EU considers relaxing state aid and capping gas price to bring down energy bills

BRUSSELS — The European Commission will look into loosening state aid rules and capping the price of gas to help member countries deal with the energy crisis triggered by the Iran war, according to a letter sent by Commission President Ursula von der Leyen.

The letter, dated March 16 and obtained by POLITICO, singles out a number of main ways countries could combat higher energy costs, which have risen sharply as a result of the U.S.-Iraeli war with Iran. The letter comes ahead of a meeting of European leaders in Brussels on Thursday.

Since the war broke out last month, effectively shutting off the Strait of Hormuz through which a fifth of the world’s oil supply transits, EU countries have been debating a broad range of responses to a looming energy crunch. Proposed measures have ranged from the modest and technical, such as relaxing rules to allow governments to compensate households and businesses for rising energy costs; to the radical and controversial, such as scrapping the EU’s most important climate laws.

One option proposed in Monday’s letter is to relax state aid rules to permit national capitals to redistribute profits generated by gas-fired plants to support consumers and businesses facing rising bills, the letter says. Another potential change would allow countries to cap the price of gas. 

Von der Leyen said both of these policies had been used after Russia’s invasion of Ukraine in 2022 and stressed that the Commission would determine on a case-by-case basis whether they would be deployed again.

“The design of these emergency mechanisms should in any case avoid internal market distortions, preserve long-term investment signals for clean energy and preclude excessive additional demand for gas,” she said. 

The Commission will also “further strengthen” a mechanism that allows countries to compensate 80 percent of the carbon price paid under the Emissions Trading System, the EU’s flagship carbon pricing mechanism, von der Leyen added.  

The letter also stresses that measures ought to be “targeted and temporary” — an apparent rebuke to countries that have sought to dismantle key climate policies that they blame for higher prices. 

The Commission president added that the Commission would also look into simplifying rules for companies to buy electricity through power purchase agreements. It will also propose a new law to “ensure that grid users receive the right incentives to make optimal use of existing grid infrastructure, as this will avoid unnecessary and costly grid expansions,” she said.