Europe could introduce power rationing amid Russian oil stalemate

  • The EU is set to unveil mandatory energy consumption cuts as its standoff with Russia drives down supply.
  • The proposal also includes a tax on the incremental profits of oil and gas companies, Bloomberg reported.
  • The plan comes as dwindling supply and strong demand are straining the bloc’s network and pushing prices higher.

Europe is moving closer to energy rationing policies as its clash with Russia escalates and prices soar.

The EU is expected to propose a mandatory target for electricity consumption to reduce aggregate demand, Bloomberg reported on Tuesday. The measure will be included in a plan to be announced by European Commission President Ursula von der Leyen later this week. If approved by member states, the target will mark a major escalation in the EU’s conflict with Russia and a major step towards strict energy rationing.

The goal is split into two parts, according to a draft proposal seen by Bloomberg. The first is a mandatory lens for ease of use during peak hours. The target would be for 3-4 hours per day and could also include periods when energy production from renewable sources is expected to be low.

The other half of the target includes a goal to reduce overall electricity consumption to a certain level, but the target threshold is not yet known.

The plan also includes an “exceptional and temporary” tax on companies in the oil, gas, coal and refining sectors based on the companies’ additional profits. Companies would pay tax on any income above their average pre-tax profits for the three-year period that began in 2019. The commission will set a minimum tax with the plan and EU members will be allowed to claim a higher rate raised.

The commission faces an uphill battle to win broad support for its proposal. Ministers voiced significant disagreements with the plan at a meeting last week, Bloomberg reported, warning that some elements may not make it into the final package. Yet with energy prices still high and Russia cutting its exports to Europe even further in recent weeks, the plan’s authors say urgency is paramount.

“The dramatic increase in electricity prices we are seeing is putting pressure on households, small and medium-sized businesses and industry and risks causing greater social and economic damage,” the commission said in the draft. of proposal. “This economic context requires a rapid and coordinated response at EU level.”

The new plan comes amid looming energy crises in several of the world’s largest economies. Energy prices have soared in the UK and EU as Russia retaliates against sanctions and cuts its oil and natural gas exports to Western Europe. This change has forced them to quickly adopt measures to boost domestic energy supply and appease demand in order to avoid blackouts and even more intense inflation.

The Group of Seven – Canada, France, Germany, Italy, Japan, UK and US – rolled out plans for a price cap on Russian oil earlier in September, aimed at lowering prices for consumers while sapping the Kremlin’s energy money. Trade. The UK, meanwhile, has passed price controls, with Prime Minister Liz Truss announcing on Thursday that the government will cap annual energy bills at £2,500 ($2,880) from October 1.

President von der Leyen’s original plan also called for a price cap on Russian gas, but disagreements over the measure put it on the back burner. A separate measure to ease the strain in energy markets is being worked on, people familiar with the negotiations told Bloomberg.

If he gets support from EU countries, the president could reveal details of the plan in a speech scheduled for Wednesday. Experts from member governments would then debate the proposals before member government policymakers can vote on the measures. Some members pushed for a deal by the end of September, but others suggested it will take until meetings scheduled for October to reach an agreement.

By then, the energy stalemate will likely only have intensified. As the EU prepares for winter and the heating demands that come with it, the proposed energy limits could mean the difference between informal rationing and the collapse of the energy grid.

Mary I. Bruner