EU to study moves to cushion oil shock

By Paul Taylor and Pete Harrison

BRUSSELS (Reuters) - European Union leaders asked the European Commission on Friday to study possible short-term measures to ease the pain of soaring oil prices and report back by October.

But leaders of the world's biggest trade bloc underlined the need to avoid taxes that might distort competition, or any policies that might prevent businesses and consumers adapting to higher energy prices by cutting back their consumption.

They also stressed that the main long-term response should be pushing through existing plans to cut dependency on energy imports and to obtain 20 percent of EU energy from renewable sources by 2020.

"The European Council invites the incoming (French) presidency in cooperation with the Commission to examine the feasibility and impact of measures to smooth the effects of sudden oil and gas price increases and report before the October European Council," said a final text from the two-day summit.

Earlier drafts had referred to a study of tax measures, but this was later dropped at the insistence of Germany and other member states.

It did not list the measures to be considered, but France has proposed capping value-added tax on petrol, Italy plans a windfall tax on oil company profits and Austria wants an EU tax on commodity speculation.

"This is a crisis which affects all Europeans," French President Nicolas Sarkozy said. "Europe has a duty to act, to provide answers to Europeans' concerns."

Measures can be considered to alleviate the impact of higher oil and gas prices on the poorer sections of the population, but should remain short-term and targeted, leaders agreed.

"Distortionary fiscal and other policy interventions should be avoided as they prevent the necessary adjustment by economic agents," they added.

SARKOZY FACE-SAVER?

Germany, Britain, Sweden, Denmark and the EU's energy commissioner criticized Sarkozy's proposal to cap value-added tax on petrol and use the proceeds of higher oil tax revenues to help sectors worst hit by high energy prices.

"Germany's skepticism is known," Chancellor Angela Merkel said. One summit participant said asking the Commission to study such measures was a face-saver for Sarkozy but would lead nowhere.

Oil prices have roughly doubled in a year to above $130 this week, prompting Europe-wide protests by sectors such as fishermen, farmers and truck drivers.

Ministers have suggested Europe's failure to respond to distress over petrol prices was one reason why Irish voters rejected the EU's new reform treaty in a referendum last week, as it made leaders look cold to citizens' concerns.

A Commission official said member states were failing to use all the tools at their disposal, such as acceptable state aid for struggling transport companies or payments to help citizens who can no longer afford to heat their homes.