Europe uses subsidies, taxes and policy pauses to offset pain of high fuel prices
Governments across Europe are using subsidies, taxes, and policy changes to help their economies, companies and aggrieved citizens weather an energy crisis caused by wars in Ukraine and the Middle East
BRUSSELS -- Wars in the Middle East and Ukraine are driving governments across Europe to craft subsidies, taxes and policy revisions that might shield their economies, companies and increasingly aggrieved citizens from record gasoline and diesel prices.
Countries around the world have intervened to limit the economic impact of diminished energy supplies and soaring fuel prices since the start of the Iran war, according to the Organization for Economic Cooperation and Development. Seven of the 10 nations working most actively to contain the economic damage are in the European Union, the OECD said in a report published Wednesday.
Lithuania cut train ticket prices in half. Greece is taxing gambling more to fund public relief efforts. Italy delayed the scheduled demolition of coal-fired power plants and slashed the required paperwork for oil and natural gas projects. The Netherlands increased funding for a program that provides free energy-saving services in homes. Poland has proposed heavily taxing the record profits of certain fuel producers and sellers.
Before the United States and Israel attacked Iran, Russia’s war in Ukraine disrupted global energy supplies and caused turmoil in Europe. The EU imports nearly all of the oil it uses and 85% of its natural gas. Overall, imports supply 57% of the bloc’s energy needs, with much of its domestically produced energy coming from renewable and nuclear sources, according to the EU's statistical office.
Europeans are becoming more incensed as pump prices surpass the equivalent of $12 a gallon in some countries. EU citizens are spending an extra 203 million euros ($231 million) a day just for diesel fuel, according to the European advocacy organization Transport & Environment.
“It’s a cruel irony that the U.S. is the least vulnerable to a crisis of its own making, while Europe’s economy again takes the hit,” Antony Froggatt, an analyst at the organization, said.
Some European governments are spending billions to help their countries weather the current energy crisis.
EU leaders in Brussels gave member nations temporary discretion to provide state aid to households and energy-intensive industries like agriculture, transportation and fishing. They also offered limited leeway from EU spending rules for investments that strengthen energy security and reduce the bloc's long-term reliance on imported oil and natural gas.
“The pressures from higher energy prices and borrowing costs are biting for people and for businesses,” European Commission President Ursula von der Leyen said in her annual State of the European Union address last week. “We need to double down on our affordable, homegrown, clean energy, be it renewables and nuclear, or biomethane and others” to “give us independence and drive down energy prices.”
France has adopted an expanding array of targeted measures to cushion consumers and fuel-intensive businesses from higher prices.
The French government on Tuesday announced a 450 million-euro package to expand its relief measures. It broadened means-tested aid for people who drive more than 30 kilometers round trip to work or more than 8,000 kilometers annually for professional purposes. The expansion makes 5.5 million workers eligible for 100-euro payments to defray fuel costs through the end of the year, the government said.
The new package also extended fuel subsidies for farmers, fishermen and construction companies until the end of the year, and will make energy vouchers of 48 euros to 277 euros available three months early to help 5.8 million families pay their winter energy bills.
French President Emmanuel Macron has asked von der Leyen to promote a relaxation of EU fuel quality regulations on density, sulfur content and other criteria to help increase diesel and kerosene production in Europe. The EU took a similar step during the COVID-19 pandemic.
In a letter to the EU executive seen by The Associated Press, Macron warned that the global oil market would soon see “strong increases in prices” if the Strait of Hormuz off Iran's coast did not reopen to tanker traffic and Saudi Arabia's East-West pipeline to the Red Sea was not repaired.
He also called for raising the EU limit on conventional biodiesel content in standard diesel fuel from 7% to 10%.
A two-month round of fuel tax cuts in Germany expired at the end of June. The government agreed last week to renew the tax cuts, which will lower gasoline and diesel prices by 17 cents per liter, from Oct. 1 until the end of the year. The German government said the new reduction will cost 2.5 billion euros.
The government also said it would hold talks with the oil industry about introducing a fuel price cap by Jan. 1. Neighboring Belgium and Luxembourg have had similar price caps in place for decades.
Spain's government also extended gasoline and diesel tax cuts it introduced in March as part of a 5 billion-euro ($5.7 billion) package to counter the effects of the Iran war on local energy prices.
The tax break amounted to 5 cents per liter this month. An automatic mechanism would increase it to 20 cents per liter if fuel-price inflation exceeds 15% year-on-year.
The government also extended fuel subsidies for transportation companies, farmers, livestock producers and fishermen.
Alongside national relief programs, EU nations have tapped their strategic reserves as part of an agreement by the International Energy Agency's 32 member countries to make 400 million barrels of oil from their emergency stockpiles available to the market.
The EU has worked to reduce its reliance on energy imported from Russia through renewable energy production and converting systems and industries to run on electricity instead of fossil fuels.
Von der Leyen said greater electrification could reduce the EU's annual bill for imported oil, gas and other fossil fuels by 260 billion euros ($296.6 billion) by 2040.
As the EU tried to wean itself off Russian energy, it became more dependent on the United States. Von der Leyen personally struck a deal with President Donald Trump last year that included a commitment for the EU to buy $750 billion worth of American energy over three years.
The Iran war has made the relationship both more vital and more complicated for the EU, which has increasingly turned to the U.S. for diesel. The support Trump expressed this week for banning diesel exports to drive down U.S. prices worries the bloc, which would have to find alternative sources of the fuel.
Brussels is lobbying Washington to drop the idea of suspending overseas diesel sales.
“We believe this is a bad idea,” European Commission spokesperson Olof Gill said Thursday. “EU-U.S. cooperation in the field of energy is strong, stable and mutually beneficial. Any disruption would risk negatively impacting both sides.”
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Associated Press writers Geir Moulson in Berlin, John Leicester in Paris and Suman Naishadham in Madrid contributed to this report.
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