Price cap for gas in the EU?

The ABC of the EU gas price cap

For weeks now, EU leaders have been discussing a cap for gas prices due to mounting pressures to lower the price of energy. A price cap refers to a non-market-based maximum price set for a commodity. Several EU countries have aided consumers with stimulus packages worth several billion euros. These national interventions can increase inflation and undermine the operability of the EU common market.

Here are the two proposals for the price cap:

A) Partly subsidized gas purchases

• Buyers would acquire gas at a current rate, receiving compensation afterward for the amount that exceeds the price cap.

• Pros: Gas sellers won’t leave the EU in search of higher prices elsewhere → access to gas is secured as winter approaches

• Cons: Expensive for the EU, and without precise regulation, subsidized EU-based companies have incentives to make huge profits by re-selling gas elsewhere.

B) Decreeing a maximum sale price

• Defining a hard ceiling: how much gas can be brought and sold for - issuing a fixed price.

• Pros: no expensive subsidies or as extensive regulation needed as in option A)

• Cons: if the price cap is too low, global suppliers will seek better markets, possibly leading to gas shortages in Europe.

C) A combination of the two?

Greece, Italy, Poland, and Belgium have proposed a mixture of the two with a fluctuating price on all EU wholesale gas transactions. The price rate of gas would be linked to U.S. or Asian gas prices, and it would be allowed to move 5 percent up or down to avoid gas shortages in Europe as winter approaches. If there were shortages, additional gas purchases from outside the EU at uncapped prices could be subsidized – as in option A).

There has also been discussion whether the price cap should cover all gas, pipeline gas, or just gas used to produce electricity. Finland is not as dependent on natural gas as many other EU countries, but the gas price rate impacts vastly on the price rates of other energy sources.

Let's jump into this week's major headlines.

EU's Carbon Allowance (ETS) price development

UK's Carbon Allowance (ETS) price development

Major News Roundup

Aljazeera | Future heatwaves will lead to large ‘loss of life’, a report by the U.N. and the Red Cross warns. Heatwaves will become so extreme in parts of Africa and Asia within decades that human life there will be unsustainable.

Reuters | Massive floods hit Venezuela on Saturday. At least 36 people have lost their lives and rescuers search for more than 50 people who have been reported missing.

Aljazeera | Floods in India after late monsoon result in at least 18 deaths.

Reuters | Renewables cover power demand for the first time on record in Greece. Power generation from renewable energy sources covered electricity demand over a few hours last week.

The Guardian | Great Britain: ministers hope to ban solar projects from most English farms. The motive behind the ban is to better farmland productivity.

New Scientist | The world's second-largest rainforest is expanding as the Maya Rainforest in Guatemala is under a restoration program.

Latest environmental news from Finland

Tekniikka & Talous | Mining company Element X Finland gets a large mining reservation in the region of Uusimaa. The reservation was granted by the Finnish Safety and Chemicals Agency (Tukes), with the reserved area being 160 000 hectares with a population of 140 000.

SYKE | Report: To efficiently reduce emissions in food production, farming on peatlands should be discontinued. Also, meat and dairy product consumption should decrease to meet the goal.

Tekniikan maailma | New Finnish Construction Law steers construction towards sustainability. The law update requires a life cycle carbon assessment for small residential buildings.

Yle | Drones help to guard Finnish forests. Illegal logging in Finland has declined in the past two years due to increased monitoring using satellites and drones.

Yle | Extinction Rebellion Finland protested at the Metsä Group factory in Kemi on Monday. 30 activists took part in the action that protested unsustainable forestry practices.

Climate Pledges and action

The Guardian | UN body reaches long-term aviation climate goal of net zero by 2050. The decision is described as a compromise by several European countries who wanted a more ambitious target with China, Russia, and Eritrea questioning the feasibility of the goal.

Reuters | Tech company Honeywell announces new ethanol-to-jet fuel technology. Honeywell's technology can increase the production efficiency of sustainable aviation fuel (SAF) to lower costs. The airline sector is considered one of the most difficult to decarbonize as fuel cannot be easily replaced with other kinds of power.

Reuters | London Stock Exchange sets listing rules for carbon cutters. It is the first major bourse to set listing rules for companies that finance carbon reduction projects, as part of efforts to grow the market and make it more transparent.

Maaseudun tulevaisuus | Fiskars Group invests €10 million in new furnaces: reduction in emissions up to 74 %. The investment replaces the company's current furnaces fuelled by natural gas.

Latest from the academics on environment, biodiversity, and carbon sequestration

Reuters | Investments of $270 trillion needed to meet net-zero targets by 2050, estimates a study by Swiss Re. Estimates for the price tag vary widely, and the estimate in question is higher than most.

The Guardian | Microplastics have been detected in human breast milk, according to a study published in the journal Polymers. Researchers are greatly concerned about the possible health impacts on babies because infants are especially vulnerable to chemical contaminants.

University of Houston | New type of solar harvesting system has the potential to generate solar power 24/7. The new system uses nonreciprocal thermal photonic components and breaks the efficiency record of all current technologies.

MIT | Study finds the factors that make ecosystems unstable. Researchers suggest that the stability of ecosystems can be predicted based on two factors of the ecosystem: the number of its species and how strongly they interact with each other.

Nature Climate Change | Prediction-market innovations have the potential to improve climate-risk forecast, according to a study. Creating models depicting climate risks is critical for decision-makers, but the provision and accuracy of such information is limited. Innovative prediction-market designs could provide a mechanism to enhance applied climate research in an incentive-compatible way.

Open sustainability positions

Picture of the week: Renewables in Greece cover power demand for the first time on record

Sources for "Gas Price cap in EU?": "EU-johtajat etsivät ratkaisuja energiakriisiin – pääministeri Marin: Suomi avoin energian hintakatolle, yhteisillä päätöksillä on kiire" – Yle , "Europe’s gas price cap options, explained" – Politico, "EU countries seek way out of impasse over gas price caps" – Reuters