Is energy bills ceiling such a bright idea?

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European energy ministers will meet on Friday to discuss measures to contain the effects of high energy prices. European Commission President Ursula von der Leyen on Wednesday announced a number of plans that will be presented to European ministers. What does this mean for you?

European leaders have been working for months on a plan to contain the effects of high energy prices. When Russia decided last weekend to shut down the Nord Stream 1 gas pipeline longer than planned, measures became even more urgent. That is why the European Commission has convened the energy ministers.

According to Louise van Schaik, researcher at the Clingendael Institute, it is difficult to assess how the different EU countries view the proposed measures. “But the stress is mounting in Brussels. People can hardly pay their energy bills anymore. As a result, unrest among the population is increasing. I understand that governments want to do something about it.”

Can a price ceiling help?

The most important measure mentioned by President Von der Leyen is the introduction of a price cap for Russian gas. This means that gas will no longer be purchased above a certain price throughout the EU. According to Van Schaik, this plan is an “emergency button”, which can help but also cause more problems.

Russia has said it will no longer supply gas if the EU sets a price cap. Countries in Central Europe, which are still very dependent on Russian gas, then have a problem.

“On the other hand, it could also be that Putin continues to supply gas to Central Europe,” says the researcher. “With a price ceiling, you only take the speculation off.”

The measures discussed by EU ministers on Friday may partially solve the energy problem in the short term. But according to Van Schaik, we must beware of possible long-term consequences. A price ceiling can prevent a loaf of bread from now costing 10 euros and can no longer handle the heating, but at some point it also makes the gas scarce.

“It has often been said that the citizen will not be in the cold. If we have too little gas in the future, we will have to close factories, for example.”This could lead to a domino effect, according to the researcher: “if a fertilizer factory closes, it ultimately leads to less food on your plate.”

It can no longer be produced. The citizen does not yet feel that in his wallet, but it also has consequences in the long run.

About the author

Nicholas de Kramer

Nicholas de Krammer, а self-taught economic analytic with heave mathematical background. Math behind the economics (and economics behind math) is the strong side of the author. Contact him at [email protected]

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