The European Commission launched its proposal to limit excessive gas prices on 22 November, which was labelled as a ‘market correction mechanism’ aiming to limit excessive prices when they are unrelated to global price spikes.
The so-called ‘gas cap’ is planned to last a year and would come into force in the event of two triggers: if one-month future prices on the Dutch TTF[1] exceed €275/MWh for two weeks, and if the difference between the TTF price and the global liquified natural gas (LNG) price is €58 or more. If these criteria are met, a notice will be published and the mechanism will be activated, preventing trading of month-ahead products above the set price. If prices then drop or global market prices also become high, the price ceiling will be deactivated. The current TTF market price for December 2022 is €121/MWh.
The Commission stressed that this is not a regulatory intervention to set the price on the gas market. Rather, the measure should be seen as a mechanism of last resort to prevent episodes of excessively high prices, which are not in line with global price trends. It is important to note that the ‘cap’ will only cover month-ahead products, which account for ‘some 22%’ of trade on the Dutch TTF, whereas spot prices and day-ahead products will not be covered, nor over-the-counter trading.
The proposal has been expected for several weeks, following the idea being tabled and EU leaders agreeing on it in principle in mid-October.
With the gas price regulation, the Commission has followed a zig-zag course in the last month. While first supporting the idea of a ‘dynamic’ price ceiling (and earlier even the Iberian mechanism of price control), it made a surprise U-turn at the end of October, publishing a ‘non-paper’ that was very sceptical about having a price cap. The main concerns raised by the paper were that a price cap could push up gas demand and threaten energy security.
The result is that the current proposal pretends to be a cap without having a ceiling. Some experts call this a joke; the Commission calls it a ‘market correction mechanism’ (of last resort), using the word ‘safety ceiling’ but avoiding the word ‘cap’ as there is no limit value. While providing a safety valve for a worst-case scenario, the proposal seems to be primarily a symbolic measure that would never actually be triggered in reality.
The proposal was expected to be adopted at a meeting of energy ministers on 24 November. Member States are deeply divided, with Poland, Belgium, Italy and Greece very supportive of the ‘price cap’, and Germany and the Netherlands against it. As energy ministers could not agree on the market correction mechanism and on its price limits, despite being supportive of the broader package, the issue was postponed to another emergency meeting of the Energy Council in December.
Social partners are very critical about the proposal.
The ETUC insists on defending its 6-point plan for workers that includes pay rises, targeted measures for the vulnerable, taxing extra profits, an effective price cap, reregulation of energy markets and involvement of social partners into the design of measures. It also draws on the resolution of the ETUC Executive Committee of 28 October on proposals to mitigate the energy crisis. It favours an effective price cap considering also the Iberian Peninsula mechanism, at the same time taking note of potential threats to energy security and stressing the importance of energy saving, but without putting burden on vulnerable groups. The ETUC also refers to the importance of meeting climate policy targets.
IndustriAll Europe warns that the EU must avert a social, industrial and climate emergency, emphasising the importance of tackling energy prices (both for households and industry), protecting jobs, investing in European industries and keeping to climate targets through just transition. It also refers to its earlier position paper on tackling the energy crisis that proposed to radically reform energy markets, grids and production by addressing energy as a strategic public good that must be affordable to all.
[1] The Title Transfer Facility (known as TTF) is a virtual trading point for natural gas in the Netherlands providing the benchmark price for 80% of the EU gas market.