FES POLICY PAPER Karsten Neuhoff Capping Prices, Saving Gas A European Initiative on the Energy Crisis EXECUTIVE SUMMARY The current price and supply crisis that has taken hold of gas markets can be best addressed through a joint Euro­pean response. This response should include two mea­sures: first, binding gas saving targets, which also en­sure strong incentives for gas savings, are adhered to by all Member States. Second, a limit on the price Transmis­sion System Operators(TSOs) charge for gas they supply to balance the system. The combination of both ele­ments helps achieve acceptable price levels and security of supply in the mid-term, thereby maintaining the func­tion of gas markets. AN ADEQUATE EU RESPONSE IS URGENTLY REQUIRED certainties(for example relating to delays from state aid ap­proval or unintended interactions from intra-European trade) and risk leaving consumers in poorer Member States exposed to price increases. AN ADEQUATE RESPONSE REQUIRES BOTH: GAS SAVING TARGETS& EU AGREEMENT ON PRICE LIMIT Gas saved in one EU Member State will reduce gas prices for all Member States and minimise the risk of curtailment. While the Council agreed to gas saving targets, most measures are still vol­untary and leave room for several national exemptions(Europe­an Commission 2022). Without effective coordination, isolated efforts will engender smaller benefits as these would be diluted by free-riders. A coordinated approach makes it possible to har­ness the full spectrum of benefits across all Member States. The EU Commission and Member States have proposed a vari­ety of measures to intervene in electricity and gas markets, and thus opened the door for national energy subsidies under the temporary crisis framework. This has triggered tensions be­tween Member States and distracted from searching for an ad­equate response to the crisis. Without an adequate European response, national measures are largely restricted to the provision of subsidies. These mea­sures are, however, extremely expensive(see the 200 bil­lion-Euro German proposal), entail great implementation un­Uncertainties surrounding gas supply interruptions triggered by Russia and the impossibility of forecasting price responses, re­sult in excessive risk premia on gas prices and lead to high costs for consumers and governments. Therefore, a limit on the price that Transmission System Operators(TSOs) pay for and charge for gas they supply in order to balance the system if a market participant withdraws more gas from the gas network than it enters(posing an implicit cap on the wholesale prices, see be­low) saves consumers and governments extra costs. Imple­menting such a limit is only possible at EU level, and should go hand in hand with coordinated gas saving measures.