:
- Doubling of the EU’s photovoltaic and wind capacities by 2025, tripling by 2030 under ‘fit for 55’. This would save 170 bcm of yearly gas consumption by 2030.
- Accelerating the roll-out of rooftop solar PV systems by up to 15 terawatt hours (TWh) this year saving 2,5 bcm of gas. By the end of this year, almost 25% of Europe’s current electricity production could come from solar energy.
- Doubling the installation rate of heat pumps over the next five years, saving 12 bcm for every 10 million heat pumps installed by households.
- Decarbonising the industry by accelerating the deployment of innovative hydrogen-based solutions and cost-competitive renewable electricity in industrial sectors.
- Enabling faster permit regimes to grow wind capacity, and roll-out large-scale solar projects.
On 11 March 2022, the Versailles Declaration called upon the Commission to put forward a detailed plan by the end of May to implement the above measures, as well as proposing a plan by the end of March to ensure the security of supply and affordable energy prices during the next winter season. The measures announced on 8 March will also be built on by member states at the next meeting of the European Council on 24-25 March 2022. Finally, a proposal by the end of May is anticipated to phase out dependency by 2027.
This article first appeared on our blog Energy Notes