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Europe Cooks Up Piecemeal Response to Energy Crisis

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European governments have been scrambling to protect vulnerable businesses and consumers from high prices for gas and electricity for several months now.

The member states of the EU remain divided about how the bloc should respond to the crisis, with some favoring more intervention in energy markets and others less.

In the absence of consensus, national governments have been left to cook up short-term solutions without falling foul of EU rules on state aid.

The UK — no longer an EU member, but still one of Europe's top three economies — has also been making up policy on the fly.

Some countries have promised or implemented multibillion-dollar support measures, while others have done relatively little.

With little sign of Europe's energy crisis resolving itself anytime soon, we summarize some of the latest developments below.

France

The French government recently ordered state-controlled nuclear power giant EDF to sell more electricity to smaller rival power companies at well-below market rates.

The move triggered a sharp fall in EDF's share price and prompted CEO Jean-Bernard Levy to break protocol and criticize the government of President Emmanuel Macron.

France has also capped increases in regulated electricity tariffs at 4% this year to help consumers and small businesses.

UK

Another UK retail energy supplier, Together Energy, collapsed this past week, bringing the total to 27 over the last six months.

A proposal to waive the 5% value-added tax (VAT) levied on UK energy bills has drawn the support of some retail energy suppliers.

Prime Minister Boris Johnson's government has refused to step in to curb soaring prices in the country's emissions trading scheme.

The scheme applies to energy-intensive industries, the electricity generation sector and airlines, so measures to cap the price of carbon credits would not provide direct relief to households struggling to pay their winter energy bills.

Other Countries

In October, the European Commission announced a toolbox of approved short-term measures that many EU members have dipped into to provide relief.

These include freezes on electricity and gas tariffs for specific periods, cuts in energy taxes, overhauls of green energy subsidy schemes and direct payments to consumers.

Germany plans to remove its renewable energy levy from consumers' electricity bills in 2023 and start funding green energy projects with revenue from its domestic carbon market and its share of revenues from the EU's Emissions Trading System.

Spain scrapped a proposed windfall tax on low-carbon electricity generation companies soon after it was introduced late last year.

Comparing Costs

According to UK energy regulator Ofgem, Germany has the highest domestic electricity prices in Europe, followed by Denmark and Belgium. Sweden has the highest domestic gas prices in the region, followed by the Netherlands and Denmark. The UK ranks ninth for electricity prices and 14th for gas prices.

Ofgem says wholesale and network costs make up roughly 69% of UK gas bills, with environmental and social costs accounting for roughly 2.5%.

For electricity, environmental and social costs account for roughly 25.5% of the typical domestic bill — helping to pay for renewable power, reductions in emissions, energy efficiency measures and financial assistance to vulnerable customers. Wholesale and network costs account for a combined 52.5%.

The UK's VAT rate for electricity and gas bills is just below 5%, but most EU countries have a higher tax rate — often 10%-15% or above.

The percentage breakdown between wholesale costs, network fees and environmental and social costs differs among member states, but in most cases "green" customer charges are usually a much smaller portion of the overall bill than wholesale procurement costs and network fees.

Topics:
Policy and Regulation, Gas Prices, Electricity Prices, Carbon Markets , Low-Carbon Policy
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