EU Leaders Quash Calls for Fast Fixes to Solve Energy Crisis

(Bloomberg) -- Several European Union leaders warned against hasty intervention to address the unprecedented energy crisis, suggesting that pleas for immediate actions from some of the bloc’s poorer countries would go unheeded.

Record power and gas prices are the first topic for EU leaders in their two-day summit that started on Thursday in Brussels, but the bloc’s ability to act is extremely limited. While most countries have already cut taxes or approved subsidies to help households and companies, some want new measures on emissions, power and gas or seek scaling down ambitious climate reforms.

“We need to distinguish significantly from the challenge we face in the fight on climate,” German Chancellor Angela Merkel told reporters before the meeting. “I think that we should react in a level-headed way.”

The energy crunch is exacerbating divisions among member states at a time when the 27 nations are starting crucial talks about how to decarbonize their economies under the Green Deal. The EU wants to lead the global fight against climate change and set an example for other major emitters such as the U.S. and China, but this summit will underline how far apart the members are in agreeing on their own energy transition.

French President Emmanuel Macron told fellow leaders at the summit that he expected the price hike to be prolonged, adding there was nothing that showed they would fall, according to an official who declined to be named on closed-door discussions. Macron said this reinforces the need for the EU’s plan to accelerate emissions reductions in the next decade, adding member states must invest more to reduce dependence on fossil energies.

He also stressed the need for member states to protect themselves against extreme volatility, mentioning transit routes, diversification and intensifying the climate plan, according to the official. 

Italian Prime Minister Mario Draghi called on the European Commission, the EU’s executive arm, to propose as soon as possible a regulation on natural gas reserves, the official said. The aim should be that all EU members are equally protected, including from potential political pressure, Draghi added. 

By the end of this year, the commission wants to propose a reform of the EU gas market, reviewing rules on storage and security of supply. It is also analyzing a proposal by member states including Spain and France to create a joint platform for purchasing emergency gas reserves, Energy Commissioner Kadri Simson said earlier this month.

While strengthening the energy supply security would help the EU in the medium and longer term, the current crisis is making things worse in the short term. It is pitting countries in the south and the east of Europe against the wealthier -- and often more climate-ambitious -- members in the north who argue the hike has nothing to do with European green policies. The 27-nation EU toughened its 2030 greenhouse gas-reduction goal to at least 55% from 1990 levels and aims for net zero emissions by the middle of this century.

The Greek government estimated that the crisis will cost consumers an additional 100 billion euros ($117 billion) in the 2021-2022 winter season.

With electricity bills at risk of double-digit increases, the EU’s plans to ban new fossil-fuel cars by 2035 and put a carbon price on dirty home heating are an even tougher sell. The European Commission’s proposal to extend emissions trading to heating and transport fuels has become the most criticized element of the July package to enact the new climate target.

The EU’s existing carbon market, the Emissions Trading System, is also blamed by countries including Poland for aggravating the energy crisis. The government in Warsaw wants to restrict access to the market to some financial investors to curb speculation and prevent further increase of pollution costs. Such calls were criticized by Finland, which bets on investment in clean energy as the best long-term solution.

“We must not draw hasty conclusions, which could wreak havoc on the Emissions Trading System or otherwise worsen the situation,” Finnish Prime Minister Sanna Marin told reporters. “The big conclusion for the future needs to be more self-sufficiency and more renewables.”

The energy crunch comes amid rising recovery-linked demand and limited supply from Russia and Norway, Europe’s two biggest providers of natural gas. The bloc’s gas reserves are 77% full now, up from 72% two weeks ago but still at a 10-year low, according to a note seen by Bloomberg News that was distributed by the EU to member states ahead of next week’s meeting of energy ministers.

Polish Prime Minister Mateusz Morawiecki on Thursday warned against “the politics of gas blackmail by Russia” which he signaled could be aimed at pressuring the EU to enable the operation of the Nord Stream 2 pipeline. The new gas link between Russia and Germany, which has long divided member states, is set to be one of many thorny issues at the summit.

The energy crunch is also underscoring differences over the role of nuclear policy in the European transition to a clean economy. While the EU leaves the right to decide on energy sources in the hands of individual member states, it can influence their choices by regulations on emissions and green investment. 

A group of countries led by France and the Czech Republic has intensified a push in recent months for assurances that nuclear energy has a place in the future. Another coalition of nations, headed by Poland, has been seeking confirmation that natural gas has a bridge role in the energy transition.

Macron said on Thursday that if the EU was to meet its climate objectives, the Commission should propose by the end of this year the so-called taxonomy, or a set of rules on whether investment in nuclear and gas projects can be classified as green. 

With energy being one of the most politically sensitive issues, EU leaders hope Thursday’s summit will at least be a signal to the voters that governments are listening. The bloc’s ministers are scheduled to follow up on Oct. 26, when they gather at an emergency meeting in Luxembourg. The focus will be on the security of gas supply and ways to reinforce it ahead of the winter, according to the EU note sent to national governments.

(Adds comments from Macron, Draghi from the fifth paragraph)

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