In response to the rising price of gas in the last 12 months in Europe, governments across the continent have put into place a series of policy interventions to protect consumers and businesses from surging energy costs. The price of gas has increased by around 300% in the last year due to an increase in the world demand for gas and because of the​​​​​​​ Russia Ukraine conflict.

Here are some of the methods different European governments have adopted:

• France has fixed gas prices at October 2021 levels and capped electricity price increases at 4% until at least the end of the year. The government has also given €100 to low and middle-income households to help them meet their energy costs.
• In Germany energy-saving measures have been put into place, including limiting temperatures in public buildings and turning off heating in common areas such as corridors. The government is paying all working people a rebate on their energy bills of €300 in September. Students and people on welfare have received double lump-sum payments to help with their energy costs.
• The EU has approved an €8.4bn Spanish and Portuguese plan to reduce wholesale electricity prices in the Iberian market by capping the price of gas used to produce electricity. It takes the form of a direct payment to electricity producers, and it will save households 15% to 20% on their energy bills.
• Poland has announced a €630 energy support payment for most households. Although the subsidies are lower for different types of heating fuel such as wood burning.
• The Dutch government has offered the lowest-earning households a one-off energy subsidy of €1,300. It has also planned to increase the minimum wage and lowering VAT on energy.
• In Norway the government has capped electricity bills at 0.7 Norwegian kroner per kWh.
• The British government has set out plans to freeze energy bills at an average of £2,500 a year for two years, as part of a support package for households and businesses.  

The central aim of the policies adopted is to protect households, particularly those on low incomes. It is also designed to support small and medium-sized businesses that may not survive such a large increase in energy prices.

The costs to individual governments of such significant energy market interventions are likely to run into tens of billions of Euros. Some governments have chosen to raise funds for the plan through a windfall tax on profitable energy companies and government borrowing and others have chosen just to increase borrowing.

One concern of fixing energy prices at a level below the market equilibrium price is that the price mechanism cannot fulfil its function of rationing energy and there may be shortages during the winter with possible power cuts or blackouts.

It is also thought that allowing the price of gas to increase is a method of getting countries away from fossil fuels and onto renewable energy.

Possible points to discuss with a class

1. Why are rising energy costs such a problem for low-income households?
2. Why might fixing the price of energy lead to power cuts or blackouts?
3. In the long run who pays for increased government borrowing to fund government intervention in the energy market?
4. Why might a rise in the price of oil and gas help make energy more sustainable?