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Global Economy

Relief for Europe's consumers?

It sounds like a fairy tale for motorists: oil prices climb and climb, but the price at the pump remains unchanged – and has been for months. Exactly this is reality in Hungary. Since November, a liter of diesel or premium petrol has been allowed to cost a maximum of 480 forints, the equivalent of 1.35 euros. The Hungarian government has since extended the regulation until May. For gas stations, the state-fixed prices are a loss-making business, and they are responding with sometimes drastic measures. For example, some limit the amount of fuel that can be held in each vehicle; others have completely withdrawn from the market.

Hungary, the Czech Republic and especially Poland blame the rising CO2 price for the current energy crisis. Polish Prime Minister Mateusz Morawiecki has repeatedly suggested that market speculation in emissions trading is responsible for the high energy prices. The CO2 certificates have become financial instruments in the hands of rich investors, the increase caused by speculation. Poland is particularly hard hit by the high CO2 prices, as the country generates around 70 percent of its electricity from hard coal and lignite, which are harmful to the environment.

France intervenes very strongly

In France, on the other hand, around 70 percent of the electricity is generated with the help of low-CO2 nuclear energy, so the prices are correspondingly low at around 20 cents per kilowatt hour. The result: Around 40 percent of households heat with electricity. In mid-January, the French government announced that it would limit the price increase for consumers to four percent – which is unavoidable in France despite everything. On the one hand, the state lowered an important tax on electricity, which resulted in eight billion euros less revenue for the state coffers. On the other hand, the government ordered state-owned electricity utility EDF to temporarily increase the amount of nuclear power it sells to smaller competitors. Without this step, the French would have faced an increase in electricity costs of 35 percent.

Paris was also active on the gas price. After this was last increased in October, the following extreme price increase on the European energy markets was not reflected in the end customer prices on the government's instructions. Otherwise, the heating bill of the French would have increased by 30 percent. In addition, around six million households in France with a low net income received a so-called energy check for 100 euros in December.

But the plans from Paris go even further: France had already brought automatic price stabilizers into play last autumn. Energy producers, who make high profits because of the increased prices, should pass this on to customers. In addition, the government of President Emmanuel Macron wants to work for long-term contracts with fixed prices. This should only affect energy sources such as electricity from nuclear energy.

France is supported in its plans by Spain, Greece and the Czech Republic, among others. In addition, Spain and a number of other countries in particular advocate joint purchasing and joint storage of natural gas. However, such far-reaching market interventions are not without controversy within the EU. Germany, Austria and the Netherlands, among others, reject such measures.

science at odds

In science, too, opinions on these regulatory interventions in the energy market differ widely. The Institute for Macroeconomics and Business Cycle Research (IMK) of the Hans Böckler Foundation, which is considered to be close to the trade unions, has proposed a temporary price cap for a basic requirement for natural gas. "For example, the state should set the price at the current level for the first 8,000 kilowatt hours of gas that households purchase and compensate the utility companies for their own additional costs," demands the IMK. For households with many people, the quota could also be larger.

The IMK considers the early abolition of the EEG surcharge, which has already been discussed, to be a sensible measure, but according to the economists it is not sufficient. Rather, a temporary reduction in VAT on energy would be another option.

Stefan Kooths, Vice President of the Kiel Institute for the World Economy, rejects such far-reaching measures: "There is nothing to be said for general government intervention because the rising prices reflect actual shortages , but only creates new problems." According to Kooths, rising prices create incentives to use less energy and provide more of it.

According to the economist, neither an early abolition of the EEG surcharge nor a reduction in VAT are a sensible way of counteracting the rise in energy prices. Instead of lowering energy prices, Kooths advocates a one-time payment to needy households. There is at least agreement here with French energy policy.

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