Eurozone to discuss economic impact of rising energy prices

BRUSSELS, Sept. 30 (Reuters) – Euro-zone finance ministers will discuss rising energy prices on Monday, fearing they could slow the economic recovery, influence investment decisions and disproportionately affect the poorest, a European Commission note shows .

However, the note, prepared for the ministerial meeting in Luxembourg, stated that any policy response must first determine how temporary or permanent the increase in energy prices was.

The European Central Bank believes that more expensive gas, oil and electricity prices are only temporary and will fall in 2022, and many eurozone governments agree.

But ministers will discuss the issue separately and share best practices on how to deal with the problem as they have to prepare 2022 budgets that will be heavily impacted by energy costs.

“The current rise in energy prices is already affecting economies and there is a need to discuss the impact of higher prices on national budgets,” the Commission’s note, seen by Reuters, said.

“There is a broad spectrum of policy options and levers open to governments, ranging from addressing supply (investment) to demand management (subsidies and national tax measures) and broader competitive and regulatory aspects,” it said.

Benchmark European gas prices have risen by more than 300% this year due to factors such as low storage levels, outages and high demand as economies recover from the COVID-19 pandemic, driving up wholesale electricity costs.

“From an economic point of view, higher energy prices may slow the recovery. Assumptions about electricity, gas and general prices are an important input in preparing budgetary plans, especially in light of recent volatility,” the Commission said.

Jos Delbeke, a former senior climate commission official, said on Thursday that rising prices also increased the possibility of longer-term policy reforms — including shifting taxes from electricity to fossil heating fuels, or switching to long-term gas supply contracts that are less exposed to spot price fluctuations. .

“The European framework for energy and climate policy will now be tested. It can become more resilient,” Delbeke said in a paper for the European University Institute.

EU leaders will also discuss rising prices when they meet again on October 21-22.

“The current situation points to the need for increased investment in renewable energy sources as economies move away from fossil fuels,” the Commission’s note said.

“There is a risk that higher energy prices will also disproportionately affect lower income groups and older households (energy poverty), which is especially a concern during the winter months,” it said.

Reporting by Jan Strupczewski; Editing by Toby Chopra, Kirsten Donovan

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