Germany announces $65bn plan to combat rising energy prices

Several EU nations announce emergency measures to combat skyrocketing energy prices in the wake of Russia’s war in Ukraine.

A view of energy metres at a block of flats in London
Countries across Europe are considering measures to ease the pressure off households due to rising energy prices [Andy Rain/EPA-EFE]

The German government has announced a $65bn plan to help people and businesses cope with soaring prices as several European nations introduce emergency measures to prepare for a long winter in the wake of disruption in Russian gas supplies to Europe following the Ukraine war.

German Chancellor Olaf Scholz on Sunday announced a series of measures in light of expectations that energy costs would soar in the coming months. Energy prices have skyrocketed as Europe has been trying to wean itself off Russian energy following Moscow’s invasion of Ukraine in late February.

Two days ago, Moscow shut a main pipeline supplying gas to Europe indefinitely, forcing countries like Germany to seek alternative energy supplies elsewhere.

Scholz said his government had been planning for a total halt in gas deliveries in December but he promised that his country would make it through the winter.

“Russia is no longer a reliable energy partner,” Scholz told a news conference in Berlin.

The German leader said the package is aimed at shielding customers and businesses from soaring inflation with measures including benefit hikes and a public transport subsidy.

Income tax-paying workers will receive a one-off energy price allowance of $300, while families will receive a one-time bonus of $100 per child, which doubles for those on low incomes.

Over the next few years, some $12bn to $13bn will be allocated annually to subsidise renovations to old buildings.

However, German households will have to pay almost $500 more a year for gas after a levy was set to help utilities cover the cost of replacing Russian supplies.

The levy, introduced to help Uniper and other importers cope with soaring prices, will be imposed from October 1 and will run until April 2024.

‘A decisive energy blow’

In his daily video address on Saturday night, Ukrainian President Volodymyr Zelenskyy told Europeans to expect a difficult winter after Moscow shut down the Nord Stream 1 pipeline.

“Russia is preparing a decisive energy blow on all Europeans for this winter,” he said.

Last week Moscow said it would keep the Nord Stream 1 pipeline, its main gas channel to Germany, closed and G7 countries announced a planned price cap on Russian oil exports.

The Kremlin said it would stop selling oil to any countries that implemented the cap.

“The German government is saying the country can last the winter, having built up gas reserves to 85 percent of capacity,” said Al Jazeera’s Harry Fawcett.

“But energy stockpiling by Germany and other European countries has helped send prices skyward along with fears for millions facing fuel poverty.”

Countries across Europe are considering similar measures.

In Italy, the government recently approved a $17bn aid package to help shield firms and families from galloping energy costs and rising consumer prices.

That comes on top of some $35bn budgeted since January to soften the effect of sky-high electricity, gas and petrol costs.

Under the package, Rome extended to the fourth quarter existing measures aimed at cutting electricity and gas bills for low-income families as well as reducing so-called “system-cost” levies.

A cut in excise duties on fuel at the pump that was set to expire on August 21 was extended to September 20.

Italy is also considering preventing energy companies from making unilateral changes to electricity and gas supply contracts until April 2023, according to draft measures approved by the government in early August.

Cost-of-living crisis

“Italy has spent 100 billion euros on gas and energy and it’s one of the most exposed to Russian imports,” said Ben Aris, founder and editor of bne IntelliNews, a specialist business, economy and finance outlet covering Russia and Eastern Europe.

“To put that in context, it costs around 12 billion euros for a country like that. This is very expensive and what we’re seeing now is the costs starting to spill over,” he told Al Jazeera.

A banner reading "energy crisis, inflation, impoverishment = government failure" is put on a vehicle in Magdeburg, Germany.
A banner reading “energy crisis, inflation, impoverishment = government failure” is put on a vehicle as people protest in Magdeburg, Germany [File: Fabrizio Bensch/Reuters]

Finland and Sweden on Sunday also announced plans to offer billions of dollars in liquidity guarantees to energy companies in their countries after Russia’s Gazprom shut the Nord Stream 1 gas pipeline, deepening Europe’s energy crisis.

Finland is aiming to offer $10bn and Sweden plans to offer $23.2bn (250 billion Swedish crowns) in liquidity guarantees.

“The government’s programme is a last-resort financing option for companies that would otherwise be threatened with insolvency,” Finland Prime Minister Sanna Marin said at a news conference.

Meanwhile, UK Conservative leadership hopeful Liz Truss has announced she intends to outline her vision on how to deal with rising energy costs within a week if she becomes prime minister on Tuesday.

The United Kingdom has a price cap on the most widely used household energy contracts but energy bills will jump 80 percent, to an average of 3,549 pounds ($4,188) a year from October, regulator Ofgem said, calling it a “crisis” that needed to be tackled by urgent and decisive government intervention.

Source: Al Jazeera and news agencies