EU plans windfall taxes to counter ‘astronomical’ energy bills

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Brussels is pushing for windfall national taxes on energy companies’ inflated profits to counter what European Commission President Ursula von der Leyen has called “astronomical” electricity bills.

The proposed levies, to be debated by EU energy ministers on Friday, would target fossil fuel producers and low-carbon power producers who have made extra profits from artificially inflated electricity prices , according to people familiar with the plan. They would then seek to channel revenues to vulnerable consumers and households.

Wholesale electricity prices have skyrocketed because they are indexed to the price of gas, whether or not the electricity 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 national levies would be part of proposals also aimed at reducing electricity consumption by shifting demand away from peak periods. Brussels will also work with Member States to ensure that electricity producers have sufficient liquidity.

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

Russia said on Monday that state gas supplier Gazprom would cut off supply through the Nord Stream 1 gas pipeline until Western sanctions are lifted.

“It’s 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 the pipeline in the short term.”

National windfall levies would be applied to profits accrued by energy companies that do not rely on gas to generate electricity, such as wind farms and nuclear power plants. Member States have yet to support the proposals. The commission also advocates levies on oil and gas producers who have made record profits, as it seeks to show that it is not just low-carbon energy producers who must help alleviate the crisis.

The commission suggests reducing electricity consumption during peak hours by moving industrial processes to low consumption periods such as weekends and nights. This would come on top of a voluntary scheme to reduce gas demand by 15%, which member states agreed to this summer.

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

As part of this, officials said the commission would temporarily modify its state aid framework to speed up requests from EU capitals to support their public services. The commission has in the past relaxed state aid rules for companies suffering from Covid-19 shutdowns and the ripple effects of war in Ukraine.

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

Additional reporting by Javier Espinoza in Brussels

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