EUROPEAN COMMISSION Brussels, 20.7.2022 COM(2022) 360 final COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS "Save gas for a safe winter"



COMMUNICATION FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS "Save gas for a safe winter" Russia’s unprovoked and unjustified war of aggression against Ukraine has upended energy markets, triggering price volatility and energy insecurity, across the world, with particular impact on the EU and its immediate neighbourhood. On 18 May 2022, the Commission put forward the REPowerEU Plan to end our dependence on Russian gas as soon as possible. While pursuing these actions and remaining fully committed to the objectives of the European Green Deal, Europe needs to accelerate its preparations for the immediate impact that potential further disruptions - including a complete cut-off - of Russian gas supplies could have. The European Council in its conclusions of 31 May and 23 June 2022 has asked for this preparation to be carried out as a matter of urgency, enabling closer coordination with and between Member States. In the event of further disruptions of supply, or a full cut-off, Europe needs to be ready. In the spirit of European solidarity and cooperation, the EU needs to ensure that the gas flows where it is most needed, protecting both our domestic customers as well as our jobs and the economy as a whole. This is why the EU has been preparing for such a disruption over the past months. In particular, the Commission, under the EU Energy Platform, and Member States, have worked with alternative suppliers of gas to ensure supplies. Building upon Green Deal proposals, REPowerEU aims to accelerate the instalment of renewable energy across the EU and the deployment of energy efficiency investments. The Commission and Member States have carried out an in-depth preparedness review. The EU co-legislators have adopted an EU storage regulation to establish a legal requirement for storage filling ahead of winter. The Commission has worked diligently on securing additional alternative supplies and is continuing to do so. This Communication complements this approach by focussing on the demand side. It reviews the current situation and the steps that have already been taken, as well as outlining the tools that the EU has available to respond. It then proposes additional actions for a coordinated demand reduction, and a ramping up of the EU’s joint efforts on supply. This is key to minimizing the chance and cost of disruptions later in the year and to ensure the necessary access to gas for European consumers and industries going forward by leveraging the weight of the Union. To that end, the Communication proposes a new European Gas Demand Reduction Plan, drawing on best practices from across the Union, accompanied by a Council Regulation envisaging an immediate recommendation for a voluntary gas demand reduction of 15% in all Member States over at least the next 8 months, and introducing a process to trigger a binding demand reduction target should it become necessary, at any moment in the next weeks or months. Gas substituted with other fuels and energy saved by all users during this summer is energy that will help us through winter. Acting jointly now is less disruptive, and costly, facilitates solidarity and avoids the need for unplanned and uncoordinated actions later in a possible crisis situation with gas reserves running low. We will also move expeditiously towards coordinated and ultimately joint purchase of gas and in the future renewable hydrogen to secure future energy needs with alternative supplies. Ultimately, implementing this gas demand reduction plan will create the conditions for a faster and complete phase out from Russian gas imports, in line with the RepowerEU objectives, and enhance the EU energy security and autonomy. 1. Preparing for the winter What is the situation today?

Gas demand represents 24% of overall gross inland energy consumption in Europe. For many years, Russia has been the main gas supplier of the EU. As of last year, the EU relied on Russia for more than 40% of its gas supplies, and therefore for about 10% of its overall energy needs. Since last year, Russian gas supplies to the EU have been declining markedly in a deliberate attempt to weaponise energy. Overall, in June 2022 gas flows from Russia to the EU were less than 30% of the average of 2016-2021. The EU has faced a series of sudden, unwarranted, and unilateral actions by Russia to reduce or stop deliveries to European customers, disrupting economic activity and driving prices upwards. Pipeline flows of gas from Russia across Belarus have stopped and have steadily decreased through Ukraine. Supply to the Baltic States, to Poland, to Bulgaria, to Finland has also stopped. Supply to several countries, including Poland, Germany, Austria, Denmark, Slovakia, the Netherlands and Italy has been reduced. Since mid-June 2022, flows through Nord Stream 1, one of the largest import routes to the EU, have been cut by 60%. (Graph: Flows from Russian gas in 2022 compared with previous years.) This sequence of supply reductions has led to historically high and volatile energy prices, contributing to inflation and increasing the risk of an economic downturn in Europe as well as significant negative employment effects and distributional impacts. These are likely to trigger a rise in energy poverty and also risk deepening inequalities between Member States and regions. There is no reason to believe this pattern of behaviour which creates supply uncertainties and accompanying soaring prices will change. Rather, a number of signals, point to a likely deterioration of the gas supply outlook. Anticipating such a risk, the EU has already started to prepare for a protracted and possibly full cut of gas from Russia at any moment. Ensuring alternative supplies of gas and replacing natural gas by clean energy whenever possible and by other energy sources when necessary, are essential components of the the REPowerEU plan which were taken up by Member States, and notably, the EU Energy Platform. As a founding principle of our Union, solidarity must be at the basis of EU preparedness. In addition, Member States are all interlinked through the single market, which drives economic growth, innovation, job creation and investments. For such a solidarity to function, all actors should endeavour to take all the measures at their disposal to prevent the effects of a possible full Russian gas disruption. Because of this mutual dependence, a fully-fledged crisis would produce in each Member State significant negative impacts, whether directly or indirectly. While some Member States are more vulnerable to the direct impact of a significant or full disruption of Russian supplies, letting these countries face this impact alone would have serious ripple effects for other economies. Strong economic decline in any Member State will have a direct negative economic impact on its neighbours and other export partners. This requires immediate steps to anticipate further disruptive actions and strengthen EU resilience. This Communication, including the European Gas Demand Reduction Plan in annex focuses on the necessary actions on the demand side, building on RePowerEU and the EU Energy Savings Plan. These actions to reduce demand complement ongoing work to secure alternative supplies as set out in the EU External Energy Strategy, and accelerating the clean energy transition. They should be undertaken immediately by Member States in close coordination with each other to considerably reduce the risks of an excessive imbalance between supply and demand next winter and beyond. This course of action can significantly reduce the risks associated with gas shortage, including for industries that are critical for supply chains in the EU, for jobs and growth, for overall competitiveness and the European economy.

The accompanying proposed Regulation to provide the framework for this demand reduction is described in more detail in Section 3 of this Communication. A strong and credible EU coordinated action will provide greater certainty in an unstable market situation, increase the EU’s resilience and limit supply driven impacts on prices. It will help fill more storage ahead of the winter where capacities are available. Unilateral actions by Member States would be sub-optimal for the EU as a whole and thus for each individual Member States as well. EU coordinated actions can help preserve functioning industrial supply chains and the integrity of the Single Market in case of major supply shocks. What tools does the EU already have at its disposal and what actions have been taken before the current crisis? First, the EU has a strong framework in place to reach climate neutrality by 2050 and cutting emissions by at least 55% by 2030. The clean energy transition and security of supply go hand in hand. By progressively eliminating our dependence on fossil fuel sources and by reducing the EU’s overall energy consumption through increased energy efficiency, the European Green Deal and Fit for 55 package strengthen the EU’s security of supply. Second, the EU has developed a regulatory framework to address certain situations of security of supply drawing from lessons learned from previous energy crises and based on our actions taken after the annexation of Crimea and Sevastopol to the Russian Federation in 2014. Under the Gas Security of Supply Regulation, Member States must have national preventive action plans and emergency plans based on common risk assessments carried out by regional groups organised along the supply routes. Three national crisis levels are defined: Early Warning, Alert and Emergency. The measures Member States can take in each of these levels are defined in the gas security of supply national emergency plans. The overarching principle is that gas flow restrictions, rationing, and curtailment are taken as a last resort, when all other options - such as alternative fuel switching options - have been exhausted. The Commission can declare a Union Emergency or a Regional Emergency for a specifically affected geographical region upon the request of one or more Member States. In such cases, the Commission coordinates actions of concerned Member States and can act as a moderator if measures are introduced that can unduly restrict the flow of gas to other Member States and third countries, such as members of the Energy Community. This helps ensuring that gas flows to the countries and customers most affected in an emergency. The Gas Security of Supply Regulation also includes a solidarity mechanism, which guarantees supply to ‘protected customers’ defined as households, district heating that cannot switch to other fuels and certain essential social services, such as healthcare. In a severe emergency during which the supply of protected customers can no longer be guaranteed in a Member State, directly connected Member States have an obligation to act in solidarity and supply gas to where it is most needed, even if this involves curtailment of their non-protected customers. This is subject to prompt and fair compensation framed by bilateral technical, legal and financial arrangements that Member States must agree upon beforehand. A European Gas Coordination Group, an expert group chaired by the Commission and composed of experts from Member States, the relevant European associations and the Energy Community Secretariat, monitors closely the EU’s security of supply and coordinates actions as necessary. The Group has been key to managing the security of supply situation since the start of the war against Ukraine, in particular by exchanging information and helping to coordinate Member State action in relation to early warning and alert declarations. The framework described above, however, is not fully fit for the current crisis as it is intended to address short-term disruption in relation to particular parts of the infrastructure or short-term extreme weather, rather than longer-term supply disruption from a major supplier affecting several routes at the same time. This is why this governance framework needs to be adjusted, and also features prominently the perspective of European and national industry ministries Third, the EU has increasingly developed a network of energy interconnectors and an internal energy market capable of bringing gas and electricity to where it is needed. This active policy has helped to diversify gas supplies and just as importantly, gas routes, thanks to investments in cross-border gas infrastructure, reverse flow projects, such as the reverse flow capability on the Yamal pipeline between Germany and Poland and LNG terminals in the Baltic, Central-Eastern and South-East European region. Many Projects of Common Interest in the framework of the Trans-European Network for Energy have benefitted from EU financial support through the Connecting Europe Facility and Cohesion Policy. Key projects of the last decade

- LNG terminals in Klaipeda, Świnoujście and Krk, the BRUA and the Baltic Pipe, reduced the historic isolation of specific regions. -The EU opened the Southern Gas Corridor by completing TAP and TANAP pipelines which now flows gas from the Caspian Sea directly to Europe. - Other important projects include the gas interconnector between Poland and Lithuania (GIPL), the Baltic connector between Finland and Estonia, the Poland-Slovakia interconnector, and the Greece-Bulgaria pipeline (IGB). These projects play a key role in allowing for the replacement of Russian gas. The above developments have significantly improved or will improve the EU’s security of supply situation enabling effective diversification of suppliers and routes. All individual Member States including the historically most exposed countries, such as Bulgaria and Finland, have ended single-source dependence on Russian gas imports. What has the EU done to ensure security of supply since Russia’s invasion of Ukraine? Following the Russian invasion of Ukraine, the EU has set out the RepowerEU Plan with the aim to end the EU's dependence on Russian fossil fuels, as soon as possible. To achieve this, the REPowerEU Plan sets out measures related to diversification of energy suppliers, energy savings and energy efficiency, and proposes an accelerated roll-out of clean energy to replace fossil fuels in homes, industry and power generation, notably through renewable electricity and hydrogen. In addition Member States and local authorities are well placed to promote energy savings actions adapted to local circumstances. Under the REPowerEU plan, the EU has taken measures to reinforce its security of supply and resilience, tackling both the supply and the demand side. In particular: ·New EU legislation was proposed in March 2022 to ensure the filling of EU underground storages for the coming winter, adopted by the European Parliament and the Council in May and entered into force on 1 July.. Gas storage levels were worryingly low during the last winter – 10 percentage points lower than in 2016-2018 – but despite reduced levels of Russian imports and high prices which reduce the incentive for storage, levels are now again in line with the historic average – currently at above 64%, equalling 46 days of winter consumption. ·In the first semester of 2022, the Commission has carried out an in-depth review all the national gas security of supply emergency plans, allowing Member States to reinforce their preparedness for possible wide scale disruptions. The Commission has also carried out in depth monitoring of the security of supply situation and risk assessment, both with regard to gas and electricity, in close cooperation with Member States, ENTSOG and ENTSOE - the European association of transmission system operators for gas and electricity. ·The Commission has set up the EU Energy Platform to aggregate energy demand at the regional level and facilitate voluntary joint purchasing, to ensure the best use of infrastructure so that gas flows to where it is most needed, and to reach out to international supply partners such as the US, Norway, Azerbaijan, Qatar, Egypt, Israel, Algeria and many others. The outreach is carried out in line with the EU External Energy Strategy. Thanks notably to these actions the EU has received unprecedented amounts of LNG since the beginning of the year and additional pipeline gas to make up for losses of Russian gas – see box below. ·The Commission has established five regional groups of Member States within the EU Energy Platform, to replace Russian gas supplies and improve the security of supply in each region, for example by developing action plans for rapid implementation - as has been carried out very successfully in the regional group for South East Europe. These groups complement the work of existing regional High Level Groups (HLG) that focus on accelerating key energy interconnections and renewable energy projects and important energy market reforms, such as the CESEC HLG in Central and South Eastern Europe. ·The Commission has engaged with industry experts to identify the potential for fuel switching and voluntary demand reduction and assess the possible repercussion of un-coordinated actions of reducing gas demand from industrial users.

Diversification since the beginning of 2022 The EU is succeeding in diversifying away from Russian gas imports, notably thanks to higher LNG and pipeline imports. In the first half of 2022, thanks to EU outreach efforts with LNG producers in third countries, non-Russian LNG imports rose by 21 bcm as compared to the same period last year. Non-Russian pipeline imports grew by 14 bcm from Norway, Caspian Sea, UK and North Africa. Conversely, within that period, the Russian pipeline imports fell by 28 bcm to a total of 44.6 bcm, while Russian LNG imports rose by 3 bcm. By these increased supplies, the EU is currently offsetting the decrease in total Russian gas imports.In the same period, LNG imports from all sources (including Russia) were up 24.3 bcm (59%) with respect to 2021. At the same time, LNG imports from the US amounted to 30 bcm, in comparison to the total of 22 bcm in 2021 (and only 11.6 bcm in the first half of 2021). On 25 March 2022, the joint statement by President Von der Leyen and President Biden announced an increase of 15 bcm of US LNG imports to the EU in 2022, a target that is on course to be filled by increasing supplies from the US. The share of the US in the EU LNG imports was around 46% in June. The range of measures taken since February, including those aimed at strengthening the EU security of supply framework, are geared to manage a progressive full phase out from Russian gas as soon as possible. However, the latest disruptions of the gas supply from Russia suggest a sizeable risk that a complete unilateral halt of Russian gas supplies may materialise already this year in an abrupt way. The EU needs to be prepared for this scenario and take additional measures commensurate to the challenge this entails. Reducing gas consumption in an orderly fashion now will mitigate future costs for society. Moving towards joint purchasing under the Energy Platform is a necessary complement to pursue both stronger demand-side and supply-side coordination, and the Commission will accelerate its work in operationalising the Platform until the end of the year. In parallel, joint purchase of gas could for example give smaller gas companies a stronger role and enable better purchasing leverage for the EU, the world’s biggest importer of natural gas, including at a regional level, improving our energy resilience and longer term energy security. What to expect? Notwithstanding the good progress in filling storage to date, simulations carried out by the Commission and ENTSOG indicate that in case of a full disruption as of July until the winter 2023 would lead to a storage filling to fall short of the 80% target for November set out in the new EU Storage Regulation. The simulations suggest that storage could be as low as 65% to 71% by the beginning of the heating season. Key findings of scenario analysis without additional preparedness In a first scenario the gap to satisfy the gas demand during the winter would be 30 bcm under average weather conditions and continuously high LNG supply, compared to an average total EU August-March consumption of 300 bcm. In this scenario, the storage would run nearly empty at the end of March 2023, leaving therefore no buffer for the gas season 2023-2024. In a second scenario, storage would remain at a minimal level of 15% at the end of March 2023, and the demand gap would correspond to 45 bcm during the winter.

Preparing for the following winter season, assuming persistently tight international gas markets, replenishing storage in the summer of 2023 is likely to be very challenging. Storage filling levels in October 2023 would only reach 41% in the first scenario and 56% in the second scenario. An unusually cold winter or reduced gas imports from other sources (for instance due to a rebound in economic growth in a large market like China), would increase the risk of having to face the need for further drastic reductions at some point over this period. Abrupt cuts would damage specific branches of those industries which have little room to switch to other fuels – for instance, where gas is used as feedstock for industrial processes – or to reduce production without heavy damage. Availability of gas for protected customers, notably households, representing less than 37% of total EU consumption, would in principle not be impacted directly by large scale Russian disruptions. However, this assumes the absence of other unforeseen events. Moving quickly and in a determined manner now is essential. Without meaningful substitution efforts and demand reduction in the coming weeks, a severe gas disruption in the winter 2022/2023 would have significant effects on the European economy and labour markets, and it would affect all Member States, directly or indirectly. Acting now would reduce the cost of a sudden supply disruption. It would be significantly less costly to maximise the substitution potential and start to reduce demand of natural gas now and by a moderate amount thanks to a longer time lead, than having to drastically curtail demand suddenly at the peak consumption period (i.e. winter) and without proper preparation. By anticipating demand reduction, the network operators could optimise the capacity of the network, transport more gas from the West to the East in a timely manner and fill more storage where capacities are available in view of the next winter and the winter 2023/2024. Such an anticipated, distributed reduction of demand would overall eliminate or reduce any potential winter shortage by more than half. Anticipating reduction now would enable targeted incentives to those industries with the potential to reduce their consumption for instance by switching to renewable fuels, or in any event where possible to fuels with the lowest possible emissions content, subject to energy efficiency efforts and to avoiding long-term lock-in effects. With regards to the overall macroeconomic impact of a possible major disruption, a solidarity-based EU coordinated response before the winter would limit the negative impact on GDP and jobs. Building on the needs identified in the ENTSOG scenarios, and taking early action to reduce demand, a disruption from Russia in the case of an average winter could reduce GDP by at least 0.4% on average for the EU as a whole and to 0.6% in a cold winter scenario. However, waiting to act until the full supply disruption happens would increase the cost by at least one third, partly due to the lost opportunity of coordination and easier adjustment which adds further to this increase. Waiting to act in the case of an average winter would have an impact between 0.6 and 1% of GDP. In the event of a cold winter, these costs would increase further. The cost of delaying action in a cold winter environment would multiply significantly the costs for the EU, with a GDP impact between 0.9-1.5% on average, and in particular for the most affected Member States To avoid a gas gap in the coming months, the overall recommended gas demand reduction from 1 August to 31 March 2023 is 15%.



2. A plan to reduce gas demand while prioritising critical customers The European Gas Demand Reduction Plan The demand reduction of 15% described above can be achieved by acting now, implementing the Energy Savings Plan and taking additional gas saving measures in non-protected sectors, using the good practices and smart prioritisation criteria identified in the attached European Gas Demand Reduction Plan. The plan sets out the principles and criteria for coordinated demand reduction aimed not only at protecting gas supply to households and essential users like hospitals, but also the provision of essential products and services to the economy, industries that are decisive for EU supply chains and to competitiveness. It builds on the existing national emergency plans, existing best practices and targeted consultations with industry. Managing demand should target as a priority those sectors with better substitution possibilities and better share the burden across the economy, while protecting GDP and employment. There would be less risks for downstream bottlenecks and inflationary pressure and would more effectively hedge against other risks (e.g. severe winter). The key principles of the plan: substitution, solidarity, and savings Substitution: Coordinated gas demand savings by supporting substitution possibilities All efforts across Member States, in power generation, industries and households, should first focus on substitution possibilities that would enable to shift away from the use of natural gas, while always bearing in mind the trade-offs such choices may imply, as for instance, when (re-)introducing for example coal into the mix, even on a temporary basis. The priority is to switch fuels towards clean energy sources, wherever technically feasible, in a timely and cost-effective manner. Diversification efforts should also continue by accelerating the completion of strictly necessary LNG terminals or other gas infrastructures, notably interconnections, combined with EU efforts to diversify supply of LNG under the EU Energy Platform. Natural gas substitution possibilities towards more carbon-intensive sources such as diesel or coal, will need to be temporarily deployed as well, with the necessary environmental safeguard clauses, where no other cleaner solutions are possible. To this end, time-limited fuel switching possibilities can be supported at the EU and Member State levels, Solidarity: Anticipate and mitigate the risks of a full Russian gas disruption Gas supply shocks affect Member States and regions differently. To address such consequences, the EU must act in full solidarity across Member States and across different users of natural gas. Even though Member States will be affected differently, a collective effort will reduce the severity of impact on the most affected Member States, and in turn all Member States will benefit from joint action. The Commission will therefore remain vigilant to protect the Single Market, and in particular to prevent any possible restrictions of trade between Member States, and will work to ensure that there are no disruption of particularly essential economic activities and critical social services. If the situation leads to a case where curtailment measures have to be envisaged, it should be done in coherence and in coordination between Member States, and with due consideration to mitigating the impact on employment and incomes. For such solidarity to work in practice, all Member States and all social and economic participants need to do all they have in their power to prepare, and already substitute or reduce gas demand now wherever feasible. This coordination exercise requires putting in place an adequate governance system, which can draw on resources from ministries of energy and industry across Member States and include a broad outreach and engagement of all groups of consumers.



Savings: Everyone can contribute Additional demand reduction should be envisaged in the areas of heating and cooling buildings or warming water. In an emergency, if the security of electricity of supply could be at risk, EU and national security of supply rules allow gas supply to be prioritised to certain critical gas fired power plants, and to certain categories of protected consumers. However, the fact that the supply of gas is guaranteed for households and certain critical gas fired power plants should not prevent public authorities from taking further actions to reduce consumption of gas by protected customers and in the power sector, as well as promote voluntary reductions. This is essential to avoid having to curtail industrial customers which are critical for society and the economy.

The figure below presents the latest assessment of the potential of the different types of measures to reduce the demand of gas and come close to bridge the gap. Buildings: Reduce heating and cooling The Energy Savings Plan of 18 May under REpowerEU already identified a range of potential savings measures in buildings and it is estimated that 11 bcm could be saved. The impact of simple behavioural changes such as reducing home temperature where it is not low already, shortening showers, turning off appliances instead of putting them on stand-by, cooking, refrigerating and freezing efficiently are no regret measures for the energy bills. The higher the reduction via voluntary actions, the less need for mandatory curtailment for industry down the road. Lower gas consumption of course means lower bills. Gas savings can already be delivered during the summer by reducing the peak electricity consumption (and hence directly the gas consumption) from cooling. During the ‘gas winter’ (October-March), large savings can be achieved by deploying alternative heat sources for district heating, through heat pumps and smart energy management systems in households, and by gas saving campaigns for example to decrease the thermostat by 1° (except those who are unable to heat their homes adequately already) or using less warm water. Well-designed bonus-malus tarification systems can also foster behavioural changes and additional savings. Savings can also be found by mandating reduced heating of public buildings, offices, commercial buildings and open spaces like outdoor terraces, where technically feasible and enforceable. The role of public authorities in leading by example is key in this regard. Electricity and heat production: Saving non-critical gas There is an important potential to save gas in the electricity and heating production, by reducing the electricity consumption, by switching sources of powers and heat and by importing electricity. The Commission has asked ENTSOE to estimate the impact of possible gas shortage on electricity production. According to a first estimate, only half of the gas consumed in the electricity sector is considered as critical to ensure the security of electricity supply. Further analysis is on-going as to the electricity winter preparedness, which should take into account the availability of nuclear plants and hydropower reserves potentially more affected this year. However, this first estimate points to the possibility to save a significant amount of gas. For instance since the beginning of the year, the EU has deployed at least 20 GW of new renewable energy capacity. Switching to alternative fuels to generate power could save a significant amount in the next 8 months (see graph page 11), on top of demand side flexibility to reduce peak demand. The choice of energy sources for electricity and heating production is ultimately up to each individual Member State while taking into account the EU’s 2030 climate target, as well as the long-term climate neutrality goal, as well as the EU’s clean air policies, and the impact of its decisions on other Member States and the collective security of supply. In the on-going work to reinforce national preparedness and review the planning of the phasing in and out of power plants, the European impact should be taken into account in the light of the new current circumstances, including security of supply risks and prices of alternative fuels on global energy markets. This is a key aspect of the national electricity risk preparedness plans under the Regulation on Risk Preparedness in the electricity sector that the Commission is reviewing. Switching to other fuels, be they less or more carbon-intensive and polluting than natural gas, would normally happen automatically due to the high gas prices. However, fuel switch to biomass or diesel requires making sure that sufficient quantities of those alternative fuels are made available to the sites using them and appropriate measures to store and monitor the security of supply of these alternative fuels. Some Member States have postponed the phasing out of nuclear power plants. Others have allowed coals/lignite plants to come online again or produce more. The import ban of coal and oil from Russia as part of the fifth and sixth package of EU sanctions should be taken into account by Member States in the context of fuel switching, because this might impact the availability of former supply sources. In the case of oil, the optimal management of the existing emergency stocks is an essential element. The existing emergency oil stocks provide a safety net, to be used in accordance with the EU rules and national contingency plans. Fuel switching may also have an impact on air pollution, and thereby on human and ecosystem health, as well as water consumption. The Industrial Emissions Directive allows granting gas-fired combustion plants switching to oil derogations from its emission limit values under certain conditions, in case of an overriding need to maintain energy supply. This derogation is possible for as long as need persists, provided that the Commission is duly informed. As clarified by the Court of Justice, if there are no works or interventions involving alternations to existing installations, this does not qualify as a project requiring a new authorisation, within the meaning of the Environment Impact Assessment Directive. By analogy, fuel switch of a power plant would not qualify as a project if no works or interventions are involved. In line with REPowerEU, the amendment of the Temporary Crisis Framework for State Aid refers to the possibility of granting aid for fuel switching, as a priority to clean energy sources.

Fuel switching measures should be designed in a way that does not compromise the medium term decarbonisation objectives and the need to accelerate the clean energy transition and minimises any increase in pollution and should not put under threat the overall long-term coal phase-out commitments taken by the Member States. Therefore, ensuring that they do not lead to future carbon lock-in is critical. Finally, the EU is working with Ukraine and ENTSO-E to increase electricity trade between Ukraine and the EU, to both support Ukraine and to provide a lower-carbon alternative for neighbouring Member States. Industry: Fuel switching, other market-based measures and smart prioritisation criteria Industry is already confronted with higher energy prices and some industries are already facing high closure rates as a result. High gas prices have been partly responsible for reduced EU gas demand in the first half of 2022 by 5% compared to earlier years. This trend is likely to continue for as long as prices remain high. A more detailed description of gas saving and fuel switching measures is provided in the annex to this communication. In the industry sector, the next response should focus on market-based measures to incentivise demand reduction and limit damage to society and the economy. Gas is used as feedstock and energy source by industries whose technical potential and cost to switch fuel or reduce consumption vary drastically from one sector to another. Market instruments are an effective way to elicit the most favourable reduction options. The Commission strongly supports good practices, such as national, regional or joint auctions or tender systems to incentivise reduction in consumption from industrial consumers by letting industries offer gas consumption reduction. This would result in a reduction in current aggregate gas consumption, making more gas available for e.g. storage filling. These auctions or tenders could be organised at cross-border level in order to maximise the possibilities of demand reduction notably by large cross-border customers who operate in multiple Member States. In this respect, as also set out in the Temporary Crisis Framework for State Aid, EU State aid rules enable Member States, to incentivise voluntary reductions in gas demand, subject to certain conditions, such as by incentivising switching towards cleaner energy sources. The Commission will rapidly explore the idea of EU auctions in close consultation with Member States. Other similar market-based measures already foreseen in the national emergency plans include so called ‘interruptible contracts’, i.e. a flexibility measure where pre-determined financial compensation is granted, for a pre-determined level of gas volume reduction for the period of disconnection. In an emergency situation, after all market and non-market-based measures have been exhausted, Member States may need to start curtailing partially or fully specific consumer groups that they have identified in a pre-defined order in their emergency plans. Approaches to such prioritisation differ among Member States and may or may not consider a wider impact on critical segments of the EU or global economy. In case of uncoordinated decisions, there is an important risk of fragmentation of the Single Market, with un-intended impact of national decisions on other EU countries as we have witnessed during the Covid crisis. Coordination is key to preserve to the maximum the integrity of the Single Market. The attached European Demand Reduction Plan provides guidelines to Member States to review and improve their priority order by using common principles and criteria so as to coordinate and minimise the socio-economic impact in a wider EU context, while maintaining European solidarity. In the event of targeted curtailment, it will be critical to mitigate its socio-economic impact. These guidelines should be clearly reflected by Member States when updating their national emergency plans. These will facilitate future coordination exercises once necessary. As mentioned in the Short-Term Market Intervention Communication accompanying the REPowerEU Plan, in a regional or Union emergency situation as per the Gas Security of Supply Regulation, there might also be a need for an administrative price for gas to be established to cover the period of a declared Union emergency.

New instruments could be developed for the industries that play a strategic role for the functioning of the EU economy and society to encourage them in their substitution, diversification, and savings efforts, as market price mechanisms reach their potential and market-based options are exhausted. Strengthened governance for solidarity and mechanisms to support cooperation The situation requires a mechanism to enable the Commission and Member States to further strengthen their cooperation to address different aspects of the crisis as it develops and protect the internal market. The existing Gas Coordination Group can address this requirement by meeting regularly and, whenever necessary, at Director-General level and with representatives from the industry ministries. It will play a critical role in monitoring the impact of demand reduction on critical sectors and value chains across the EU, and enabling the necessary exchange of information, associating other relevant stakeholders, social partners and policy fora where appropriate. In a situation of emergency, effective and prompt solidarity would be facilitated by having bilateral solidarity agreements foreseen under the Regulation on gas security of supply in place, clarifying the technical, legal and financial arrangements to provide gas to the legally protected customers of neighbouring countries in case of crisis. It is urgent that all Member States who have not done so yet, finalise the preparation of the necessary solidarity agreements. Yet, bilateral solidarity agreements on their own might not be sufficient. Coordination at EU level will remain indispensable. 3. A common EU tool to coordinate gas demand reduction The necessary reduction of demand can reduce the risks for the next winter only if it is based on a firm commitment of all Member States to meet our collective goal. Moreover, given the unprecedented nature of the gas supply crisis and its transboundary effects, no Member State alone can sufficiently or effectively address the risk of serious economic difficulties resulting from price hikes or significant supply disruptions. In order to be fully effective, common EU preparation for the winter needs to be underpinned by a solid regulatory framework ensuring a coordinated and rapid action. The current circumstances justify the recourse to the regulatory emergency powers set out in Article 122 of the Treaty on the Functioning of the European Union. The Commission is therefore proposing a Council Regulation to enable effective action to address the risk of an imbalance between supply and demand in the European gas market, including through the necessary governance framework. In a first step, Member States have the possibility to implement the necessary reductions on a voluntary basis. If the situation deteriorates and it proves necessary to activate an EU alert, according to the framework set out in the emergency proposal, a binding gas demand reduction target would be implemented. Each Member State would determine demand reduction measures, in consulting with neighbouring countries. The draft Regulation therefore: ·Asks all Member States to undertake best efforts to continue invest in alternatives to Russian gas and reach a non-binding reduction target of 15% of their demand for at least in the next eight months compared to the last five years average demand (2016-2021). This would allow Europe-wide savings of 45 bcm of gas over that period of time. The corresponding reduction efforts should be based on the guidelines of the European Demand Reduction Plan. ·Requests Member States to update their existing national emergency plans so as to identify the specific demand reduction measures they decide to take accordingly by the end of September. ·Sets out a governance framework facilitating the assessment of efforts performed by all Member States in investing in alternatives to Russian gas, reducing gas demand, and taking account of disruptions in EU supply chains from national measures. ·Introduces a process to declare at any given moment in the coming weeks or months an EU alert if the situation and the outlook evolve negatively in terms of balance between supply and demand with risks of severe gas shortage and significant deterioration of security of supply. Should this be the case, the Commission may activate a binding reduction of 15 % as to secure the necessary overall EU reduction for a safer winter for all. 4. Conclusion and next steps The time has come for the EU to anticipate risks and proactively step up gas security of supply preparedness. This is a signal to all public bodies, consumers, households, owners of public buildings, power suppliers and that they must now take extraordinary and rapid measures, as of now, to save gas to reduce the consequences for the EU economy of possible disruptions in the next months. Preparing for possible major disruptions ahead of or during the next winter is vital for the resilience of the EU and the credibility of its response to the unfolding events in the geopolitical arena. This will only be successful if it includes buy-in from citizens and other consumers achieved through involving them in the decision making process. Independently of a short-term full disruption of flows from Russia, early joint action at EU level at this critical moment of the storage filling process will reduce the need for possible and more painful demand reduction later in the winter. By accelerating diversification and implementing a credible demand reduction in a coordinated way across Member States, the EU can send a powerful signal to the market that Europe is ready for further disruption. It is more resilient, better able to tackle unforeseen developments, and can help mitigate their price and economic impacts.