In Dutch, the catchphrase ‘Tom Poes, verzin een list‘ (Tom Puss, come up with a plan) is well known. It is a reference to the popular cartoon from the 1960s by illustrator Maarten Toonder. A fat, somewhat stupid and overly rich bear, Oliver B. Bumble, keeps getting himself into trouble. He takes for granted that he will be saved by his young friend, Tom the cat. ‘Tom Puss, come up with a plan‘; in other words: Tom, solve my problems.
In fact, that is what is happening right now in Brussels. European government leaders are at loggerheads over skyrocketing energy prices. The 27 women and men are all too divided to reach an agreement on a solution. The unilateral setting of a maximum purchase price for gas, the decoupling of electricity and gas prices, the nationalization of its procurement, or the lowering of energy taxes. All measures have their pros and cons and are invariably in conflict with the interests of one or more European member states.
‘European Commission, come up with a plan,’ is the mandate the heads of government gave to Commission president Ursula von der Leyen. She has until May to solve the problems of the member states. She must enlist the help of experts from beyond Brussels, but her work assignment reads rather like an unsolvable puzzle.
Von der Leyen must come up with a plan that provides an ‘effective response to excessive electricity prices.’ But at the same time, the member states don’t want the integrity of the European internal market to be jeopardized, the climate transition to become stalled, the security of supply to be at risk, or solutions that cost too much money from the taxpayer. How all these terms and conditions can be reconciled, is something that no one knows.
One Union, but not one market
One of the ideas being floated is to start buying gas collectively as Europe. The hope is that by not competing with each other, we at least will not drive up global prices even more. Von der Leyen herself speaks of the “collective use of European bargaining power” vis-a-vis gas producers. Charles Michel, the president of the European Council, suggested “the creation of a mechanism for joint procurement.”
How this should be done, the two refrained from saying. Dutch Prime Minister Mark Rutte, along with German Chancellor Olaf Scholz – among the heads of government least enthusiastic about intervening in the free energy market – outlined reasons why it is easier to say you want to do it together, but almost impossible to pull that off if you are not willing to change the rules of the game too much.
“The discussions today make it clear that there is no single European gas and energy market that is the same across the board. There are literally thousands of contracts and hundreds of parties involved. And characterized by a huge difference between regions and member states. So, wherever we talk about the market, it is essentially a vastly complex whole”. Rutte said that the joint procurement of gas is different from the joint procurement of face masks or corona vaccines. The European Commission did that during the pandemic, but Brussels lacks ‘expertise’ in this market, according to the Netherlands.
Green power cheaper than grey?
The debate over intervention in the energy market shows how quickly Europe is changing as a result of the war in Ukraine. In the four weeks since the invasion, one sacred cow after another has been swept away. And that also applies to the European rule that the price of electricity is coupled with that of gas.
At present, the price of gas determines the price of electricity. Even if it concerns sustainable electricity that has not been fuelled by gas. That coupling is there for a reason. Because why would you bother to generate electricity from a gas plant if the electricity is cheaper than the gas you need to produce it?
Except that with the price of gas skyrocketing and the price of electricity rising right along with it, green electricity is now artificially expensive. Under pressure from Spain and Portugal, this problem has also been put on the European agenda. Both of these countries have a relatively large amount of sustainable electricity. Citizens are exerting a great deal of pressure on their governments to gain Europe’s permission to loosen the price coupling between gas and electricity. All the more so because the electricity grid on the Iberian Peninsula is barely connected to the rest of Europe and is therefore actually serving its own market.
That permission is on its way. Albeit for the time being as a purely temporary emergency measure. Whether or not this breakthrough will be permanent remains to be seen when Von der Leyen presents her plan in two months.
Gas from west to east
One thing that is clear is that the upheavals that are taking place will affect our societies and economies for many more years to come. This is certainly true of the deal that the European Union has struck with the United States concerning the supply of American liquefied natural gas. Before the end of the year, American LNG is expected to fully replace imports of Russian LNG. Over the coming years, Europe hopes to cut as much as a third of its total Russian gas imports thanks to supplies from the United States.
The abrupt choice in favor of American natural gas (which is made up almost entirely of controversial shale gas) is ironic in a number of respects. Firstly, Europe needs to invest heavily in its gas infrastructure in order to enable imports. Therefore, more LNG terminals need to be built and existing pipelines adapted to transport this gas from west to east. As it stands, the network is set up to enable the flow of gas from east to west.
Europe justifies this investment in the fossil industry with the promise that the new terminals must be capable of handling hydrogen in the future. As such, gas remains a transitional technology in the vision of the European Commission.
What’s more, the choice for American LNG is still a nod to former US President Trump. President Biden’s predecessor insisted for years that Europe had to shut itself off from Putin and his gas. But we turned up our noses and felt we were too good for that environmentally polluting shale gas from America. Its extraction is devastating for surrounding wildlife, it regularly pollutes groundwater and it causes earthquakes. But now Biden and his gas are the saviors and nobody is talking about the objections.