European plan to shield households from soaring energy costs

The European countries have been lured by United States to supply more and more lethal arms to Ukraine and forced to stop buying oil and gas from Russia. Reportedly at present citizens of these countries are facing a sharp rise in power bills driven by sky-rocketing gas prices.

According to a Reuters report, an effort is being made to understand what Britain and other European Union member states are doing to protect the consumers.

Britain

Britain has a price cap on the most widely used household energy contracts. A new cap applicable from October will be announced on August 26. The forecasting group Cornwall Insight estimates that average British annual bills for gas and electricity will jump to 3,582 pounds in October and 4,266 pounds in January. Earlier this year, the price cap was 1,277 pounds.

The government is facing growing pressure to provide more support to households struggling with energy bills. The major fiscal decisions will be made by the new prime minister. The Conservative Party leadership contest between Foreign Secretary Liz Truss and former finance minister Rishi Sunak runs until September 05, 2022.

Truss has said she would apply a temporary moratorium on environmental and social levies added to consumers' electricity bills.

Sunak has said more support would be needed to help households through the winter, and he would act as soon as it is confirmed how much bills would be increasing by. 

In May, when Sunak was finance minister, the government set out a 15 billion pound (US$18.17 billion) support package to help households. Every household will receive a 400 pound credit to their energy bills from October.

More than 8 million low-income households in receipt of state benefits are also being given a further one-off payment of 650 pounds. Pensioners and disabled people will also received additional help.

Bulgaria

Bulgaria in May approved a 2 billion levs ($1.1 billion) package aimed at shielding companies and low-income consumers from the surge in energy and food prices caused by the Ukraine conflict.

The government decided to offer a discount of 0.25 levs per litre of petrol, diesel and liquefied petroleum gas and methane from July until the end of the year and scrap excise duties on natural gas, electricity and methane.

Denmark

In June, Danish lawmakers agreed a cash handout to the elderly and other measures totaling 3.1 billion Danish crowns ($439 million) to cushion the impact of soaring inflation and high energy prices. The measures also included a cut to a levy on power prices. Danish lawmakers have previously agreed to offer subsidies worth 2 billion Danish crowns ($288 million) to some 419,000 of the households hard hit by rising energy bills.

European Commission

European Union (EU) countries are largely responsible for their national energy policies, and EU rules allow them to take emergency measures to protect consumers from higher costs.

The EU in July asked its member states to reduce gas demand voluntarily by 15% this winter with the possible introduction of mandatory cuts.

The bloc also aims at refilling storage to 80% of capacity by November 01 to provide a buffer for peak demand winter months.

France

France has committed to capping an increase on regulated electricity costs at 4%. To achieve this government has ordered utility EDF, which is 80% state owned, to sell cheaper nuclear power to rivals.

New measures announced include helping companies with the cost of higher gas and power bills - bring the total cost of the government package to around 26 billion euros ($27 billion) Finance Minister.

French energy regulator CRE said last month it was proposing a 3.89% increase in regulated electricity sales tariffs (TRVE). The government has the ability to oppose the regulator's proposed rate hike and set new tariffs at a lower level or reject them outright.

Germany

German workers and families will receive extra cash, cheaper petrol and cut-price public transport tickets to help them shoulder soaring power and heating costs. Workers who pay income tax will receive a one-off energy price allowance of 300 euros as a supplement to their salaries. In addition, families will receive a one-time bonus of 100 euros per child, which doubles for low-income families.

Over the next few years, up to 13 billion euros per year will be allocated to subsidize renovations to old buildings and installing more energy-efficient windows, doors and heaters.

However, German households will have to pay almost 500 euros more a year for gas after a levy was set to help utilities cover the cost of replacing Russian supplies.

The levy, introduced by Germany in a bid to help Uniper and other importers cope with soaring prices, will be imposed from October 2022 will remain in place until April 2024.

Greece

Greece has spent about 7 billion euros in power subsidies and other measures since September last year to help households, businesses and farmers pay their electricity and gas bills.

Subsidies, which will be incorporated into power bills, will come in at about 1.136 billion euros in August and absorb up to 90% of the rise in monthly power bills for households and 80% of the rise for small and medium-sized firms.

Greece has imposed a cap on payments to power producers to reflect their real production costs, effectively scrapping a surcharge on electricity bills, with proceeds earmarked to help it finance power subsidies.

Hungry

Hungary has capped retail fuel prices at 480 forints ($1.23) per litre since last November, well below current market prices, to shield households from surging fuel prices. The measure led to such an increase in demand, which subsequently forced the government to curb eligibility for the scheme.

The sharp rises in European gas and electricity prices have also forced Hungary's government to curtail a years-long cap on retail utility bills, setting the limit of capped prices at national average consumption levels, with market prices applying above that.

Hungary has also imposed an export ban on fuels to ensure domestic supply needs and recently loosened logging regulations to meet increased demand for solid fuels, such as firewood.

Italy

Italy approved in early August a new aid package worth around 17 billion euros to help shield firms and families from surging energy costs and rising consumer prices.

The scheme, one of the last major acts by outgoing Prime Minister Mario Draghi before a national election next month, comes on top of some 35 billion euros budgeted since January to soften the impact of sky-high electricity, gas and petrol costs.

The government also intends to extend a 200 euro bonus paid in July to low and middle-income Italians who did not previously receive it.

A cut in excise duties on fuel at the pump scheduled to expire on August 21 is set to be extended to September 20.

Italy is also promoting a cap on gas prices at a European level to help contain price spikes.

The Netherlands

The Netherlands has cut energy taxes for its 8 million households.

Norway

Norway has been subsidizing household electricity bills since December last year and currently covers 80% of the portion of power bills above a certain rate. This is planned to go up to 90% from September, with the scheme to remain in place until at least March 2023.

Poland

Poland has announced tax cuts on energy, petrol and basic food items, as well as cash handouts for households. It has also extended regulated gas prices for households and institutions like schools and hospitals until 2027. The government agreed in July on a one-off payment of 3,000 zlotys to households to help them cover the rising cost of coal. Prime Minister Mateusz Morawiecki has said the total cost of curbing energy prices in Poland will amount to around 50 billion zlotys.

Romania

Romania's coalition government has implemented a scheme capping gas and electricity bills for households and other users up to certain monthly consumption levels and compensating energy suppliers for the difference. The scheme is supposed to be in place until end March 2023.

Romanian Prime Minister Nicolae Ciuca has estimated in February the support scheme will cost around 14.5 billion lei ($3.27 billion), but analysts now expect it to exceed 10 billion euros.

The leftist Social Democrats, parliament's biggest party and a part of the governing coalition, supports replacing the cap-and-subsidy scheme with regulated prices.

Spain

Spain has started to temporarily subsidize fossil fuel plants' power costs in a bid to bring down high prices in the short term while keeping a longer-term focus on building renewable capacity. The system is due to be in place until May 31, 2023. Spain also cut several taxes to reduce consumer bills.

Spain announced 16 billion euros in direct aid and soft loans to help companies and households weather sky-high energy prices.

Sweden

Sweden will compensate households worst hit by the surge in electricity prices, with the government setting aside 6 billion Swedish crowns ($605 million) for the measures.

Can United States afford to ban export of oil and gas from Russia?

The United States may survive cutting off Russian oil and gas imports over Moscow’s invasion of Ukraine, but it would almost certainly strike a massive financial toll.

Political support for banning Russian energy imports is growing in both parties, and the White House said the topic is under discussion — though it said President Joe Biden had not made a decision.  

Oil prices are already skyrocketing, and the Brent crude oil international benchmark hit a 13-year high of US$139 per barrel on fears of a ban after Secretary of State Antony Blinken said the US was engaging in an active discussion about the possibility.

Russia is one of the world’s largest oil producers, with a 12% global market share, according to an analysis by JPMorgan.

Prior to the invasion of Ukraine, Russia was exporting about 6.5 million barrels daily, of which 4.3 million barrels per day were going to Europe and the United States. The US was importing about 600,000 to 800,000 barrels from Russia daily — or about 8% of the country’s supply of crude oil and petroleum products.

Cutting off that spigot will lead to higher prices unless more supply comes from somewhere.

It’s possible that the Organization of the Petroleum Exporting Countries (OPEC) could decide to increase supply, but there has been no indication from such countries that they will produce and export more oil to replace Russia’s, the JPMorgan analysis warned.

“The Biden team is already calling Saudi Arabia, the United Arab Emirates (UAE) and others, I imagine,” said Morgan Bazilian, Director of the Colorado-based Payne Institute for Public Policy. “But their diplomatic leverage on those countries is limited, and they have shown very little appetite to be influenced by Biden and the US.”

Relations between Saudi Arabia and the Biden administration are decidedly chilled following Democratic criticism of the killing of former Washington Post journalist Jamal Khashoggi, who is widely believed to have been murdered by Saudi agents.

Saudi Crown Prince Mohammed bin Salman, who is the day-to-day ruler of Saudi Arabia, also recently told The Atlantic in an interview, “I do not care whether Biden misunderstood things about him.”

Senior US officials also took a rare trip to Venezuela, another OPEC member, this weekend for talks about potentially easing sanctions on oil exports from that country.

Another option to take the pressure off a ban on Russian oil would be to increase US shale production, although that growth would be limited by the necessary labor and infrastructure demands, according to the JPMorgan analysis.

It is more expensive to produce oil from shale fields in West Texas than Saudi Arabia. The higher international prices could lead to increased production in the US given the economics, though relief at the pump would be a bigger question.

“Saudi Arabia is known for having the cheapest, sweetest crude oil — it takes the least amount of additional refining, very cheap to process, and it's very cheap to get out of the ground,” Gernot Wagner, a climate economist and visiting professor at Columbia Business School, told The Hill. “West Texas crude is a lot harder to get out of the ground.”

It costs less than US$10 per barrel to extract Saudi Arabian oil, whereas digging up West Texas crude costs about US$70 per barrel, according to Wagner.

“So it only really pays to get it out of the ground if the oil price is well above those US$70,” he said.

Bazilian warned that a ramp-up in domestic production would face a variety of hurdles, such as the time it takes to start pumping, financial restrictions imposed by Wall Street and an insufficient workforce.

Another wild card that could help fill the gaping hole left by Russia poses its own set of complications, Iran.

If the 2015 Iranian nuclear deal is restored, it could lead to the waiving of US sanctions, enabling Tehran to ramp up its crude supplies by one million barrels per day over the next two months, the JPMorgan analysis stated.

Bazilian described as deeply flawed the notion that cutting off Russian oil could lead to energy independence.

What would be more sensible, he argued, would be to focus more on energy security — a mix of supply, demand, markets and institutions — while finding a way to entice the US industry in the short to medium term.

“That will be tough for an administration who has climate change as a top tier priority,” Bazilian said. “Of course, that priority is not top tier today.”

Echoing these sentiments, Wagner likened a pivot away from Russian oil sources to a switch from a fast-food hamburger to a highly caloric vegan burger.

“It still produces CO2 emissions,” Wagner said. “It's still going to give you a heart attack. It might even be worse for you right at the end of the day because we don't really know what eating vegan burger does to you.”

And that sense of uncertainty is dominating global energy markets right now — in large part, Wagner explained, because we don’t know what Putin’s going to do next. But from a purely economic perspective, he said, there are certain advantages to cutting off Russian oil altogether.

“You basically rip off the risk premium,” Wagner added. “Suddenly, there's no uncertainty about what Russia will do next because it doesn't matter.”