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Europe’s multi-billion government packages to support consumers amid soaring energy prices could only intensify inflationary pressures and burn through government finances as efforts to lower energy bills could make the energy crisis even worse, analysts tell Bloomberg.
Governments in Europe have so far pledged a combined $279 billion (280 billion euro) to lower energy bills for consumers. But policymakers are not targeting only the most vulnerable and spend a lot on measures that may not turn out to be efficient.
According to Bloomberg, gas tax cuts or subsidies could actually raise demand for energy rather than curb it, just as Europe is looking to conserve every molecule and megawatt of energy ahead of what is expected to be a very difficult winter.
“This is putting out fire with gasoline,” Joanna Mackowiak-Pandera, president of Poland-based think tank Forum Energii, told Bloomberg.
“We haven’t reached the bottom of the crisis yet,” she added.
In the UK, the government’s support package was generous, but bills are now expected to increase much further, Institute for Government said in a report this month.
“So far support is all focused on winter 2022/23, but current projections are for energy prices to be just as high, if not higher, next year. The new prime minister will need to be ready to provide further support again,” according to the report by Olly Bartrum, Thomas Pope, and Gemma Tetlow.
Offsetting the same proportion of bills next year would cost around $106 billion (£90 billion), Institute for Government noted.
Earlier this week, EDF, the French utility that also has business in the UK, warned that as many as half of British households may be facing fuel poverty because of the inexorable rise in energy prices.
Meanwhile, energy prices in Europe have soared to fresh records this week after Russia’s Gazprom said on Friday that it would halt all deliveries via Nord Stream to Germany for three days, raising renewed concerns that supply via the pipeline could be further cut or halted altogether after the three-day unplanned maintenance at the end of August.
Europe’s benchmark power price now trades at the equivalent of $1,101 a barrel crude oil, while the price of benchmark natural gas would be $518 per barrel in crude oil, according to Bloomberg’s estimates.
By Tsvetana Paraskova for Oilprice.com
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Tsvetana is a writer for Oilprice.com with over a decade of experience writing for news outlets such as iNVEZZ and SeeNews.