1/⚡ For Europe 🇪🇺, #competitiveness is a priority. And this has...

19 views Mar 04, 2026 ~3 min read

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1/⚡ For Europe 🇪🇺, #competitiveness is a priority. And this has much to do with #energy costs.
Yet we keep on relying on #electricity markets that make European industry structurally uncompetitive.
Ahead of March 6 summit, a few thoughts on #energy & #competitiveness 🧵👇

2/ 🏭Post-Draghi, there seems to be consensus: energy costs are materially affecting EU industrial #competitiveness.
🚨 For electro-intensive sectors, electricity can exceed 50% of costs.
If geopolitics push oil & gas prices up again ➡️ back in crisis mode commission.europa.eu/topics/competi…

3/ 🇮🇹 Meloni’s “magic recipe”:
➡️Consumers subsidise the 🌍 CO₂ costs of gas-fired power plants
➡️ This prevents CO₂ prices from being passed through into electricity prices
⁉️Result? Consumers avoid paying windfalls to non-emitters
giftarticle.ft.com/giftarticle/ac…

4/ How?
In #Italy, ~50% of electricity comes from #gas.
Consumers would subsidise the CO₂ cost of that 50%.
But they would avoid the CO₂ #pass-through on non-emitters exposed to market prices, which currently earn higher revenues when gas sets the price

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5/⚠️However, design parameters are critical:
⁉️Actual vs benchmarked CO₂ cost?
⁉️Treatment of #exports?
⁉️Interaction with #interconnectors?
⁉️Compatibility with #State-aid rules?
 🚨Given Italy’s level of interconnection, cross-border effects are non-trivial

6/ 🌍 Why is CO₂ so central?

Gas marginal cost ≈ €78–€90/MWh:
1⃣Fuel: ~€53
2⃣CO₂: ~€26
3⃣O&M: ~€3
4⃣Network: ~€1

➡️CO₂ ≈ 30% of total cost

Tempting politically to remove what Meloni has framed as a “de facto EU tax”

😱But that would be a historic mistake!!

7/ Conceptually, the #Italian solution resembles the #Iberian solution during the crisis
cepr.org/voxeu/columns/…
Consumers subsidised gas →
⚡ Lower marginal electricity price →
💰 Reduced inframarginal rents →
⏩Net benefit for consumers
But there’s a BIG difference 👇

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8/ 🔁 Italy is highly interconnected with continental Europe
If Italian electricity prices fall:
 ➡️ More exports
 ➡️ More gas burned in Italy
 ➡️ Italian consumers may subsidise power consumed abroad
This distorts cross-border trade and generation across the EU- an Energy Union?

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9/🌍 #Carbon pricing does play an *important role* particularly in coal-based systems, where ETS drives coal-to-gas switching, which is critical for emission reductions
🚨But, EU countries differ
⏩In coal-free systems (Spain, Italy, UK...), that channel is largely exhausted

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10/ Meanwhile...
⚡Electricity bears CO₂ costs
 🛢 Oil & gas used directly in industry often do not
⁉️Result? Electricity becomes relatively more expensive → discouraging electrification
➡️Exactly the opposite of what we want!

11/ Yet, the broader issue remains: #fragmentation
Spain 🇪🇸 can produce electricity more cheaply than Germany 🇩🇪
Yet industrial consumers may pay more in Spain due to more generous CO2 compensation schemes in Germany aege.es/barometro-ener… ...distorting investment & location

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12/ The alternative? ✅
✔️ Commit to CO2 taxing all fuels in 3 yrs ➡️ Avoid penalising electricity
 ✔️ Claw back excess revenues earned by non-emitters due to CO₂ passthrough
💡Consumers should pay for the actual carbon footprint of electricity, not as if all came from gas

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13/ Use those revenues to:
💶 Reduce electricity costs (esp. for industry at risk)
 ⚡Incentivise electrification
 🏭 Support competitiveness

 ➡️ Marginal prices for electricity remain intact
 ➡️ No trade distortion
 ➡️ No contract interference

Big advantages vs 🇮🇹 solution!

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14/ If the worry is that lower power prices reduce renewables investment incentives:
🌞There are smarter tools than relying on volatile wholesale elect prices 
➕Cheaper electricity → more electrification → stronger demand, which is the best long-term support for renewables 🍃

15/ 🇪🇸 Spain already implemented CO₂ windfall clawbacks (2007 & 2021)
2006 settlement ≈ €960m.
Law:
boe.es/buscar/act.php…
lamoncloa.gob.es/consejodeminis…
Technical guide:
ree.es/sites/default/…

16/ ⚖️ The European Court of Justice confirmed compatibility with EU law (EU ETS Directive 2003/87/EC).
Judgment: Iberdrola and Others (17 Oct 2013)
eur-lex.europa.eu/legal-content/…
So legally, this path is viable in Europe

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17/ ⚠️ But these are short-term cushions
We faced the same discussion during the 2021-2023 #energy #crisis
Had we acted earlier, we could have saved 2 years!
Short-term fixes will keep reappearing every time gas spikes 
➡️Let’s not repeat the mistake

18/ We need a long-term reform ⚡️
cepr.org/voxeu/columns/…
The 2023 electricity market reform contains some useful tools 🛠️— but Member States aren’t using them

Should some become compulsory?
⁉️Mandatory CfD auctions?
⁉️EU-level CfDs?

To be continued!

1/⚡ For Europe 🇪🇺, #competitiveness is a priority. And this has...

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