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News 14 December 2022

Eventful end-of-the year energy EU energy policy marked by gas price stalemate

As we approach the festivities, it seems that the giving spirit has not had an influence over the energy ministers from the EU countries. A deal on a gas price cap (file under the name “market correction mechanism”) is still, to date, not reached, and there are still striking differences among the EU representatives. Member States are still not on the same page on the gas price cap in itself, but even among the camp favouring the measure remains a certain distance of views. According to rumors published by Politico EU, an EU diplomat mentioned that “the precise trigger price remains an open debate, with options still on the table ranging from €160 to €220 per MWh”. Estonia’s minister of economic affairs and infrastructure also mentioned that a preliminary agreement was reached, indicating that the cap should be triggered when gas prices are €35 per MWh higher than global LNG prices for three days. Still, disputes remained over whether all European gas hubs should be included when calculating the cap strike price. Linked to the market correction mechanism debates is the approval of other important initiatives, such as the speed up approvals of renewable energy projects and the jointly purchase gas. The Russian oil price cap was instead agreed already by the Member States, meaning that from now onwards only oil sold at a price equal to or less than $60 per barrel can continue to be delivered to EU countries. These developments will be crucial for the years to come, as the war in Ukraine continues and winter has finally arrived in Europe.

In addition, the ending of the year has represented a time full of action for EU policy on energy, research and innovation. New calls for projects were open, including a New European Bauhaus €50 million call and the new EU Innovation Fund call, aiming to address REPowerEU key objectives with a total fund of €3 billion. More importantly, the Horizon Europe Work Programme for 2023-2024 was finally officially published, as the funding was approved and capped at €13.5 billion for the next two years. of that sum, €5.67 billion will be directed towards the EU’s climate and digital-oriented policy goals, which accounts for more than 42% of the overall budget.

Beyond funding, Member States have shaken up traditional plans by announcing intentions to leave the Energy Charter Treaty, a remnant of post-Cold War energy policy and nowadays an instrument mainly used to legally sue governments for climate-related policies. The decision was taken by not less than seven countries, including major actors like France and Germany, after protests erupted denouncing the little ambition of a proposed Treaty’s reform. Still, the existence of the “sunset clause” in the Treaty is now matter of strong debate: the clause extends for twenty more years the protection of foreign investment made in countries leaving the ECT.

In the background of discussions at the Conference of the Parties (COP) 27, the EU introduced increasing emissions reduction targets for Member States. The deal aims at a reduction target of 40% by 2030, compared to 2005, for the sectors not covered by the EU Emissions Trading System, such as road, buildings and agriculture. At the same time, it allows Member States to use flexibility to meet their targets. The Commission also signed the Just Energy Transition Partnership with some of its international partners, including Indonesia, Japan and the United States.