EU leaders have called for temporary measures to mitigate the impact of the surge in energy prices caused by the US-Israel war on Iran. Solutions include tax cuts, network charge reductions, and state aid.
Soaring energy costs and the US-Israel war on Iran: EU leaders seek immediate solutions
EU leaders have called for the adoption of temporary measures to mitigate the impact of the surge in energy prices caused by the US-Israel war on Iran. Possible short-term solutions discussed during the European Council on March 19 included electricity tax cuts, reduced network charges, and state aid. These measures must preserve incentives for renewable investments, support their faster deployment, and ensure fair competition in the EU internal market.
Effects of the US-Israel war on Iran
Europe’s dependence on fossil fuel imports has exposed the continent to rising energy prices since the Strait of Hormuz was effectively closed and Tehran began targeting the energy infrastructure of Washington’s allied producer countries in the Middle East. Normally, almost 20% of global oil and liquefied natural gas supplies transit through the Strait. Brent crude rose again after Iran bombed energy facilities in Qatar and Saudi Arabia. Gas prices in Europe have doubled compared to February 28 levels, the start date of the conflict in Iran.
European Council summit conclusions on energy and soaring energy costs
In this context, EU leaders called for:
- a package of targeted temporary measures to address recent price spikes;
- a Commission proposal for concrete actions to reduce electricity prices and address excessive short-term volatility;
- collaboration between the Commission and Member States on temporary and targeted national measures to mitigate the impact of fuels on electricity generation costs;
- a review of the Emissions Trading System (ETS);
- an agreement on the European networks package.
In the conclusions of the European Council summit, EU leaders therefore asked the Commission to work closely with Member States on temporary and targeted measures to mitigate the impact of rising fuel and electricity prices. These short-term solutions should ensure access to affordable energy, taking into account the specific situations of Member States, the particular exposure of certain industrial sectors to the risk of delocalization, and the need to improve conditions for energy-intensive sectors.
ETS maneuvers: Italy’s stance not adopted
EU leaders also asked the Commission to present a proposal for a review of the Emissions Trading System (ETS) by July 2026 at the latest, to reduce carbon price volatility and mitigate its impacts on electricity prices and supply costs. However, EU states agree to safeguard the essential role of the ETS in the climate and energy transition and its function as a stimulus for investment and innovation.
An ETS-linked “investment booster” is coming
Corrective ETS measures will arrive in the coming days, as stated by von der Leyen in the press conference following the EU leaders’ summit. These interventions will include an update of free allowances to be allocated to industries and an increase in the supply of ETS allowances. In this regard, the Commission President also presented plans for an ETS-linked ‘investment booster’ to the leaders: a 30 billion euro fund destined to finance decarbonization projects, powered by ETS allowance revenues.
Earlier this week, von der Leyen had anticipated the options being considered by the EU executive. Among these were adjustments to the emissions trading system. “The objective is to finance decarbonization projects,” explained the President. The fund will particularly cover projects in lower-income EU countries.
Regarding the Energy Decree, with which the Italian government introduced subsidies for thermoelectric producers, compensating for carbon charges on gas power plants foreseen by the ETS, von der Leyen explained that she is “working closely with the Italian government on the decree“.
As expected, Italy’s stance, along with Poland and Hungary, on suspending the ETS system was not adopted. On the contrary, Member States emphasized the importance of the European Union’s key climate measure and its fundamental role in accelerating the energy transition.
Member States also requested the Commission to agree, during 2026, on an ambitious package on networks, ensuring their protection and resilience, and strengthening interconnections, both nationally and trans-European, by also rationalizing and accelerating authorization procedures. The aim is to contribute to a more integrated and robust energy market. The European Council also invited Member States and the Commission to accelerate the electrification process.
