Mitigation measures

Many governments have introduced mitigation measures such as tax and duty relief or price caps on energy bills – targeted specifically at those citizens vulnerable to “energy poverty”. Increased energy costs are mostly being driven by higher gas prices.

The spot price of natural gas in the UK in January was 3-4x that of the average price of the years before 2020, and energy prices have mostly followed the same trend. At the same time, gas and coal energy production has remained high over the last few months and has contributed to pressure on the carbon price, which was nearing €90 in January. However, many have pointed out that what we experienced this winter is not just being driven by short-term market fluctuations, but by long-term trends that will lead to higher global energy prices. Individual analysts have also pointed out that this development will keep driving up the carbon price and it could reach up to €150 by 2030.

The EU’s monetary policy must adapt to a new reality

In a talk held in January by the European Central Bank (ECB), it was pointed out that the energy transition that now stands before the EU will result in higher energy prices in general, and that the EU’s monetary policy must adapt to a new reality. The ECB indicates that in conjunction with high energy and carbon prices, the EU must also increase its investment in the green transition and that it must do this while protecting the most vulnerable groups in society.

It emphasises that monetary policy must be set in such a way that it prevents price increases on energy goods leading to higher inflation rates that will once again weaken the EU’s ability to achieve its societal goals. The talk stressed that, in addition to tax income from duties on carbon intensive goods from abroad (CBAM), revenues from the Emissions Trading Scheme and other taxes on emissions will increase from €14 billion in 2019, to €86 billion per year over the period 2026-2030. According to the ECB, taxes on carbon emissions will, therefore, contribute to reduced investments in fossil fuel-based energy and reduced dependence on imports over time, while also strengthening economic activity within the EU, maintaining domestic demand and leading to increased employment.