EU plans windfall taxes to counter ‘astronomic’ energy bills

Brussels is pushing for national windfall taxes on energy companies’ inflated earnings to counter what European Commission president Ursula von der Leyen described as “astronomic” electricity bills.

The proposed levies, which will be debated by EU energy ministers on Friday, would target fossil fuel producers and low-carbon power generators that have reaped extra profits thanks to artificially inflated electricity prices, according to people familiar with the plan. They would then seek to funnel proceeds to vulnerable consumers and households.

Wholesale electricity prices have skyrocketed because they are pegged to the price of gas, whether or not the electric power is produced with gas or by other means. Gas prices are about 12 times higher than a year ago.

Von der Leyen said in prepared remarks that the national levies would be part of proposals that also seek to reduce electricity use by shifting demand away from peak periods. Brussels will also work with member states to ensure electricity producers have sufficient liquidity.

The commission’s plans will also include a price cap on Russian pipeline gas, designed to limit president Vladimir Putin’s profits from his “atrocious war against Ukraine”, according to von der Leyen’s remarks.

Russia on Monday said state-owned gas supplier Gazprom would cut supplies via the Nord Stream 1 pipeline until western sanctions were lifted.

“This is a cynical game by Putin and for us a test of unity and solidarity,” von der Leyen said, suggesting the EU was in a stronger position to take a hard line given its efforts this year to diversify supplies away from Russia. “It is almost impossible for Russia to find new customers for pipeline gas in the short term.”

Cartogram showing European countries’ gas imports by source, 2021 compared with Jan-Jun 2022

The national windfall levies would be applied to the profits racked up by energy companies not relying on gas to produce power, such as wind farms and nuclear power stations. Member states have yet to back the proposals. The commission also advocates levies on oil and gas producers that have enjoyed record profits, as it is seeking to show it is not just low-carbon energy producers that are having to contribute towards alleviating the crisis.

The commission suggests reducing electricity consumption during peak times by shifting industrial processes to low-usage times such as weekends and nights. This would come on top of a voluntary scheme to curb gas demand by 15 per cent, which member states agreed to in the summer.

Von der Leyen also wants the EU to help utilities struggling with the “volatility of the market manipulated by Putin”, saying Brussels would work with member states to ensure sufficient liquidity in the sector.

As part of this, officials said the commission would amend its state aid framework temporarily to speed through requests by EU capitals to support their utilities. The commission has in the past relaxed state-aid rules for companies suffering during Covid-19 lockdowns and from the ripple effects of the Ukraine war.

The commission is also examining changes to trading rules in energy markets. Kristian Ruby, secretary-general of Eurelectric, the trade body for the European electricity industry, said regulators needed “to extend the list of assets that would [be] eligible as collateral” to accept assets other than cash and be prepared to “avoid a domino effect”, as well as extending credit lines to companies in crisis.

Additional reporting by Javier Espinoza in Brussels

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