European gas: 6 Q&As on prices, supply, and regulatory impact

With a pivotal shift under way in global gas markets, Europe’s struggling industrial base can expect structurally lower prices well into the next decade. But is this a game changer, or will other issues continue to prevent Europe’s industrial renaissance?   

For our latest Horizons Live webinar, we brought together a team of Wood Mackenzie experts to answer a series of audience questions on what lower energy prices could mean for European industry. Read on for edited responses to the first two questions, and fill in the form at the top of the page to access all six. 

Q1. Will policy and regulation erode the opportunity presented to European industry by lower energy costs? 

We estimate the economic impact of lower gas and electricity prices on Europe’s economy at around 180 billion euros over the next seven years — a not insignificant amount that equates to around 1% of European Union GDP in 2025. However, lower prices are no silver bullet — energy-intensive industry will also need a reduction in other costs, including those driven by regulation and bureaucracy.  

At the same time, affordability is just one aspect of the energy trilemma, which also involves sustainability and security of supply. As Europe is finding with increases in defence spending, prioritising security of supply by switching imports for domestic production will give industry a boost, but it can come at a higher cost. The same rule applies to the energy sector and to wider European industry. 

Q2. How will the EU’s CBAM framework impact European industrial competitiveness? 

The EU’s Carbon Border Adjustment Mechanism (CBAM) aims to rectify the unintended consequences of the bloc’s pioneering decarbonisation policies, particularly the Emissions Trading Scheme (ETS). The Adjustment Mechanism aims to protect European industry by taxing these imports that would otherwise avoid the full carbon costs. Without the CBAM, heavy-emitting industry could simply be exported overseas, with its products imported into the EU..  

One of the key issues, however, is that the CBAM is implemented against imports and offers limited credit for exports. European industries with significant export positions will therefore incur a carbon charge on goods exported outside the bloc, which will put them at a competitive disadvantage against internation competitors.  

For companies fully exposed to their carbon costs by the ETS, the CBAM is better than having nothing at all. However, given the additional burden it puts on heavy-emitting sectors, it may ultimately drive further deindustrialisation in Europe. 

Now complete the form at the top of the page to download the full set of six questions and answers.