EU Weighs Gas Price Cap to Lower Power Costs Amid Iran War

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(Bloomberg) — The European Union is considering a gas price cap as part of a broader effort to curb the fuel’s influence on regional power prices and shield consumers from extreme volatility.

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European gas futures have surged because of the war in the Middle East, showing once again how exposed the continent is to global energy markets. But even before US President Donald Trump launched the attack on Iran, the region was grappling with how to bring down prices to prevent more factories closing because of rising costs.

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“It is crucial that we reduce the cost impact when gas sets the electricity price,” Commission President Ursula von der Leyen told lawmakers in Strasbourg.

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Other measures on the table include better use of power purchase agreements and contracts for difference, state aid measures as well as subsidizing gas prices, she said. 

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EU leaders will meet next week and are set to call for more concrete action to lower prices in the short term. The bloc introduced an emergency gas price cap during the energy crisis in 2022-2023, though it was never triggered. While prices have lurched higher since the start of the Iran conflict, they remain well below peak crisis levels. 

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“Any form of gas price cap or subsidy would be highly counterproductive for Europe,” said Simone Tagliapietra, an analyst at Bruegel in Brussels. “Artificially lowering the gas price would stimulate demand for the scarce or pricey commodity, making the situation worse and coming at huge cost for public finances.”

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Dutch front-month futures, Europe’s gas benchmark, rose 6.1% to trade above €50 a megawatt-hour at 10:41 a.m. in Amsterdam. They almost reached €70 earlier this week. 

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The EU’s carbon market has also come under increased scrutiny in recent weeks, with a number of countries blaming it for adding to the burden faced by industry. Italy has called for a temporary suspension until a deeper reform is implemented, and is also undertaking measures to strip the CO2 price from its power market.

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Von der Leyen spoke in support of the Emissions Trading System, which puts a price on each metric ton of CO2 emitted into the atmosphere, but agreed it needed reform.

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“Without ETS we would now consume 100 billion cubic meters more gas, again making us more vulnerable, more dependent and weaker,” von der Leyen said. “So we need ETS. But we need to modernize it.”

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—With assistance from Max Ramsay.

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(Updates throughout.)

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