Europe Readies Response to Second Energy Crisis in Four Years

Europe Plans Tax Cuts and Gas Storage to Counter New Energy Crisis

By Kate Abnett

EU Strategies to Address the Energy Crisis

BRUSSELS, April 22 (Reuters) - The European Commission will set out plans on Wednesday to cut electricity taxes and coordinate the summer refill of countries' gas storage, as it seeks to cushion the energy fallout from the Iran war.

Proposed Measures and Market Interventions

Draft proposals seen by Reuters show the EU will, for now, avoid major market interventions such as capping gas prices or taxing energy companies' windfall profits - measures it used in 2022 when Russia cut gas supplies and prices hit record highs.

Focus on Tax Rules and Electricity

Instead, the Commission plans to curb EU tax rules to favour electricity over oil and gas, and make ​it easier for governments to cut industries' electricity taxes to zero, according to the drafts, which could still change before publication.

Gas Storage Coordination and Jet Fuel Guidance

The EU would also step in to coordinate countries' efforts to fill gas storage in the coming months, and provide guidance on how governments should handle potential jet fuel shortages.

Europe's Energy Vulnerabilities and Market Impact

Europe's heavy reliance on oil and gas imports has left it exposed to spiralling prices since the Strait of Hormuz, a vital fuel shipping route, was effectively closed and Iran started attacking energy infrastructure in the Middle ​East.

Europe's benchmark gas price on Tuesday was roughly a third higher than before the U.S.-Israeli war with Iran began on February 28.

Current Supply Situation

However, the EU's biggest oil and gas suppliers - the U.S. and Norway - are outside the Middle East, and the Iran crisis has not yet triggered fuel shortages in Europe. Airlines have warned, though, that jet fuel shortages could emerge in weeks.

EU Response and National Government Roles

EU officials told Reuters the bloc's relatively restrained response reflects the fact that national governments, rather than Brussels, control many crisis-management levers, including subsidies and cutting national taxes and levies.

Immediate Relief Recommendations

The Commission's plans outline non-binding ways for governments to provide "immediate relief", including requiring businesses to avoid air travel where possible.

Assessment of Long-Term Energy Shock

Some officials said the response also reflects an assessment that the war-driven energy shock could last for months, making it prudent to hold back more extreme measures for now.

Expert Insights on Potential Impact

Elisabetta Cornago, assistant director at the Centre for European Reform think tank, said continued closure of the Strait of Hormuz "may lead us to a worse shock regarding oil than in 2022, a similar gas shock, but I think a smaller shock on electricity prices".

That's because countries have significantly expanded renewable electricity since 2022, she said.

Growth in Renewable and Low-Carbon Energy

The EU produced 71% of its electricity from low-carbon sources, including renewables and nuclear, last year, up from around 60% in 2022, data from think tank Ember showed.

(Reporting by Kate Abnett. Editing by Mark Potter)