Soaring energy prices are hitting Europe in the midst of a general global price inflation problem. Increasing price pressure is coming from all angles: Covid-related supply chain disruptions, the push to rid the world of fossil fuels, and the devaluation of currencies.
There is no telling what plans the European Union has up their sleeve to tackle this issue, but best guess is that they will attempt to treat the symptoms but not the disease. The EU energy commissioner, Kadri Simson, spoke at an EU renewable energy conference on Oct. 6:
“The Commission will next week publish a menu of options for how governments and the EU could react, and launch a study into whether the EU's power market is fit to deliver the bloc's planned transition to green energy.”
Simson also commented on a proposal from Spain and France to tweak regulations to decouple the price of power from the cost of gas.
"We believe this framework is sound, but we see the challenges."
Sound? Prices mean things. If you decouple the cost of energy from the price of energy, you lose all understanding of what is real. The proposed details are yet to be seen, but surely this response will only hide the underlying problem of a general rise in prices. But who will face the burden of the increased cost of gas if it is decoupled from the price of power? The only way to decouple the two is to offset the increase through a subsidy of some sort. Someone has to pay. This is smoke and mirrors.
The Hungarian Prime Minister, Viktor Orban, seems to recognize the price impact of the “green energy” push as he called the policies an “indirect tax” on the people.
The EU climate policy chief, Frans Timmermans, gives one of the most absurd statements heard to date:
"Let's keep our eye on the ball. The problem here is the climate crisis. The quicker we move towards renewable energy, the quicker we can protect our citizens against high prices."
This is just flat out deception. Whether or not the push for “green energy” is justified, there is certainly a cost associated with achieving it. Of course, the EU and other governments around the world will come up with all sorts of schemes (e.g., subsidies) to hide the true costs.
The EU also has a system of carbon permits which adds further pressure to the energy cost increase. This extra cost burden is no doubt passed along downstream to the consumers. The EU wants to hide the impact by shuffling the money back into the form of a subsidy (more smoke and mirrors).
“The European Union’s red-hot carbon emissions market could be used to mitigate the impact of soaring energy prices on the most vulnerable consumers,” EU Energy Commissioner Kadri Simson said.
Revenue from permit auctions in the bloc’s Emissions Trading System jumped to more than 20 billion euros ($23 billion) this year as the price of pollution soared with gas and power prices. While national governments are obliged to use half of the funds for climate purposes, they are also allowed to use them to financially support middle- and low-income households, Simson told Bloomberg News in an interview.
Then there is the increased price pressure caused by currency devaluation — rarely discussed. As the European Central Bank continues to print Euros to finance the EU’s various programs, the purchasing power of those Euros will decrease — prices will continue to rise.
Analysts expect the ECB to give more details about its monetary policy stance at a meeting in December. Its pandemic emergency purchase program, known as PEPP, is due to end in March and ECB watchers foresee a reduction in the level of purchases in the last months of the program.
“Even if inflation stays higher for longer, we still think the [European Central] Bank will stick to its dovish approach,” Andrew Kenningham, chief Europe economist at Capital Economics, said in a note Thursday.
And as explained previously on Monetary Current, the knee-jerk reaction from some governments to implement price controls will only exacerbate the problems with energy shortages.
France has become the latest country to step up measures to mitigate the costs for consumers. Prime Minister Jean Castex said Thursday the government would be blocking further natural gas price increases as well as rises in electricity tariffs.
Europeans should hold their wallets tight and prepare for chaos in the energy market.