2022評估歐洲應對能源市場危機的選擇

PolicyContribution

Issuen?17/22|September2022

ConallHeussaff(conall.heussaff@)isaResearchAssistantatBruegel

SimoneTagliapietra(simone.tagliapietra@)isaSeniorFellowatBruegel

GeorgZachmann(georg.zachmann@)isaSeniorFellowatBruegel

JerominZettelmeyer(jeromin.zettelmeyer@)isDirectorofBruegel

TheauthorsaregratefultoPantelisCapros,RebeccaChristie,MarekDabrowski,MariaDemertzis,NataliaFabra,AliciaGarcia-Herrero,MichaelGrubb,PéterKaderják,PawelKarbownik,DavidKleimann,MarieLeMouel,BenMcWilliams,Leonardo

Meeus,KarstenNeuhoff,JoannaMackowiakPandera,GeorgiosPetropoulosandNicolasVéronfortheircommentsonpreviousdrafts.

AnassessmentofEurope’soptionsforaddressingthecrisisinenergymarkets

ConallHeussaff,SimoneTagliapietra,GeorgZachmann,JerominZettelmeyer

Executivesummary

SinceRussia’sinvasionofUkraine,wholesalepricesforelectricityandgasintheEuropeanUnionhaverisenfivetofifteen-fold,withsevereimpactsforhouseholdsandbusinesses.Thecrisisisalsocreatingliquidityproblemsforenergycompanies,withcontagionrisksforthefinancialsector.

Inresponse,Europeangovernmentshavetakenarangeofactions.Somehaveintroducedmeasuresatretaillevel,whileothershaveintroducedwindfall-profittaxesonenergycompanies.Somecountrieshaveprovidedemergencyliquiditytoenergycompaniesfacingsoaringcollateralcosts.Someenergycompanieshaveevenbeennationalised.

Emergency-interventionproposalsshouldbeevaluatedagainstthreeprinciples.First,energysupplymustmeetdemandatpricesthatdonotcausemajordamagetotheEuropeaneconomy.Second,themostvulnerableconsumersmustbeprotected.Third,measuresshouldbeconsistentwiththecaseforinvestmentinasustainableenergysystem,inordertosafeguardEurope’sabilitytodecouplestructurallyfromfossil-fuelimports.

Gaspricecapshavebeenproposedasanemergencymeasureindifferentforms:acaponRussiangasonly,acapongasusedinelectricitygeneration,acaponallwholesalegas.Allentailsignificantrisks.ThefirstmightleadtoafullstopofRussiangasintotheEU.Thesecondmightincreasegasdemandfromtheelectricitysector.ThethirdmightraisegasdemandandalsoundermineEurope’sabilitytoattractmuch-neededgassupplies.Insteadofcappinggasprices,theEUshouldengagecollectivelywithexternalgassuppliersandnegotiatenewlong-termcontractswithprovisionstolimitpricevolatility.

ASeptember2022EuropeanCommissionproposalinvolvingelectricitydemandreduction,arevenuecaponinframarginalgeneration,solidaritypaymentsfromfossil-fuelcompaniesandconsumersupportmeasures,isbroadlypositive,notablybecauseitemphasisesdemandreduction.However,itisnotsufficient.Amorecomprehensiveplanneedstoensurethatallcountriesbringforwardeveryavailablesupply-sideflexibility,makerealeffortstoreducegasandelectricitydemand,keeptheirenergymarketsopenandpooldemandtogetabetterdealfromexternalgassuppliers.Inthelongerterm,measurestosplitthemarketsforenergygeneratedfromrenewablesandfossilfuelsshouldbeexamined.

Recommendedcitation

Heussaff,C.,S.Tagliapietra,G.ZachmannandJ.Zettelmeyer(2022)‘AnassessmentofEurope’soptionstoreduceenergyprices',PolicyContribution17/2022,Bruegel

1Introduction

Europe’senergymarketsareincrisis.Wholesalepricesforelectricityandgashaverisenfiveto15-foldsinceearly2021(Figure1).Thisisbeingfeltinretailpricesandwreakinghavoconhouseholds'disposableincomesandtheprofitsofenergy-intensivecompaniesprofitmargins,orisbeingabsorbedbyintermediaries,underminingtheirviability.Energycompaniesandtheirlendersareincreasinglyworriedbytheimplicationsofthisunprecedentedpriceshock.

Inresponse,manyEuropeangovernmentshaveintroducedmeasuresatretaillevel,includingretailpricecaps,regulatedtariffs,supportschemesforcompaniesandenergybillcredits.Somehavealsointroducedwindfalltaxesonenergycompanyprofits.Topreventdisruptionsintheenergysector,severalcountrieshaverecentlystartedtoprovidesubstantialemergencyliquiditytoenergycompanieswhichfacesoaringcollateralcosts.Somecountrieshavealsotakenstakesinenergycompanies,whileothershaveproceededwithnationalisa-tion.Thesepoliciesaredesignedtotacklespecificnegativeimpactsofhighwholesaleprices.

ActiontodirectlyinterveneinthegasandelectricitywholesalemarketsisalsobeingtakenatEuropeanUnionlevel,whichiswhatweanalyseinthisPolicyContribution.Weexaminethecausesofthecurrentveryhighwholesaleprices,highproducerrentsandpricevolatility.Wethenoutlinesomeprinciplestoguidemeasurestoreducepricesandrents.Variouspro-posalsforactionhavebeenmadeandweevaluateanumberofthese.

2Whatisbehindskyrocketingenergywholesaleprices?

TheprimarycauseforthemassiveincreaseinEUgaspricesisthatRussia,supplierofabout40percentofEUgasconsumption,hasreduceditsdeliveriestotheEUby80percent(uptoSeptember2022).Fearingthattheseflowsmightstopcompletely,countriesandcompaniesacceleratedtheirgaspurchasestoraisevolumesinstoragetosatisfactorylevelsbeforewinter2022-23.Ithasonlybeenpossibletomeetdemandforimmediateconsumptionandstoragethroughlargepurchasesofliquifiednaturalgas(LNG).WeeklyaverageLNGimportsintotheEUandtheUnitedKingdomhaverisento3.0billioncubicmetres(bcm)in20221comparedto1.8bcmin2021.Europe’sshareoftheglobalLNGmarkethasrisento30percent,upfrom20percentin2021(IGU,2022).EveryadditionalcargodrawntoEuropehasrequiredanotherLNGbuyertobeoutbid.

TherelativelyfewveryexpensivecargoesofLNGdrivethegaspriceformostofEurope.Thisisbecausenewdemand(egfromcompaniesthatneedtoreplaceRussiangas)andaddi-tionalsupplies(egfromLNG)aretradedatapricethatensuresthatalldemandmeetssupply–so-calledmarginalpricing.ShouldthewholesalegaspricebebelowthehighLNGpriceofLNG,theLNGwouldnotbesuppliedandthedemandfromconsumerswillingtopaythathighpricewouldnotbemet.

1Basedonthefirst36weeksoftheyear.

2PolicyContribution|Issuen?17/22|September2022

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Figure1:TheEU'smaingaspricebenchmarkandGermany’sbaseloadelectricityindexhaveincreasedupto15-foldsincethefirsthalfof2021

EUR/MWh

Germanelectricitypriceindex**

Gaspricebenchmark*

Source:BloombergIntelligence.Note:*=DutchTitleTransferFacilityNaturalGasYear1Index,**=GermanBaseloadPowerYear1Index.

Therearevariousregionalshort-termmarketsinEurope.Pricedifferentialsovertimeandbetweenregionsprovideefficientsignalstotraderstostoregasorbringitwheredemandishighest.Inmanycases,thesepricesarealsopassedontoconsumers,evenforgasthathasbeencontractedformanyyears,becausemostlong-termphysicalcontractsdonotsetafixedprice,butonlyafixedvolume;thepricechangesdependingonswingsinthespotprice.Thisimpliesthatsellerswhosecontractsarelinkedtothespotpricearecurrentlymakingextremelyhighprofits(unlesstheyhavelockedinlowerpricesthroughforwardhedging).

Ontopofthislayerofphysicalcontracts,variousmarketplayers(importers/producers,traders,retailers,differenttypesofconsumers)hedgepricesonfinancialenergymarkets.Forexample,achemicalplantmighthavesolditsproductsforwardforayearatacertainprice,whilelockinginacertaingaspricethroughgasfuturescontracts2,toensureacertainmargin.

Theincreaseinelectricitywholesalepriceslikelyhastwomajorcauses.First,theincreaseinnaturalgasprices(alsocoalandlessprominentlyEUcarbonallowances)haspushedupthecostofelectricityproductionwhenthosecommoditiesareneededtomeetelectricitydemand.Anincreaseinmoreexpensivecoalandgas(34.3TWhand21TWhrespectively,seeFigure2),combinedwithadropintotalgeneration,hasmadeupthedifference(McWilliamsetal,2022).

2Whichpromisetopaythedifferencebetweenthedesiredpriceandthespotpriceatrealisation.

3PolicyContribution|Issuen?17/22|September2022

Figure2:ChangesinEUelectricitygenerationmixin2022vs2021*

TWh

0.0

-20.0

-40.0

-60.0

-80.0

-100.0

-120.0

-140.0

27.6

1.0

-28.2

23.1

-70.021.0

15.0

19.3

-2.0

-60.1

-3.1

NuclearHydroBiomassLigniteHardcoalOilGasWindSolarOthersTotal

Source:BruegelbasedonEnergyCharts.Note:*=firsteightmonthsofeachyear.

Insomesituations,evenincreasesincoalandgasgenerationhavenotbeenenoughtomeetdemand.Asaresult,priceshaveincreasedevenfurther,tolevelsatwhichconsumershavestoppedconsuming.Intheshort-termelectricitydemandisverypriceinelastic,sopricesareveryhighandsmallchangesinvolumecanleadtovolatilepriceswings(Box1).Spotelectricitymarketsoperateaccordingtothe‘pay-as-cleared’principle,meaningthatallsellersobtainthesamepriceirrespectiveofwhattheyoffered,andallbuyerspaythesamepriceirrespectiveoftheirbid.Pay-as-clearedimpliesthatthelastpowerplantthatisneededtomeetdemandsetsthepriceforalltransactions(marginalpricing).Ifthiswerenotthecase,marketplayersmightchoosetooffer/biddifferentlyfromtheirmarginal-cost/willing-ness-to-pay,leadingtoinefficientdispatch3.

Box1:Crisisinenergymarkets

Figure3illustratesthecrisisintheenergymarketscausedbyrapidlyincreasingwholesaleenergyprices.Theleftandcentrepanelsshowhowwholesalepricesforgasandelectricityaredeterminedbythecostofthemostexpensiveformofenergysupplythatistradedtomeetshort-rundemand(themarginalcost).Intheelectricitymarket,thisisoftenelectricityproducedbygas;inthegasmarket,itisexpensiveimportedLNG,becausehome-producedgasandgasimportedthroughpipelinesareinsufficienttosatisfydemandafterthe80per-centreductioninimportsfromRussia.

Theextremepricescausedbytheextremereductioningassupplyhavealsoledtoveryhighprofitsfortheproducersofenergyfromcheaper(‘inframarginal’)sources,suchaswindpower.Theright-handpanelshowswhypricesarebothveryhighandvolatile.Afterthesup-plycurvehasshiftedleft,demandintersectswithsupplyinanareaofthedemandcurvethatisverysteep.Asaresult,smallshiftsinthesupplycurvetotheleftorrightleadtoverylarge

3Consider,forexample,amarketinwhichsellersofferingelectricitybelowthemarket-clearingofferreceivedtheir

offerpricewhilebuyerspaytheaverageprice.Inthatcase,ownersofexpensivepowerplantscouldtrytogametheoutcomebyactingonbothsidesofthemarket:Offeringtheirpowergenerationathighpricesandatthesametimebiddingforelectricity.Theymightthenfulfilltheirdeliveryobligationbybuyingelectricityattheloweraveragepriceandsellingitatthehighofferprice.

4PolicyContribution|Issuen?17/22|September2022

Supplyshock

3

€/MWh

Demand

Demand

Gasprice(crisis)

Powerprice(crisis)

Super-normal

proits

Super-normal

proits

Gasprice(normal)

Powerprice(normal)

Gas

RemainingRussiangas

Non-gasgeneration

Othersupply

Exceptional

consumer

costs

Energyprice(normal)

Energyprice(crisis)

€/m

m

swingsinprices.Proposalscurrentlyunderconsiderationtoreduceexceptionalenergycostsfacedbyconsumersseektotaxorcapexcessprofitsandusetherevenuestoreduceenergybills.

Figure3:Addressingthecrisisintheenergymarkets

GasmarketsElectricitymarkets

LNG

3

MWh

p

Q

Source:Bruegel.

ElectricityspotpricesareinturnanimportantsignalfortheoptimaldispatchofpowerplantsintheEuropeanelectricitysystem;theyalsoserveasthebenchmarkforsettlingfuturescontracts.Hence,whilethecurrenthighpricesinthespotmarketaffectonlymarketpartic-ipantsthatdidnotpreviouslylock-inlowerprices4,expectedhighspotpricesnextyearhaveledtoincreasesinfuturesprices.

Itmightbearguedthatveryhighpricesandhighpricevolatilityinthewholesalegasandelectricitymarketsaretransitory,becauseelectricityandgasdemandcanbereducedoverthelongertermandmarketswillthereforesoonfindanewequilibriumatlowerprices.However,whathappensintheshorttermiscrucial.Highenergypricesdenthouseholdpurchasingpowerandindustrycompetitiveness,aswellasfosteringinflation.Thecapacityofgovernmentbudgetstosoftentheimpactonconsumersislimitedbythemagnitudeofexistingdebtandthevolumeofthepriceincreases.Ifgovernmentsweretofullycoverthecostofa€100/MWhpriceincreaseforgasanda€200/MWhpriceincreaseforelectricity,itwouldcostabout€1trillion,orabout6percentofEUGDP.Moreover,wildenergypriceswingsandpricesmuchhigherthanthoseatwhichriskmodelswerecalibratedoverpastdecadesraisefinancial-stabilityconcerns.

Policymakersmustthereforefindasolutiontotheproblemandconsequentlypreventasevererecession.IfnojointEuropeansolutioncanbefound,EUcountriesmightdecidetogobeyondmeasurestakensofarandmovetowardsmuchmoreintrusivemeasuresthatcouldunderminetheintegrityofthesinglemarket.

4BloombergdatasuggeststhatutilitiessuchasEngieandCEZsoldabout70percentoftheir2023productionalreadybeforeJuly2022(accordingtothisdata,Verbund,Austria’slargestenergyprovider,soldonly42percent).

5PolicyContribution|Issuen?17/22|September2022

Pricecap

onRussiangas

Short-termintervention

EuropeanCommission:inframarginalrevenuecap

Priceshockabsorber

Long-term

reform

Iberianexception:subsidyforgasgeneration

3Principlesagainstwhichtoassessproposedinterventions

Severalproposalshavebeenmadeoninterveninginmarketstomoderateprices.Anyinter-ventionshouldrespectthreeprinciples:

?First,energysupplyshouldmeetdemandatpricesthatdonotcausemajordamagetotheEuropeaneconomy.Interventionsshouldnotjeopardisesecurityofsupplybycausingamismatchbetweensupplyanddemand.Asituationinwhichsystemoperatorshavetocutconsumptionwouldbechaotic,especiallyinthetransnationalEuropeanenergysystem.

?Second,protectthemostvulnerableconsumers.Theprimaryaimistoreducetheenergycostforbuyers.Acriticalquestionishowbenefitsshouldbeallocatedtodifferenttypesofconsumers(industry,rich/poorhouseholds)indifferentcountries.Arelatedquestioniswhichsellers(Russiaorothergasexporters,Europeangascompanies,selectedtypesofelectricityproducersorcompaniesthatlockedinlowcosts),andinwhichcountries,shouldacceptlowerrevenues.

?Third,interventionshouldbeconsistentwiththecaseforinvestmentinasustainableenergysystem,tosafeguardEurope’sabilitytodecouplestructurallyfromfossil-fuelimports.Ad-hocmarketinterventioninthecashflowsofenergycompaniestodaywillbereflectedinthecap-italcostoffutureinvestment.Ifinterventionisperceivedasundulyaggressive,itwillbecomeverydifficulttomobiliseprivatecapitalatacceptablecostforthelow-carbontransition.

Ofcourse,theeffectivenessanddistributionalimpactsofanyproposaltointerveneinmarketswilldependonthespecificdetails.Forexample,thelevelofapricecap,orthetreat-mentofbalancingmarketscanalterdramaticallytheoutcomesofageneralconcept.Formostproposalsthathavebeenmade,specificdetailsarenotreadilyavailableatthisstage,andthismustbetakenintoaccountwhenevaluatingthoseproposals.

Weassesssevenproposalsforintervention,includingproposalsmadebytheEuropeanCommissionandsomenationalgovernments.Theycanbeclassifiedintermsoftheirtimingandintermsofthemarkettheyseektoinfluence(Figure4).Emergencyinterventionstoreducegasandelectricitypricesareshort-term,whileproposalstorestructuretheelectricitymarketswouldbelong-termreforms.Proposalstoreducethegaspricealsoaffectelectricitymarketsasgas-firedplantsfrequentlysetthemarginalpriceincurrentelectricitymarketdesign.

Figure4:Energymarketinterventionproposals

GasMarketElectricityMarket

Italianproposal:pricecaponallgas

Greekdualmarket/Liebreichdualmarket

Source:Bruegel.

6PolicyContribution|Issuen?17/22|September2022

€/MWh

Marginalprice

Gas

Coal*

Lignite

Remainingpro?t

Nuclear

Renewables

Spotprice

Revenuecap

signalpemains

*Coalisexcludedfromtherevenuecap

3.1TheEuropeanCommissionproposal

On14September2022,theEuropeanCommissionproposedaregulation“onanemergencyinterventiontoaddresshighenergyprices”(EuropeanCommission,2022).Itrestsonfourmainpillars:coordinatedelectricitydemandreduction,arevenuecapforinframarginalgeneration(withtheexceptionofcoal),a“solidaritycontribution”fromfossil-fuelcompanies,andconsumersupportmeasures.Atthecoreoftheproposalistheelectricitydemandreduc-tionplan,whichproposesamandatory5percentpeakhourelectricitydemandreduction,togetherwithacapontherevenuesnon-gasgenerators(excludingcoal)canearnintheelec-tricitymarkets.Revenuesabovethecapwouldbeusedtosupportvulnerableconsumers.Theproposedcapis€180/MWh,intendedtobalancerecoveryofexcessrevenueswiththeneedtoprovideacontinuedinvestmentcaseforrenewablegeneration.

Amajoradvantageoftheproposalisitwouldretainthepricesignalfordemandreduc-tionbecauseconsumerswouldcontinuetopaythemarginalpriceforelectricity.Signalsforefficientcross-borderexchange–preventinglocalenergyshortagesand/orlocallyextremeprices–wouldalsoremain.Policymakerswouldbefreetochoosewhichconsumerstheywouldsupport,andhowexactlytheywouldbesupported(egthroughdirectincomesupportorreductionoflevieschargedonenergybills).

Givendifferencesintheelectricitymixindifferentcountries,theadequacyofthissupportwilldependonwhetherrevenuesarecollectedanddistributedtoconsumersatnationalorEUlevel.Countrieswithlittleinframarginalproduction,suchascoalandgas-reliantPoland,willnotbeabletogeneratemuchrevenue.Therefore,toofferPolishconsumersthesameprotectionasconsumersincountrieswheresignificantrevenuescouldberaised,therewouldneedtobetransfersfromrevenue-richcountriestoconsumersinrevenue-poorcountries.

Onepotentialproblem,asshownbypreviousexperienceswithsimilarmeasures(eginItaly),isthedifficultyofcapturinginframarginalrents.Themainchallengeisdealingwithforwardcontracts,whichunderliemuchofthetransactionsinEuropeanelectricitymarkets.TheEuropeanCommissionproposalstatesthattherevenuecapshouldbeonrealisedmarketrevenuesonly.Ifcontractualobligationsrelatedtopowerpurchaseagreementsorforwardhedgesresultedinmarketrevenuesbelowthecap,theywouldnotbeaffectedbythemeasure.Asitstands,therearescantdetailsonhowthiskeyelementofthemeasuremightbeimple-mentedtechnically.Astheemergencymeasuresarefurtherdeveloped,considerationshouldthereforebegiventorelationshipbetweenspot-marketinterventionsandforwardcontracts.

Figure5:IllustrationoftheEuropeanCommissionproposal

Capturedinframarginalrentto

reduceconsumercosts

MWh

Source:Bruegel.

7PolicyContribution|Issuen?17/22|September2022

TheGermangovernment5hasproposedtoimplementdomesticallytheEuropeanCom-mission’sproposal(ifagreedatEUlevel)throughalevyonelectricityproducers.Adminis-tratively,thiswouldorganisedby‘inverting’theexistingrenewablessupportscheme.Therevenuesshouldhelptofinancea€65billionreliefpackagetosupportconsumersduringtheenergycrisis(which,ifaddedtopreviousmeasures,wouldbringtheGerman’sgovernmentfiscalinterventioninthisareato€120billionsinceSeptember2021).

3.2Gaspricecapproposals

Gaspricecapshavebeenintenselydebatedoverthelastmonths.Differentversionsofgaspricecapshavebeenproposed.

Oneversion,floatedbyEuropeanCommissionpresidentUrsulavonderLeyen6butnotpartoftheEuropeanCommissionproposalcoveredinsection3.1,isapricecaponRussiangasonly7.Thismeasurewouldrepresentasemi-sanctiononRussiaandwouldbeaimedatcuttingPutin’sgasrentwhileloweringthecostofRussiangassuppliestoEurope.However,sinceRussiahasalreadycutitsgassuppliestoEuropeby80percent,thismeasuremightnotbeasimpactfulasitcouldhavebeensomemonthsago.IftheNordStreampipelinewerere-openedandoverallflowsincreasedagain,themeasurewouldleadtosignificantcost

savingsforEurope.Howthosegainswouldbedistributedwoulddependonhowthepricecapisengineered.Forexample,permittingonlyaEuropeanpublicentitytobuygasfromRussiamightmakeiteasytocapturetherentanddistributeitaspoliticallydesired.

However,thecapmaynotresultinlowerwholesaleprices.IfRussiareactsbyfullycuttingsupplies,EUcountriesthatstillrelyontheflowswouldbeworseoffandthewholesalepriceinEuropemightincreasefurther.ThisiswhythoseEUcountriesopposethemeasure.

Figure6:IllustrationofapricecaponRussiangas

Demand

€/m3

Noimpactonelectricityprice

Marginalprice

Costsavings

LNG

Russiangaspricecap

Russiangas

Othersupply

m

3

Source:Bruegel.

TheseargumentsdonotimplythattheEUshouldnotattempttolowerthepriceatwhichgasissuppliedexternally.ItmakessensetoattempttopoolthemarketpowerofEUmembersbyactingasasinglebuyer(McWilliamsetal,2022).Butatthesametime,theEUneedstoengagecollabora-tivelywithfriendlyorpolitically-neutralexternalgassuppliers.WhiletheEUneedstosecuregasat

5Seethe3September2022agreementbetweenthecoalitiongovernment:

https://www.bundesfinanzministerium.

de/Content/DE/Downloads/Schlaglichter/Entlastungen/ergebnispapier-des-koalitionsausschusses.pdf?__

blob=publicationFile&v=4

.

6KateAbnett,‘EUtoproposepricecaponRussiangas,vonderLeyensays’,Reuters,7September2022,

https://www

.

/business/energy/eu-propose-price-cap-russian-gas-von-der-leyen-says-2022-09-07/

.

7MartinandWederdiMauro(2022),amongothers,havealsomadesuchproposals.

8PolicyContribution|Issuen?17/22|September2022

Electricitypricewithcap

Gaspricecap

Russiangas

Gas

Othersupply

Coal

RenewablesNuclear

3

MWh

LNG

m

areasonableprice,gassuppliersneedlong-termmarketvisibilitytobetterplantheirinvestments.TheEUmustpreparetolivewithveryloworzeroRussiansupplies,entailingthereplacementofmostofthe150bcmperyearthatRussiapreviouslyexportedtoEurope.TheEUhasachancetopoolthisdemandandtonegotiatelong-term,secureandaffordablecontractswithitsmainsup-pliers.WhileitisunlikelythatEuropewillorganisejointpurchasingofgasanytimesoon,itcouldbetheoccasiontousetheEUEnergyPlatform–establishedinApril20228–tobettercoordinateEurope’sposition(Boltzetal,2022).AfirststepistosetupadedicatedEU-Norwaytask-force9.

Asecondgaspricecapproposal,reportedlychampionedbyItaly10,wouldbetoplaceacaponallphysicalandfinancialtransactionsatEurope’sgashubs,includingtheDutchTitleTransferFacility(TTF)–Europe’sprimarygastradinghub–andonover-the-counter(OTC)tradingandexchanges(forsimilarproposals,seeNeuhoff,2022,andContiandPototschnig,2022).Suchacapwouldapplytomanylonger-termcontracts–includingthosewithGazprom–thatareindexedtotheTTF.ToensurethecapdoesnotcompromiseEurope’sabilitytoattractLNG,theproposalenvisagesacontract-for-difference(CfD)mechanismthatwouldreturntoimportersthediffer-encebetweentheinternationalpriceandthepricecap–withresourcesfromtheEUbudget.Thiswouldresultinlowerwholesalegaspricesandthuslowerelectricityprices.Moreover,lowerpricesandlowervolatilitymightreducemarginrequirementsforfuturescontracts,reducingtheliquidityneedsofenergycompanies.TaxpayerswouldhavetopayfortheCfDs,butshouldbemorethanpaidbackbylowerpricesandhencelowersubsidies.

Therearetwomainproblemswiththisproposal.Thefirstrelatestoimplementationandthesecondismorefundame