When fossil gas drives inflation: European lessons from 2021-2023

The report analyzes EU energy data from 2021 to 2023 to demonstrate how reliance on gas as a marginal electricity generator increases price volatility and energy inflation. It highlights that gas set electricity prices 55% of the time in 2022 and notes that energy inflation (HICP energy) typically rises between 20% and 45% when electricity prices exceed 150€/MWh. The author criticizes the EU's expansion of LNG infrastructure as a source of further volatility and calls on the European Central Bank to support renewable energy and energy efficiency to maintain long-term price stability.

• Gas often acts as the price-setting 'marginal generator' in the EU electricity market because renewable capacity is insufficient to meet total demand; specifically, gas was the price-setting generator 55% of the time in 2022.
• There is a direct correlation between electricity prices and energy inflation (HICP energy) in the EU. When electricity prices are below 150€/MWh, energy inflation generally stays below 15% (or up to 20%) compared to the previous year, but when prices exceed 150€/MWh, energy inflation increases by 20% to 45%.
• The EU's strategy of building Liquified Natural Gas (LNG) infrastructure increases exposure to global price shocks and volatility, as LNG is typically more expensive than pipeline gas and relies on volatile spot markets. For instance, European gas futures rose nearly 23% in the week of October 13, 2023, due to Middle East unrest and potential Australian LNG strikes.
• European state energy subsidies significantly mitigated inflation between 2021 and 2022, with total EU energy subsidies rising from 216 billion euros in 2021 to 390 billion euros in 2022. Fossil fuel subsidies specifically increased from 56 billion euros to 123 billion euros in that period, helping to contain inflation by 0.9 percentage points according to ECB calculations.

APA

Martin, L. (2023). When fossil gas drives inflation: European lessons from 2021-2023. Reclaim Finance. https://reclaimfinance.org/site/en/2023/12/12/when-fossil-gas-drives-inflation-european-lessons-from-2021-2023/

Chicago

Martin, Léo. When fossil gas drives inflation: European lessons from 2021-2023. Reclaim Finance, 2023. https://reclaimfinance.org/site/en/2023/12/12/when-fossil-gas-drives-inflation-european-lessons-from-2021-2023/.

Wikipedia

{{cite report |last1=Martin |first1=Léo |title=When fossil gas drives inflation: European lessons from 2021-2023 |publisher=Reclaim Finance |date=12 December 2023 |url=https://reclaimfinance.org/site/en/2023/12/12/when-fossil-gas-drives-inflation-european-lessons-from-2021-2023/ |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{martin2023when, author = {Martin, Léo}, title = {{When fossil gas drives inflation: European lessons from 2021-2023}}, institution = {Reclaim Finance}, year = {2023}, month = dec, url = {https://reclaimfinance.org/site/en/2023/12/12/when-fossil-gas-drives-inflation-european-lessons-from-2021-2023/}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }