The European Commission proposes a corrective market mechanism to keep the costs of this energy under control for next winter
Stopping the price of gas has become one of the priorities of the European Union (EU). The European Commission presented a correction mechanism for the gas market this Tuesday, which is automatically activated when the price rises above 275 euros per megawatt hour (MWh) for two weeks. Moreover, to activate the European gas price must be at least 58 euros above the world market price on ten of those fifteen days. The tool, which is due for approval by the Twenty-seven, aims to correct the volatility of the European energy market, especially in view of the coming winter when the bloc is expected to have greater difficulties in self-supplying.
This mechanism sets a ceiling one month in advance for products falling under the Dutch TTF benchmark, which affects long-term contracts and consumer bills. The gas cap will be “dynamic”, applied for one year and activated when the price exceeds the limit set by Brussels for two weeks and when that increase does not correspond to a global market trend. “Europe will not pay a price,” said Energy Commissioner Kadri Simson.
In this way, the Community Executive wants to avoid episodes of “excessive prices”, such as in August, when the gas price exceeded 300 euros/MWh. Although in practice the effectiveness of this tool is questioned, since it requires such restrictive conditions to activate that it would not have come into operation even during the period of high prices last summer.
All in all, Brussels hopes that this instrument will have a “deterrent effect” on the European energy market in view of the next season of replenishment of European reserves. The proposal also comes after a large number of member states have asked the European Commission to design concrete and urgent measures to limit the price of energy, the main driver of inflation in the EU. Fifteen countries, including Spain, have called for a European gas limit, a move Germany has refused to support.
Now Brussels hopes that its emergency mechanism will bypass Berlin’s veto. To achieve this, a protection has been included to deactivate it immediately if the established aspects are not met. It will also be urgently canceled if it causes “major disruptions” to the market or if it jeopardizes the security of European supplies.
This correction mechanism will work until the creation of a new European reference index that complements the TTF and better reflects the realities of the bloc’s energy market. EU energy ministers will discuss the instrument at their meeting next Thursday in Brussels.
Source: La Verdad
I’m Ben Stock, a journalist and author at Today Times Live. I specialize in economic news and have been working in the news industry for over five years. My experience spans from local journalism to international business reporting. In my career I’ve had the opportunity to interview some of the world’s leading economists and financial experts, giving me an insight into global trends that is unique among journalists.
