Europe's reaction to the energy crisis caused by the Iran war.

The European Commission is set to release a set of measures on Wednesday aimed at mitigating soaring energy prices, as nations face unprecedented disruptions in the energy market due to the conflict in Iran. Here’s how the EU intends to respond.

ELECTRICITY FIRST

A key aspect of the EU's proposals focuses on decreasing reliance on oil and gas to shield against disruptions and price increases in fossil fuel supplies. According to a draft plan previously reported by Reuters, the Commission will outline changes to EU tax regulations to ensure that electricity is taxed at lower rates than fossil fuels. This initiative aims to encourage both consumers and businesses to transition from oil and gas systems to electric alternatives, such as electric vehicles and heat pumps. Additionally, the proposal will simplify the process for governments to reduce electricity taxes for energy-intensive industries to zero, thereby lowering costs in the short term. It will also mandate that countries promote investments in smart grid technologies to integrate more renewable energy into the energy mix. Brussels will finalize and announce these plans on Wednesday, with legal proposals expected in May. Changing EU tax rules is complex, as it requires unanimous consent from all 27 member states. Presently, electricity taxes and levies in the EU are roughly double those for natural gas, according to analysis from think tank Strategic Perspectives. The Commission also intends to set an electrification target by summer to encourage industries to shift from fossil fuels to electricity.

OIL AND GAS STOCKS

The EU will synchronize efforts among countries to fill gas storage over the next few months, including coordinating purchase timings, according to the draft. The goal is to prevent price spikes that could arise if companies rush to buy at the same time. Gas storage levels are currently at 30%, but the EU aims to increase this to 80% before winter, as companies have been slow to restock amid high prices. Brussels will also manage possible releases of oil stocks by coordinating timing and volumes within the EU. Members of the International Energy Agency, which includes most EU nations, agreed last month to release 400 million barrels of oil from their reserves to stabilize the oil market.

JET FUEL

The EU imports around 40% of its jet fuel, with half of it transported through the Strait of Hormuz. Brussels is drafting guidelines to address potential jet fuel shortages, which airports have warned could occur in the coming weeks. The guidelines will address issues like airlines losing airport slots due to cancellations and the EU’s anti-tankering regulations, which prevent planes from taking on extra fuel in cheaper locations, as stated by EU Transport Commissioner Apostolos Tzitzikostas on Tuesday. They will also clarify whether a fuel shortage qualifies as exceptional enough to exempt airlines from compensating for cancellations. The European Commission plans to oversee Europe’s refining capacity and implement measures to ensure that existing capacity is fully utilized, according to its draft plan.

'IMMEDIATE RELIEF'

The draft proposals include a series of recommendations aimed at providing "immediate relief," although the decision to adopt them will lie with individual governments. These recommendations encompass delaying the closure of nuclear power plants, offering financial assistance for the rapid installation of plug-in batteries and solar panels, and reducing public transport fares.

STATE AID

In addition to the proposals being released on Wednesday, the EU is working on plans to allow countries to provide more subsidies for fuel and fertilizer prices. A draft of these temporary state aid rules indicates that the EU would permit governments to cover up to 50% of the price increases for fuel or fertilizer that companies have faced since the onset of the Iran war. To prevent unstructured subsidies from overburdening public budgets, only select sectors will qualify, including agriculture, fishing, and road transport. These subsidies must be distributed this year and can take the form of grants, tax benefits, loans, and guarantees. The draft EU plan would also allow for a greater intensity of aid to assist industries in covering their energy costs.