“The EU should abandon the idea of ​​price caps and tackle the problem of a level playing field”

Dince Russia’s invasion of Ukraine, Europe has taken important steps to ensure security of energy supply et helping families and businesses cope with rising energy prices. Gas storage facilities have been replenished, demand for gas and electricity has decreased and prices have retreated from the highs reached in August.

However, energy prices remain extremely high compared to the year 2021, and the European Union (EU) is divided on the best approach to reduce them and guard against further disruptions in the months to come.

France, Italy, spainPoland, Portugal, Greece and nine other EU countries would like cap prices wholesalers of energy, arguing that this makes it possible to tackle the problem at the source, to avoid a race for subsidies and to contribute to reducing inflation.

A bad idea

An opposing camp, led by Germany and the Netherlands, argues that such caps would increase demand and make it harder for the EU to attract net energy imports.

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From an energy policy perspective, capping energy prices at European level is not a good idea. Although they would probably not increase energy demand compared to previous years, they would reduce the incentives to reduce demand in Europe, a frustrating necessity for a Union which has just lost around 40% of its gas and 10% of its electricity.

In addition, the cap could harm Europe’s ability to attract gas to global markets, jeopardizing much-needed supplies in 2023.

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Finally, capping energy prices would lead to large cross-border transfers within the EU, which would have to be compensated in one way or another.

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That said, proponents of price caps are right to fear that national grants neither are they a solution tenable. A race for subsidies could put fiscally weaker EU countries at a competitive disadvantage compared to countries with a lot of fiscal space.

So how to solve this problem?

Compensation systems

After the failure of EU energy ministers to find a solution on this front, the November 24ththe EU should abandon the idea of ​​price caps and tackle the problem of a level playing field in a more efficient and transparent way.

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