The European Commission has decided to extend until June 2024 two extraordinary measures that make it easier for member states to support companies affected by persistently high energy prices.
The tools were first introduced in March 2022 as a response to the economic disruption caused by Russia’s invasion of Ukraine. The conflict drastically upended supply chains and sent inflation to record-breaking levels, forcing governments to hand out vast amounts of subsidies to prevent companies from going bust.
The so-called “Temporary Crisis and Transition Framework” has been amended several times, as the shockwaves sent by the war continue to resonate and drag down economic activity in many sectors, particularly those that are energy-intensive.
But the cascade of state aid has proven divisive: small- and medium-sized countries have complained about unfair competition and market distortions because most of the money has been heavily concentrated in Germany and France.
In its latest amendment, published on Monday afternoon, the Commission opts for a targeted approach and decides to prolong two of the main five exceptional measures that have thus far been in place.
The two tools allow capped injections of public cash into struggling companies and the compensation of energy prices, both gas and electricity, that “significantly exceed pre-crisis levels.” (Pre-crisis is understood as the year 2021.)
The rules forbid governments from completely offsetting the impact of high prices in order to maintain the incentive to save energy, seen as essential to re-balance the supply-and-demand mismatch. The extension until June 2024 is done so as to cover the winter period and its immediate aftermath.
Although gas prices have declined since the dramatic levels experienced through 2022, they remain elevated compared to historic records. Last Friday, the Title Transfer Facility, Europe’s main hub for gas trading, closed at €45 per megawatt-hour, around €15 higher than in the same period of 2021.
The extra costs are weighing hard on the economy: Brussels predicts the EU will grow by a sluggish 0.6% rate this year and just by 1.3% in 2024.
In Monday’s announcement, the European Commission also indicated that three other exceptional measures for companies – state guarantees, subsidized loans and support for electricity demand reduction – would be discontinued after 31 December as they are no longer considered necessary.
Transition tools to partially subsidise the roll-out of renewable systems and slash imports of fossil fuels will however be available until the end of 2025.
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