11. 03. 2026
AUTHOR: Marin Gillot
Europe is facing another surge in energy prices. As geopolitical tensions in the Middle East disrupt global markets, and ahead of the March 16 Energy Council and the March 19-20 European Council, pressure is mounting on the European Commission to deliver rapid relief for both households and industry. This urgency is understandable, but the current debate risks focusing on the wrong levers and damaging the EU’s long-term energy security. The Union’s energy price volatility is not primarily the result of electricity market design or carbon pricing. Instead, it reflects a more structural reality: the European Union (EU) remains heavily exposed to imported gas and oil, whose prices are determined on global commodity markets.
From fossil fuel vulnerability to stable energy bills through electrification
The transformation of the EU’s gas supply following Russia’s invasion of Ukraine in February 2022 has strengthened short-term resilience. At the same time, it has not fully addressed the EU’s energy security challenge. Through its REPowerEU plan, the EU reduced Russian gas imports from 45% in 2021 to 13% in 2025. To achieve this, it turned to liquefied natural gas (LNG), which increased the Union’s exposure to global competition as it now bids against Asian buyers for LNG cargoes. A rise in global demand can quickly translate into higher gas prices in Europe. This dynamic helps explain why the closure of the Strait of Hormuz affects European gas prices, which jumped by 75% in a week, despite less than 10% of the EU’s gas transiting through this route. In other words, diversification has changed the supplier, not the source of volatility.
As a result, geopolitical tensions, supply disruptions, or shifts in international demand continue to translate directly into European power bills. Gas supply is increasingly intermittent, yet still frequently determines marginal electricity prices during peak hours. Against this backdrop, the transformation of the EU’s power mix is consequential. Driven by the expansion of wind and solar, renewable energy sources have scaled rapidly across the Union. Along with nuclear, renewables now provide 71% of the EU’s electricity, compared to a historic low of 29% for gas and coal. If sustained, this shift will loosen the link between global commodity markets and European electricity prices. Stabilising European energy prices ultimately depends on reducing the role of fossil fuels in the system. To that end, electrifying half of its economy by 2040 is a strategic choice for Europe and can reduce gas demand in the process, leaving the remaining supply concentrated around Norway and the United Kingdom. The EU Electrification Action Plan and the update of the Energy Security Framework are opportunities to focus on those levers rather than on diversification.
Rebalancing energy taxation to support the transition
The EU’s internal price signals still have room to better support electrification and lower electricity bills. Electricity, which is produced locally, continues to carry higher taxes and levies than imported gas across Europe. In the first half of 2025, electricity taxes and levies were on average roughly twice as high as those applied to gas across EU Member States. In several countries, the gap is far larger. In Croatia, for instance, electricity taxes are roughly 14 times higher than gas taxes. Similarly, across parts of Central and Eastern Europe, as well as in Germany and Italy, electricity is taxed three to five times more than gas. Even in France, where the fiscal component applied to electricity and gas is roughly comparable once the Value Added Tax (VAT) is included, national tariff structures indicate that electricity taxation remains higher. These price signals directly shape consumer choices. Where electricity taxation is aligned with or lower than that applied to gas, households are encouraged to adopt technologies such as heat pumps and electric appliances, and industries can electrify their processes. Sweden illustrates this dynamic: by keeping electricity taxes relatively low, it has used fiscal policy to support clean heating and now records one of the highest heat pump adoption rates in the EU. Other countries, like Denmark, are moving in the same direction, with fiscal reforms bringing the taxation of gas and electricity closer to parity.
In this context, growing calls to suspend or dilute the EU Emissions Trading System (ETS) risk tackling the wrong problem: Europe’s energy price instability does not stem from carbon pricing but from its continued exposure to fossil fuel markets. While weakening the carbon price might offer short-term political alleviation, it would simultaneously undermine one of the key investment signals needed to accelerate electrification and clean power deployment. Yet these are precisely the technologies through which the EU can build long-term industrial strength. Rebalancing national energy taxation and advancing EU policies that boost electrotechnology deployment will strengthen the Union’s competitiveness and effectively shield European energy bills.
