Germany urged to back gas cap plan at EU energy summit

Germany is facing pressure from fellow EU member states to agree to a ceiling on gas prices as leaders gather for a tense summit in Brussels aimed at addressing the mounting economic damage from the energy crisis.

Chancellor Olaf Scholz told the Bundestag on Thursday that a “politically set price cap” on gas would risk diverting gas to other countries that offered a higher price, undermining European efforts to shore up supplies as Russia cuts exports to the bloc following the invasion of Ukraine.

But several other EU member states, including France, Italy, Spain and Belgium, are all pushing for a ceiling on the gas price, although they differ on the exact mechanism to achieve this. Some are also calling for Brussels to propose extra EU-level funding to ease the crisis and accelerate the bloc’s bid for energy independence from Russia, a push that is now being backed by European Commission president Ursula von der Leyen.

Arriving at the two-day summit, Emmanuel Macron, the French president, called for unified action. “We must lower gas prices and, consequently, electricity prices,” he told reporters. “We must send a strong message in this direction with several instruments that we are going to discuss.”

Macron alluded to the tensions with Germany: “I think it is not good — either for Germany or for Europe — that [Germany] isolates itself.”

Polish prime minister Mateusz Morawiecki said he believed more and more leaders were swinging behind the price cap, and that the commission had to move quickly to overhaul the market.

“Cheap Russian gas was supposed to be a blessing for the German economy but it turned out to be a curse for the whole of Europe,” he said. “All the countries today see this as the failure of German politicians.”

Germany has been criticised for its huge, €200bn support package for businesses and households, using fiscal firepower that many of the smaller member states lack and potentially skewing the single market. But it has resisted proposals for more aggressive interventions to tame energy prices.

Scholz said Berlin was looking closely at the commission’s proposed emergency price cap mechanism, but he said it was critical that the EU co-operated closely with allies on gas deals. He appealed to big gas producers, including the US, to help ensure affordable energy prices in Europe.

Berlin is also pushing for the EU to encourage countries to drill for gas in new fields, according to draft conclusions of the summit. The bloc should work “with countries that have the capacity to develop new gasfields, as part of the Paris Climate Agreement commitments” according to the document — a move that would go against Berlin’s pledges not to support development of fossil fuel projects overseas.

Germany is not alone in being sceptical about price caps. Countries such as the Netherlands and Hungary as well as Scandinavian and Baltic nations are also wary of the move.

However, other member states have been lobbying for interventions to curb energy prices for months. While Spain, Portugal and France favour a ceiling on the price of gas used to generate electricity, others are wary of the idea given the risk that it ends up subsidising electricity exported from the bloc and incentivising consumption.

The commission’s proposed an emergency price cap mechanism, which would limit surges in prices on the Dutch Title Transfer Facility, the EU’s main gas price benchmark.

Officials backing the idea think they could garner sufficient votes in the European Council to push it on to the legislative agenda, but even if the proposal wins backing at the summit it is unlikely to become law until late this year.

“It is mainly a question for Scholz, if he will agree to have this gas cap included,” said a senior EU diplomat. “Legislation will be adopted . . . there is no possibility for Germany to veto. The mathematics give us a lot of pleasure,” the person added.

Charles Michel, president of the European Council who chairs the summit, said that while there was obvious divergence between countries, he believed there was movement towards a compromise.

“We have tools, we have measures. It is possible to act in order to lower prices,” he told reporters. “It will be difficult, but it is very important to send a very strong signal that we are determined to act together.”

Leaders are also set to debate a push for fresh common borrowing to help fund investments that strengthen the EU’s energy independence, particularly in renewable energy, but also gas interconnectors and liquefied natural gas terminals.

Germany and other northern states argue that the priority should be tapping existing EU funding. However, von der Leyen wants to boost the firepower of the REPowerEU programme, which aims to wean the bloc off Russian energy, saying it was important that all member states had the “fiscal space to invest in this transition”.

Additional reporting from Sam Jones in Berlin and Alice Hancock, Andy Bounds and Javier Espinoza in Brussels