Dispute over high energy prices: widespread criticism of agreement on EU

The agreement reached by the EU energy ministers on a gas price cap is met with skepticism by economists and the German economy.

"Price caps do not solve a supply crisis, but fundamentally risk the security of supply in Europe," said the deputy general manager of the Federation of German Industries (BDI), Holger Loesch, on Tuesday in Berlin.

Albrecht von der Hagen, general manager of the Association of Family Entrepreneurs, said: "If you want to switch off the market economy, it usually backfires." Prices are scarcity signals.

With the gas price cap, which undermines the principle of supply and demand, the EU is wrongly signaling to the markets that gas is not a scarce commodity in the EU.

Henrik Kafsack

Business correspondent in Brussels.

• Follow I follow

Christian Geinitz

Business correspondent in Berlin

• Follow I follow

The consequences can hardly be foreseen, the benefit has not been proven, said the head of the energy association BDEW.

It is to be expected that the liquidity of the TTF wholesale platform, which is subject to the cap, will be significantly impaired.

That would fundamentally change the risk management of the companies and should consequently lead to impairment of the financial markets.

The EU energy ministers agreed on the price cap on Monday after months of wrangling (FAZ, December 20).

It should take effect if the price is over 180 euros per megawatt hour for three days and at the same time 35 euros or more above the world market price for liquefied gas (LNG).

After activation, the price cap should always be 35 euros above the LNG world market price.

So it's dynamic.

However, it should not fall below 180 euros.

The price is currently less than 120 euros.

In the summer it had risen to up to 350 euros.

Berlin had long blocked the price cap because it saw it as a threat to gas supplies.

However, the majority of EU countries are hoping for lower prices for citizens and companies.

"Empty Hopes"

The energy economist Lion Hirth from the Berlin Hertie School does not share that.

"The expectation that the price cap can reduce energy costs is likely to turn out to be empty hope," he warns.

"If we're lucky, he won't have any consequences.

If we are less fortunate, it causes a lot of damage.” If the price cap works, hardly anyone will sell at the price set by the state.

Then the operators could no longer fill their storage.

The probability of a gas shortage in the following winter increases.

The Cologne economist Axel Ockenfels called the agreement on Tuesday a "political compromise in the European distribution struggle".

The European partners have to pay very high prices because there is a lack of gas, especially in this country.

The price cap should be a kind of protective shield against it.

But he can hardly keep his promises.

Only certain trading platforms are affected.

Traders could continue to trade outside the stock exchanges, on more opaque platforms or even outside the EU.

In addition, suppliers would demand risk premiums in view of the regulatory uncertainty.

"Instead of fighting the market, it would be better to strengthen the market to achieve the political goals," said Ockenfels.

The EU needs common incentives to save gas, fill up storage facilities or expand the grid.

effects would be frightening

Georg Zachmann of the Bruegel think tank expressed hope that the lid would never be triggered.

A price of 180 euros could easily be achieved.

Due to the increased LNG terminal capacities, however, it is less likely that it will also be 35 euros above the world market price.

“But the effects of an activated price cap would be scary.

There would hardly be any more trading as nobody wanted to sell below the true price,” he said.

The artificial price limit can also have undesirable effects without the cap being activated.

So it could make more sense for owners of stored gas to use it themselves and thus empty the storage before the cap takes hold than to have it managed afterwards.

"On the plus side, an unproductive discussion will end, which will hopefully allow politicians to focus on finding a structural solution to the energy crisis," stressed Zachmann.

This can only be done through aggressive short-term expansion of supply and reduction in demand.

Loesch welcomed the fact that Berlin had enforced safety precautions for the lid.

"The cap must be suspended as soon as there are risks to energy security, financial stability or gas flows within the EU," he said.

Also, saving energy should not be thwarted.

So far, the EU is on the right track.

It even exceeded its gas savings target of 15 percent.

From August to November, it consumed around 20 percent less, as new Eurostat figures show.

Germany alone saved 25 percent.

Economics Minister Robert Habeck (Greens) had previously made it clear that Germany only agreed because of the safety precautions.

"We have defined a great many instruments that significantly reduce the risk of an unwise effect," he said.

When deliveries drop

The BDI welcomed the two parallel EU laws on joint gas purchasing and faster approval of wind and solar parks.

"Only an increase in the energy supply can counteract the gas shortage and the associated high prices in the long term," says Loesch.