Europe’s energy plan isn’t ambitious enough

By all indications, Russian President Vladimir Putin is weaponizing energy exports to divide Europe and undermine its support for Ukraine. The European Union’s response this week is unlikely to change his calculations. Time is running out to come up with a better solution.
Russia’s state-owned Gazprom PJSC has slashed gas flows to Europe through the Nord Stream 1 pipeline to 20% of normal capacity, blaming maintenance issues. As the war drags on, a total cutoff of gas remains a live possibility. That would pose a serious risk to Europe’s economy and could potentially deprive millions of people of winter heating. Even if the EU manages to store 90% of its gas capacity in advance, according to the International Energy Agency, it may still face severe disruptions.
Despite its commitment to “solidarity,” Europe has struggled to respond to this threat. An initial plan from the European Commission, which called for member states to reduce gas use by 15%, was dead on arrival. Germany, heavily dependent on Russian gas, naturally supported the measure. But many other nations expected it to cause disproportionate pain for little collective benefit. As Portugal’s energy secretary pointed out, forcing across-the-board reductions makes little sense when Europe’s distribution isn’t interlinked anyhow. The EU announced a revised proposal. Unfortunately, it amounted to little more than a watered-down version of the original, with various exemptions and derogations and bureaucratic elisions added to widen support. A more ambitious and coherent approach is desperately needed.
For a start, the EU should call a heads-of-state summit to negotiate a new strategy for the near-term. A full-scale public-information campaign will be needed to explain the threats posed to European security and to prepare people for what responses may be necessary. To have legitimacy, any such effort — requiring mutual compromise and sacrifice — must be led by nations’ politicians, not the commission’s unelected bureaucrats.
Precisely what this plan should look like will of course be up for debate. But three main elements should form the core of their strategy.
First, plans need to get underway to help vulnerable households make it through a cold winter. Although several countries are mulling price caps and tax breaks (the UK’s new cap will be announced in August) to help people pay for heat, such devices aren’t ideal as they’ll only encourage consumption. Ultimately, it would be better to provide income-based subsidies for those most in need while offering incentives for households to reduce energy use at peak times.
Next, governments should think creatively about how best to manage demand. Sky-high prices are already pushing companies to slash consumption (or to close up shop). But better planning should help anticipate supply shortfalls and avoid more serious disruptions. Under Germany’s emergency plan, for example, companies can receive government compensation if they reduce or suspend gas use and make the resulting surpluses available to the wider market through an auction system.
Depending on how bad things get, mandatory industrial suspensions or shutdowns could well become necessary. These will be controversial, to put it mildly, making it all the more important that leaders start planning now and communicate clearly with businesses. Again, unity will be key: An EU-wide plan to spread the fiscal burden and coordinate energy-sharing efforts — including finding new supplies overseas — should be the priority.
—Bloomberg