On 20 July, the European Commission presented its emergency plan to ensure energy security for citizens and industry by saving gas in view of the upcoming winter. The proposal follows months of disruptions in energy supplies, affecting already 12 Member States across the EU.

The EU has already taken actions to reduce its dependency from Russian fossil fuels and ensure energy security, notably with the publication of the REPowerEU Plan in May, the revision of the Gas Storage Regulation and the supply agreements with international partners. With the publication of the “Save Gas for a Safe Winter” emergency plan, another step has been taken to reduce gas demand and prepare the EU for possible further disruptions in winter.

Communication on Save Gas for a Safe Winter

The Communication builds on months of gas supply interruptions and cuts of gas flow via the Nord Stream 1 pipeline (e.g., 10-day outage in July and flow reduced to 40% capacity). In this light, the Commission underlines that acting now on reducing gas demand would ensure sufficient gas storage levels (80%) and reduce economic negative impact and market pressure.

Takeaway

The proposed measures by the Commission are in line with the recent recommendations of the International Energy Agency, such as bringing down the household electricity demand by setting cooling standards and controls, and minimizing gas use in the power sector by temporarily increasing coal and oil-fired generation or by accelerating the deployment of low-carbon sources such as nuclear power.

Council Regulation on Coordinated Demand Reduction Measures for Gas

The Regulation sets a voluntary target for all Member States to reduce gas demand by 15% between 1 August 2022 and 31 March 2023. However, in case of an exceptional supply disruption, the Commission could declare a ‘Union Alert’ imposing a compulsory gas demand reduction. This will make the 15% target mandatory.

Takeaway

The package is based on the solidarity principle since some Member States (e.g. Germany) are more depended on Russian gas than others (e.g. Spain, Portugal). However, the possibility of imposing a mandatory target to cut gas use by 15% in case of supply emergency has already raised criticism from some Member States. For instance, Spain already indicated it ‘cannot support the gas usage proposal without consultations’. EU Energy Ministers will discuss the proposal during the informal Energy Council on 26 July. The approval of the Council Regulation will require a qualified majority (at least 15 Member States).

A European Gas Demand Reduction Plan

To achieve the 15% gas reduction target, the Commission’s Action Plan provides Member States with guidelines to protect households, essential users and industries from a gas shortage and help them to reduce gas demand. The main recommendations focus on the switch toward other kind of fuels (renewables but also coal, oil and nuclear), reduce heating and cooling in buildings (e.g., public awareness raising campaigns) and incentivize reduction by industry (e.g., interruptible contracts).

Takeaway

The use of coal, oil or liquified natural gas could risk putting under threat the overall long-term EU climate goals and the phase out of fossil fuels. The Commission underlines that the fuel switching measures should be designated in a way that these are temporary and do not result in a long-term fossil lock-in or endanger the decarbonization objectives of the ‘Fit for 55’ package. However, no guarantees have been put in place to ensure this.

Amendments to State aid Temporary Crisis Framework

The targeted amendments will allow Member States to set up schemes for investments in renewable energy, diversify energy supplies and expand the types of support that they can give to companies in need. For instance, state aid could support companies affected by mandatory or voluntary gas curtailment and support them for fuel switching to more polluting fossil fuels subject to energy efficiency efforts. In addition, Member States could provide aid to fill gas storages and to support companies transporting goods to and from Ukraine.

Takeaway

The relaxation of state aid measures will strive to simplify tender and permitting procedures and will increase state aid limits substantially. This will notably benefit renewable energy projects linked to the implementation of the REPowerEU objectives, such as projects that will generate clean energy, increase energy efficiency or decarbonize industrial processes.