From windfall taxes to price caps: emergency market interventions to stabilize energy markets

Communication of 8 March 2022, 'REPowerEU: Joint European Action for More Affordable, Secure and Sustainable Energy'; Communication of 13 October 2021, 'Addressing the Rising Energy Prices: Toolbox of Actions and Support'. Energy prices: Commission proposes emergency market interventions to reduce electricity bills for Europeans Press release, 14 September 2022, Strasbourg The European Commission has proposed emergency interventions in the EU’s energy markets to address recent sharp price increases. The EU is facing severe mismatches between energy demand and supply—primarily due to Russia’s continued weaponisation of its energy resources. To alleviate mounting pressures on European households and businesses, the Commission is now taking action: proposing exceptional measures to reduce electricity demand—which will help lower consumers’ electricity costs—and measures to redistribute windfall profits from the energy sector to end users. These actions complement previously agreed measures on replenishing gas storage and reducing gas demand, preparing the EU for the upcoming winter. The Commission is also continuing efforts to improve liquidity for market operators, lower gas prices, and reform the long-term design of electricity markets. The first response to high prices is demand reduction, which can influence electricity prices and deliver an overall stabilising effect on the market. To tackle the most expensive hours of electricity consumption—when gas-fired generation significantly influences pricing—the Commission recommends that consumers be obliged to reduce their electricity consumption by at least 5% during selected peak periods. Member States will be required to identify the top 10% of hours with the highest expected prices and reduce electricity demand during those peak hours. The Commission also recommends that Member States reduce total electricity demand by at least 10% by 31 March 2023, allowing them flexibility to choose appropriate measures—including possible financial compensation—to achieve this reduction. Reducing electricity demand during peak hours would cut winter gas consumption by 1.2 billion cubic metres. Improving energy efficiency remains a key component of delivering on the climate commitments under the European Green Deal. The Commission further proposes a temporary revenue cap for ‘inframarginal’ electricity producers—i.e., generators using low-cost technologies such as renewables, nuclear, and lignite—that supply electricity to the grid at prices below those set by higher-cost ‘marginal’ generators. Because expensive gas-fired power plants push up wholesale electricity prices, these ‘inframarginal’ generators earn substantial revenues while operating at relatively stable costs. The Commission proposes setting the revenue cap for inframarginal generators at €180 per megawatt-hour—a level designed to allow producers to cover their investment and operational costs without undermining investments in new generation capacity aligned with the EU’s 2030 and 2050 energy and climate targets. Revenues exceeding this cap will be collected by national governments and used to help energy consumers reduce their bills. Member States engaged in electricity trade are encouraged to conclude bilateral agreements, in a spirit of solidarity, to share part of the inframarginal revenues collected by producing countries—thereby benefiting end users in Member States with low domestic generation. Such agreements should be concluded by 1 December 2022, provided that the Member State’s net electricity imports from neighbouring countries amount to at least 100%.

3.5 Joint planning for EU decarbonisation and competitiveness (Part I): 'The Future of European Competitiveness' by Mario Draghi

Time spent on this section: 7.5 hours Original source: THE FUTURE OF EUROPEAN COMPETITIVENESS (European Commission) The primary objective in the energy domain is to lower energy costs for end users—by passing through the decarbonisation dividend [see Energy chapter]. Natural gas will remain part of Europe’s energy mix in the medium to short term. Under the envisaged scenario, EU natural gas demand will fall by 8–25% by 2030; achieving this requires reducing the volatility of gas prices. This report recommends: strengthening joint procurement mechanisms—at least for liquefied natural gas (LNG)—to harness the power of the EU’s single market; establishing long-term partnerships with reliable and diversified trading partners, thereby building a genuine EU natural gas strategic framework. Europe must also reduce its exposure to spot markets—by encouraging a gradual shift away from procurement models indexed to spot prices—and reduce volatility in EU gas markets—by limiting potential speculative behaviour. Following the U.S. model, regulators should be empowered to impose financial position limits and activate dynamic price caps whenever EU energy spot or derivative prices deviate significantly from global benchmarks. The EU should also develop and implement a unified rulebook for trading applicable to both spot and derivative markets, ensuring comprehensive oversight of energy and energy derivatives markets. Finally, the EU should reassess the ‘ancillary activities exemption’, ensuring all trading entities are subject to equivalent regulatory standards and requirements. At the same time, to ensure the decarbonisation dividend flows through effectively, policy must further sever the link between natural gas prices and clean energy prices. The EU should decouple the revenues of renewable and nuclear power from fossil-fuel-based generation costs, instead anchoring them within a new electricity market design framework incorporating instruments such as Power Purchase Agreements (PPAs) and two-way Contracts for Difference (CfDs). PPAs and CfDs should gradually be extended—through coordinated, harmonised approaches—to all renewable and nuclear assets. The marginal pricing system should remain in place to ensure efficient balancing of the energy system. To boost industrial uptake of PPAs, this report recommends developing electricity market platforms that integrate the resources and needs of generators and buyers. Such platforms could be coupled with guarantee mechanisms to mitigate counterparty financial risk—thus expanding market access for SMEs. For instance, the European Investment Bank and national promotional banks could provide counter-guarantees and tailored financial products for SMEs or suppliers with insufficient credit ratings. Furthermore, core measures to lower end-user energy costs include reducing energy tax burdens—e.g., by setting a harmonised EU-wide upper limit on ancillary charges (such as taxes, levies, and grid fees). Although such legislative reforms require unanimous agreement among Member States, they could initially be pursued by a coalition of willing Member States—or supported by non-binding guidance on energy taxation.

EU Countries Could Better Target Measures to Lower Energy Prices - Dombrovskis

May 4, 2026

European Economic Commissioner Valdis Dombrovskis suggested EU governments target energy price relief to vulnerable sectors instead of broad fuel tax cuts. He noted current VAT and excise reductions benefit all users rather than those most affected.

reuters

2026-05-04

EU Countries Could Better Target Measures to Lower Energy Prices - Dombrovskis

EU Countries Could Better Target Measures to Lower Energy Prices - Dombrovskis

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