This briefing “EU climate and energy policy after the energy crunch” by Elisabetta Cornago of Centre for European Reform examines the impacts of energy crunch on different aspects of energy markets. The overall macroeconomic impact of the 2021-2022 energy crunch has been rather muted: while some feared an industrial meltdown, the European economy has shown resilience and adaptability.
The energy price spike has, however, impacted public budgets. Governments enacted important market interventions and spent large sums to protect consumers and businesses. Governments may have to roll back some of the temporary subsidies and other price-suppression mechanisms for fiscal reasons, but this will be politically difficult. The energy crisis has changed energy investment patterns in Europe in different visible ways.
The energy crunch made it clear that, as long as electricity generation at times of high demand largely depends on gas power plants, power prices will spike when gas prices do. This has prompted the EU to launch a reform of its power market design, now reaching its final stages. It aims to standardise national policies to support investment in renewables across the continent, to ultimately reduce dependence on fossil-fuelled power generation. The crisis also highlighted how crucial the energy union is for EU energy security.
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