The European Commission debated the policy responses needed to mitigate the effects of rising global fuel prices, on the 11th June 2008. Based on thier conclusions, President Barroso will present a communication, to be adopted in good time to be discussed at the European Council on 19-20 June in conjunction with the recent Commission communication on rising food prices.

The College of Commissioners analysed both structural and cyclical factors and proposes a co-ordinated policy response, including immediate, medium and long-term policy options. Based on Commission proposals made over the last two years, these 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 Commission agreed that member States take short term initiatives to support the most deprived sectors of the population. These measures should fit into a co-ordinated strategy and should avoid distorting effects on the internal market or on fiscal and monetary policy.

Why have fuel prices risen?

In recent months, oil prices have experienced a sharp and abrupt increase, reaching their highest level, in real terms, since the end of the seventies. The College of Commissioners examined the reasons behind the recent surge in fuel prices, both within the EU and internationally. The current 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 dollars in the first quarter of 2008.

The rise in oil prices is part of a structural shift, rather than a temporary phenomenon. Global energy demand could be 50% higher in 2030 than in 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% to reach 67% in 2030.

The policy response

The response of the EU to recent increases in oil prices should be based on the assumption that prices are likely to remain high in the medium to long term. This implies the need for structural adjustment, which needs to produce its positive effects as soon as possible. At the same time, the short term effects on some vulnerable groups should be mitigated, helping them to adjust to the new market situation. These proposals, to be formalised in the forthcoming communication will, inter alia, recommend to the European Council to:

• Confirm its determination to adopt legally binding measures to give effect to its 2020 targets for renewables, biofuels and greenhouse gas reductions by the end of 2008, which are essential to improve substantially energy efficiency and the diversification to the EU energy supply.
• Step up the drive for energy efficiency in business and in private households so that quicker and greater savings be achieved in line with agreed objectives.
• Note that the Commission will report on the functioning of the oil and petroleum markets in the forthcoming strategic energy review, and make proposals on the transparency of commercial oil stocks by the end of the year.
• Note that the Commission will bring forward proposals this year to revise the energy taxation directive and the Eurovignette Directive, both of which will support the drive towards greater energy efficiency.
• Note the Commission's intention to report in the autumn on the possible use of tax incentives, including reduced VAT rates to encourage energy savings.
• Support the organisation of a global summit on oil markets between main oil producing and consuming countries and strengthen existing regional and bilateral dialogues in order to achieve better market access and transparency.
• Agree that Member States could provide targeted support when justified to those households experiencing the most serious impact, while ensuring measures taken to alleviate the immediate impact of high oil prices are temporary, non-distorting and do not inhibit longer term adjustment to higher prices.
• Agree to assist oil importing developing countries to mitigate short term impacts and to improve their energy efficiency and develop alternatives to fossil fuels through EU development.