(Bloomberg) — Europe’s politicians have already earmarked about 280 billion euros ($279 billion) to ease the pain of surging energy prices for businesses and consumers, but the aid risks being dwarfed by the scale of the crisis.
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With Russia squeezing gas deliveries and power-plant outages further sapping supply, wholesale energy prices have soared to more than 10 times their seasonal average over the past five years. Tensions have intensified as Moscow prepares to shut the key Nord Stream pipeline on Wednesday for maintenance, reviving concerns about a long-term halt that would threaten efforts to secure sufficient reserves for the winter.
Governments across the continent have focused efforts mainly on lowering energy bills — an approach that may not only be overwhelmed by the price surge but risks making the crisis worse. Programs like a tax cut on gas in Germany and a heating subsidy in Poland without restrictions for income levels or energy efficiency are more likely to prop up demand, rather than rein it in.
“This is putting out fire with gasoline,” said Joanna Mackowiak-Pandera, president of the Warsaw-based Forum Energii think tank. “We haven’t reached the bottom of the crisis yet.”
European Union energy ministers may hold an emergency meeting to discuss the spike in power markets as leaders strike a more urgent tone. The Czech Republic, which holds the bloc’s rotating presidency, is considering calling a gathering to debate the idea of capping electricity prices, the CTK newswire reported citing Industry Minister Jozef Sikela.
The policy response so far risks burning through the region’s financial resources and intensifying a surge in inflation as economies stumble. That could put pressure on taxpayers to foot the bill for more support down the line, with prices expected to remain high at least through next year.
In the UK alone, covering extra energy costs would cost the government some 110 billion pounds ($129 billion) through 2023, according to a study by the Institute for Government.
Rather than dole out money widely, authorities should focus support only on the most vulnerable citizens and promote investment in efficiency measures for businesses and wealthier consumers, according to Peter Vis, a former high-ranking EU official.
While policies like Greece’s plan to cover 94% of the increase in power bills in September are easy to sell to voters, reducing consumption requires unpopular choices. But there may be little alternative.
“Energy savings must be the priority,” said Vis, who is currently a senior adviser at Rud Pedersen Public Affairs consultancy in Brussels. “The energy price spike is going to cause real pain, and governments are still far from providing an adequate response.”
Spanish lawmakers will debate one of Europe’s rare legal initiatives to curb consumption on Thursday. The rules stipulate that most businesses won’t be allowed to cool their interiors below 27 degrees Celsius (81 degrees Fahrenheit) in summer or to heat above 19 degrees Celsius (66 degrees Fahrenheit) in winter.
The policy was put in place by a decree from Prime Minister Pedro Sanchez last month, but requires parliamentary approval to become law. The main opposition party plans to oppose the bill, which includes restrictions on outdoor lighting, calling it frivolous and a risk to tourism and public safety. While they don’t have the votes to block the measure, it raises the stakes for the ruling coalition.
Rather than legislate consumption cuts, Europe’s leaders are mainly appealing for solidarity and recommending voluntary actions like lowering thermostats and taking colder and shorter showers.
“Our freedom, the system of freedom we’ve become used to living in has a cost,” French President Emmanuel Macron said at the beginning of a cabinet meeting on Wednesday. “Sometimes when we need to defend it, it can entail making sacrifices.”
While the French government swiftly set aside tens of billions of euros to shield households and businesses, it only recently started talks with local authorities and trade groups on a plan aimed at curtailing demand by 10% over two years.
The response to the energy crisis is indicative of the region’s unstable political landscape, with many leaders lacking the backing for tough decisions. Macron lost his majority in the National Assembly, Chancellor Olaf Scholz’s party has slipped to third in German voter polls, Italy is awaiting a snap election after allies dumped Prime Minister Mario Draghi, and Britain’s conservatives are picking Boris Johnson’s successor.
With the region already heading toward recession, failure to contain the energy crisis threatens to spur social unrest and political upheaval if the supply crunch sparks blackouts and cold homes this winter. It could also sap public support for moves to punish the Kremlin for its war in Ukraine.
In Poland, where the government has been a staunch supporter of Kyiv’s efforts to fend off Russian troops, 34% of voters blame the current government for surging costs, according to a United Surveys poll from last month.
Ahead of next month’s elections in Sweden, concern over electricity prices has soared to the top of the political agenda, with parties trying to outbid each other with measures to alleviate surging costs.
A botched subsidy program is set to become an issue in the upcoming ballot in Denmark. Prime Minister Mette Frederiksen’s government has been forced to investigate why some people received a 6,000-krone ($800) grant without qualifying, while eligible residents went empty handed.
In Italy, the heads of the two largest parties sparred over the imposition of price controls on energy in their first public debate ahead of Sept. 25 elections. Giorgia Meloni, the leading contender for prime minister, backed a proposed Europe-wide cap on gas prices.
Russia — historically the EU’s biggest gas supplier, covering about 40% of demand — is nearly impossible for the region to replace in the short term. Liquefied natural gas cargoes have helped fill reserves, but competition is set to intensify.
A Russian LNG operator scrapped a shipment to at least one Asian customer due to payment issues as well as delays signing revised contracts, according to traders with knowledge of the matter. Any disruption to natural gas shipments risks exacerbating a supply crunch and setting off bidding wars between European and Asian countries.
The difficulties in easing supply constraints was evident in Austria, where plans to revive a mothballed coal plant were thrown into disarray. Opposition parties rejected the measure until the government guarantees extra costs for the move won’t be borne by taxpayers.
Aside from Spain’s effort, Germany is also starting to address demand issues. On Wednesday, Scholz’s cabinet approved measures designed to cut gas consumption by a fifth this fall and winter. The moves include a ban on heating private swimming pools, eliminating heating of some areas in public buildings and reducing the minimum office temperature to 19 degrees Celsius.
“What we’re experiencing right now is a perfect storm” of overlapping crises, Scholz said on a trip to Canada this week, where he lobbied for infrastructure to export LNG to Germany. “You all know what I’m talking about: Russia’s war of aggression against Ukraine, the ensuing energy crisis, global food shortages, inflation.”
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