Brussels to propose mitigating measures

The European Commission yesterday agreed to put the oil price issue on top of the agenda of next week's two-day summit of EU leaders in Brussels and propose a set of wide-ranging measures.

A Commission spokesman said that the College of Commissioners instructed President Josè Manuel Barroso to propose to EU leaders a coordinated policy response, including immediate, medium- and long-term policy options.

"The options to be discussed will include stepping up the drive for energy efficiency in business and private households, a commitment to make proposals on the transparency of commercial oil stocks by the end of the year and support for the organisation of a global fuel summit between main producing and consuming countries to discuss a wide range of issues related to the balanced functioning of oil markets," the spokesman said.

The Commission said it would also recommend that member states agree to take short-term initiatives to support the most deprived sectors of the population. However, the Commission made it clear that such measures should fit into a coordinated strategy and should avoid distorting effects on the internal market or on fiscal and monetary policy.

The Commission has already declared it opposed subsidies or one-off tax cuts.

The measures to be suggested to EU leaders include an agreement among member states to allow the provision of targeted support when justified to households experiencing the most serious impact. This could be done while ensuring the measures are temporary, non-distorting and do not inhibit longer term adjustment to higher prices.

The Commission said it also intends to report in the autumn on the possible use of tax incentives, including reduced VAT rates to encourage energy savings.

In recent months, global oil prices have registered a sharp and abrupt increase, reaching their highest level, in real terms, since the end of the 1970s.

According to the Commission, the surge in oil prices is largely the result of a major structural shift in oil supply and demand in the global economy. Oil supply is struggling to keep pace with rising global demand, especially in China and India. Other factors of a temporary nature have an impact such as difficulties with specific pipelines and extraction capacity, the weakening of the dollar and inflows into commodity markets estimated at $70 billion in the first quarter of this year.

The rise in oil prices is part of a structural shift rather than a temporary phenomenon.

Commission estimates show that global energy demand could be 50 per cent higher in 2030 compared to 2007, with fossil fuels continuing to dominate the fuel mix.

"Without implementation of the policy agreed by the European Council, EU energy demand will have to be met by fossil fuels, relying on an even greater share of imports.

"Consequently, import dependence would grow by 14 per cent to reach 67 per cent in 2030," the Commission said.

In the EU, Malta and Cyprus are the two member states with the highest oil dependency, importing 100 per cent of their needs to produce energy.