Wed. Feb 8th, 2023


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EU split on energy crisis: Bloc in worrying row ahead of last meeting of the year

3 min read

Martin Lewis warns of 'damaging' energy price cap rise

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Energy ministers from EU states will meet today to debate their response to high gas and electricity prices, with countries still divided over whether the recent price spike should be met with an overhaul of energy market rules.

European energy prices surged to record highs in autumn as tight gas supplies collided with high demand in economies recovering from the COVID-19 pandemic.

While gas prices have retreated from the record highs seen in October, they remain relatively high.

EU member states have struggled to find a common response to the high prices, despite leaders and ministers holding multiple emergency meetings in recent months to debate the issue.

Spain, Italy, France, Greece, Poland and Romania proposed amending the EU’s rules on energy prices on Wednesday.

They are in favour of reforms, proposing measures including curbs on financial speculators’ participation in the EU carbon market or joint gas buying among countries to form strategic reserves.

But Austria, Germany, Denmark, Estonia, Finland, Ireland, Luxembourg, Latvia and the Netherlands rebuked the proposal and published a joint statement on Wednesday arguing price hikes were transitory and should not dictate a change of permanent rules.

Price caps or switching to a different system of setting national power prices could discourage electricity trade between countries and undermine incentives to add low-cost renewable energy to the system, the countries said.

Many EU countries have used temporary national measures to shield consumers from higher bills, including energy tax cuts and subsidies for households.

The Commission has said it will study the benefits of longer-term options, and asked regulators to investigate whether the EU’s carbon and electricity markets are functioning properly.

An initial report by the EU agency for the cooperation of energy regulators, published last month, did not identify major issues with the current power market design.

A separate investigation by the bloc’s securities watchdog said there was no proof of abuse in the EU carbon market.

Ministers will also assess progress in negotiations to set tougher EU targets to improve energy efficiency and expand renewable energy this decade.

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The EU’s “sustainable finance taxonomy” may also feature in the talks, as countries await a closely-watched decision by the Commission – expected early this month – on whether the rules will label gas and nuclear energy as green investments.

Meanwhile, in the UK, James Murray, Labour shadow Treasury minister, told the Commons that energy bills should be made VAT-free this winter to “help people through the tough winter months”.

He claimed that cutting VAT on bills to 0 percent would help people through “low temperatures and high prices” this winter.

The call came as MPs continued to debate the Finance (No.2) Bill, which enacts measures contained within the Budget.

Mr Murray said Labour would not oppose specific measures in the Bill to ensure businesses selling secondhand cars or dentists in Northern Ireland did not suffer due to differing VAT rates.

But he added: “We know that VAT more widely has a significant impact on people’s lives so I end by repeating our call on the Chancellor to cut VAT to zero for domestic energy bills to help people through the tough winter months of low temperatures and high prices ahead.”

Treasury minister Lucy Frazer had said: “The UK has implemented the Northern Ireland Protocol in a way that seeks to protect the UK internal market. Today’s clauses play a part in achieving this objective by allowing Northern Ireland businesses and consumers to have the same economic opportunities as those in the rest of the UK.”

She also said that an “exit charge” for VAT-free zones like the planned freeports would “prevent any abuse of the VAT zero rate” inside them.

Ms Frazer added: “Freeports are an important part of the Government’s levelling up agenda. We see them as central to our goal of sparking regeneration, creating jobs, and inspiring innovation throughout the country.”

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