Surging electricity prices across Europe are a source of great concern to EU citizens who are becoming unable to cover their energy costs. The additional energy cost to be incurred by consumers is likely to reach 100 billion euros during the winter of 2021-22 in the 27 Member States, according to the Greek ministry of Finances.

Athens fears that high energy prices constitute a major setback for a smooth economic recovery in the post–Covid-19 era, but also an alarm signal that the way towards a carbon-neutral economy will be subject to unexpected market shocks.

In a letter to the president of Eurogoup and minister for Finance of Ireland, Paschal Donohoe, the Greek minister of Finances, Christos Staikouras and the minister of Environment, Konstantinos Skrekas, note that :

“The unprecedented spike in gas prices, and by extension in electricity prices, is a major challenge for all EU Member States that cannot be dealt with, solely, at national level. This is a pan-European problem and requires immediate action which should jointly be taken at EU level.”

The Greek governemnt argues that the current, unusually high, gas prices may not be a circumstantial incident, driven by one-off factors.

The early stages of the transition towards carbon neutrality, it says, depend on gas supply and prices, since natural gas plays a key role until renewables and other carbon free sources dominate the EU energy mix.

Therefore, consumers and markets must employ hedging instruments against extreme natural gas price spikes, as natural gas is still essential for and the main setter of electricity prices for the period until 2030. In this period, affordability concerns, may jeopardize and destabilize the transition towards achieving the climate target by 2030.

The Greek ministers also warn that “there are several reasons to believe that such crises will reoccur in the years to come, and therefore, the EU needs to adopt new tools aiming at reducing the exposure to gas market fluctuations, given the fact that the Social Climate Fund proposed by the European Commission will not be established before 2025.”

Greece suggests two measures to address the crisis:

• Exceptional (before the end of 2021) auctioning of additional allowances from the Market Stability Reserve, so that extra revenues for Member States are generated through the EU ETS to, at least partially, cover the immediate extra burden to low- and middle-income households. The required amounts would result in an average increase of 10% in ETS revenues. The Member States will mainly use the additional revenues to finance compensation schemes of consumers’ electricity and gas prices during the winter 2021-2022.

• An EU Hedging Fund, which will hedge against gas price fluctuations in case of exceptional high gas price spikes, which may occur again in the future. The Fund could draw on advance payments of expected future EU ETS revenues and will be strictly limited to exceptional price volatility situations. The allocation to each Member State will be calculated on a pro-rata basis, considering the heating and electricity consumption and the national GDP per capita. Claw-back provisions could be put in place ensuring recovery of the Fund, based on a longer-run and smoothly applied consumer levy.