France economy

EU chief proposes wholesale gas price caps to tackle energy inflation crisis

European Commission President Ursula von der Leyen has proposed that the EU enter the gas market to cap the price against a key benchmark, which she says is no longer representative of the true cost.

She added that such a cap would still require a large reduction in energy consumption in the EU.

“As the EU imports almost all the gas it consumes, the deeper the public intervention on gas prices that we envisage, the more demand reduction and supply solidarity we need,” he said. she wrote to EU leaders ahead of a summit later this week in Prague.

“So we need to recognize the risks of capping gas prices and put the necessary safeguards in place,” she said.

Ms von der Leyen described her proposed intervention as a transitional measure as the EU moves away from the current benchmark, the securities transfer facility, and strives to establish an EU price index that reflects the European energy market better.

“Pending the introduction of such a complementary benchmark, we should consider limiting prices against the TTF in a way that continues to secure the gas supply of Europe and all Member States and that would demonstrate that the EU is not prepared to pay any price for gasoline,” she wrote.

A group of countries, including Spain, Italy, Belgium, Poland, Greece and France, have called for a limit on all transactions in the wholesale gas market. Germany, the region’s largest economy, opposed such a move.

EU members are struggling to cope with record energy prices and the risk of shortages this winter after Russia drastically cut gas imports in retaliation for sanctions imposed for its invasion of Ukraine.

Many calls have been made for the EU to limit price spikes, including in the electricity market, even as Europe comes under intense pressure to reduce its energy consumption.

The kinds of measures Mrs von der Leyen is proposing would be costly. In the letter, she acknowledged that the current EU budget might not be enough and said the European Commission would explore other sources of funding.

Earlier this week, two EU commissioners suggested that countries should consider issuing new common debt to finance Europe’s energy needs.