Energy: von der Leyen calls for flexibility, subsidies, and a review of the ETS to tackle rising prices

Brussels – Flexibility. Subsidising or capping the cost of electricity generated by gas-fired power stations and redistributing marginal revenues. Reducing taxes. Reviewing the ETS, the Emissions Trading Scheme. These are some of the measures that the President of the European Commission, Ursula von der Leyen, has put forward in her letter to EU heads of state and government on competitiveness ahead of the EU summit on Thursday, 19 March. And these are measures that lie primarily in the hands of the member states. 

“The most pressing issue, both in terms of competitiveness and independence, is energy, particularly oil and gas,” writes von der Leyen. She warns: “At present, the physical security of the European Union’s energy supply is guaranteed. However, rising fossil fuel prices are already weighing on our economy.” 

The President points out that, since 2021, the share of renewables in the EU’s energy mix has risen from 36 per cent to 48 per cent in 2025. “Together with nuclear power, over 70 per cent of our electricity is now generated from low-carbon energy sources,” she notes, “yet despite this, several sectors, particularly transport, remain heavily dependent on imported fossil fuels.” However, since the start of the conflict between Israel and the US against Iran, “Europe has already spent a further €6 billion on fossil fuel imports” and “a prolonged disruption to oil and gas supplies from the Gulf region could have a significant impact on our economy.” 

Therefore, in addition to taking action to “manage the immediate energy shock and protect our economy,” we must “move swiftly on to the next steps” to reduce energy costs. To do this, “we must address the four main factors that determine electricity prices,” namely the cost of electricity itself, network costs, taxes and levies, and carbon costs.”  

One way to do this, for example, is through the long-term contracts recommended in the competitiveness report prepared by the former head of the European Central Bank (ECB), Mario Draghi. “So-called Power Purchase Agreements (PPAs) can play an important role in decoupling industrial energy prices from the more volatile wholesale market. So far, their adoption has remained limited,” she laments. “The Commission will therefore remove existing barriers and further promote the use of such technologies for all low-carbon generation capacities, including by combining Power Purchase Agreements (PPAs) with Contracts for Difference (CFDs),” von der Leyen adds. She adds that “avoiding the premature decommissioning of plants, such as existing nuclear power stations, which can continue to provide reliable, low-cost and low-emission electricity, can also play an important role.” 

In addition, “Member States can provide immediate relief on electricity prices to the hardest-hit energy-intensive sectors through the existing State aid framework (CISAF)” and “the same applies to carbon costs, for which Member States can offset up to 80 per cent of indirect carbon costs, thereby mitigating their impact across a wide range of energy-intensive sectors.” These are mechanisms that the Commission aims to strengthen and make “more flexible, enabling Member States to provide even more immediate support where it is most needed.” 

Another tool available to Member States is to “subsidise or cap the cost of electricity generation from gas-fired power stations and redistribute the marginal revenues.” Here, von der Leyen clarifies that “the Commission will assess, on a case-by-case basis, the impact of such national emergency mechanisms, aimed at limiting the effects of high gas prices on electricity” and that, in any event, “the design of these emergency mechanisms should in any case avoid distortions of the internal market, preserve long-term investment signals for clean energy and prevent excessive additional demand for gas.” 

Another key issue is that of energy networks, on which the Commission President is calling, on the one hand, for the swift adoption of the Networks Package and, on the other, for “better use of existing infrastructure.” The European Commissioner for Energy, Dan Jorgensen, at the press conference following the EU Energy Council, emphasised that he “welcomed the progress made today on the electricity network package” because “this document needs to be adopted swiftly,” given that “it is of fundamental importance to reduce energy prices, promote greater price convergence among Member States, and reduce price volatility”. 

The third aspect concerns taxes and levies, where “significant discrepancies remain depending on the energy source”, given that, “in many cases, electricity is taxed much more heavily – up to fifteen times more – than gas”. For von der Leyen, “there is therefore a clear scope, including through legislative measures, to reduce taxation on electricity, remove certain non-energy levies from electricity bills and ensure that electricity is taxed more favourably than fossil fuels.” 

Finally, “as regards carbon costs, the ETS remains a tried-and-tested tool for driving industrial transformation,” given that, “since its introduction in 2005, Europe has reduced gas consumption by 100 billion cubic metres, helping to protect consumers from high gas prices.”

The President points out that the scheme “is market-based, technology-neutral and offers long-term investment certainty, whilst rewarding early movers” and that, “based on the ETS system, businesses across Europe have made investment decisions for the coming decades. We must now ensure that it is adapted to the new realities as well”. To this end, “the Commission will shortly adopt the ETS benchmarks, taking into account the concerns expressed by industry” and “will present a proposal to increase the capacity of the Market Stability Reserve, so that it can more effectively address excessive price volatility and keep prices under control in the short term.” In this context, “we are also stepping up work on the next review of the ETS, in particular to define a more realistic decarbonisation pathway beyond 2030.” 

According to von der Leyen, “taken together, these concrete measures can provide tangible and timely relief, whilst remaining consistent with our long-term climate and energy objectives.”