EU chief proposes cap on wholesale gas prices to fight energy inflation crisis

European Commission President Ursula von der Leyen said the cap would still require a broad reduction in energy usage in the EU. 

European Commission President Ursula von der Leyen has proposed that the EU should step into the gas market to limit the price in relation to a key benchmark, which she said is no longer representative of the true cost.

She added that such a cap would still require a broad reduction in energy usage in the EU. 

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

“We therefore need to acknowledge the risks that a cap on gas prices entails and put in place the necessary safeguards,” she said. 

Ms von der Leyen described her proposed intervention as a transitional move as the EU moves away from the current benchmark, the Title Transfer Facility, and works to establish an EU price index that better reflects Europe’s energy market.

“Pending the introduction of such a complementary benchmark, we should consider a price limitation in relation to the TTF in a way that continues to secure the supply of gas to Europe and to all member states and that would demonstrate that the EU is not ready to pay whatever price for gas,” she wrote.

A group of countries, including Spain, Italy, Belgium, Poland, Greece, and France has been urging a limit on all wholesale gas market transactions. Germany, the region’s biggest economy, has been against such a move.

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

There have been widespread calls for the EU to limit the price spikes, including in the electricity market, even as Europe is under intense pressure to cut its energy use.

The kinds of steps Ms von der Leyen is proposing would be expensive. In the letter, she acknowledged that the EU's current budget may not be sufficient and said the European Commission will explore other sources of funding. 

Earlier this week, two EU commissioners suggested that countries need to consider issuing new joint debt to fund Europe’s energy needs. 

Bloomberg