Europe’s biggest economy is trying to cope with surging gas and electricity costs caused largely by a collapse in Russian gas supplies to Europe, which Moscow has blamed on Western sanctions following its invasion of Ukraine in February. “Prices have to come down, so the government will do everything it can. To this end, we are setting up a large defensive shield,” said Chancellor Scholz, outlining the package.
Under the plans, which will be financed with new borrowing, the government will introduce an emergency price brake on gas and electricity and scrap a previously planned gas levy on consumers to avoid further price increases Nuclear plants in southern Germany, previously due to close by the end of this year, will be able to keep running until spring 2023.
The plan follows Berlin’s subsidy scheme introduced in July and approved by the European Commission to purchase large quantities of LNG.
The €5billion scheme was introduced to support energy and trade-intensive companies across industrial sector under the EU’s State aid Temporary Crisis Framework.
Critics of Germany’s move pointed out its privileged position to borrow more money to subsidise energy for consumers, whilst opposing a proposed price cap on Russian gas which would benefit other less economically privileged EU member states.
Berlin has suspended its limit on new debt of 0.35 percent of gross domestic product this year. Finance Minister Christian Lindner has previously said he wants to comply with the limit next year.
The European Commission shared an analysis of various options to tame gas prices with countries on Wednesday evening, which struck a sceptical tone on a wholesale gas price cap – warning it could be complex to launch, require “significant financial resources”, and cause gas supply disruptions.
The Commission said, however, that the EU should impose more limited price caps on certain supplies of gas.
“I strongly believe we need a price cap on all Russian gas imports,” EU energy commissioner Kadri Simson said on Thursday.
Mr Simson said the EU also stood ready to introduce a separate price cap, specifically on gas used in power generation. A broader cap should only be considered if EU negotiations with its pipeline gas suppliers to reduce prices fail to do this.
“Several member states are becoming more and more uneasy about not seeing a concrete (EU) response,” a senior EU official said. So far, the Commission, which drafts EU policies, has not formally proposed any price caps.
Germany, the Netherlands and Denmark are among those opposed to a gas price cap – setting up a potential scrap among countries if the EU were to propose the measure.