Government determined to phase out energy price cap

The price cap was introduced in autumn 2022 by the previous government in response to soaring energy prices, in part fuelled by the war in Ukraine and consequences of economic recovery following the pandemic. The cap was extended until the end of 2024 as prices remained high, with the tripartite in 2023 deciding to slowly phase it out throughout 2025 and end it completely by 2026. If prices should soar again by that time, the issue would be addressed anew.

If the price cap is scrapped entirely by the end of this year, Statec predicts that average electricity costs will jump up by a whopping 60%, while gas will go up by around 17%. This would rapidly drive up inflation by at least one percentage point, while the looming index tranche at the end of the year will affect the next 12 months. This is a red flag for employers as inflation will have a knock-on effect on wages and material costs, to the detriment of competitiveness. The immediate removal of the price cap would also negatively impact trade unions, as households would experience an immediate loss of purchasing power.

However, the government appears to have no interest in launching a new index discussion. The budgetary impact of the price cap cost the State 311 million euros in 2023, and is expected to cost a further 300 million this year. As a result, the relevant ministries are now working on a plan to phase it out.

Ministers Delles, Hahn, Roth and Wilmes held meetings with the big trade unions this week, explaining all the aid measures included in the coalition agreement for the energy and environment sectors.

The unions were not informed of any further specifics, other than the confirmation of the phasing out of the price cap. The ministries are said to be working on the respective bill, which will soon be brought before the government council. The government did not speak to employers regarding the issue.