EU agrees to windfall energy company tax – but split on gas price cap

EU energy ministers approved a package of measures to intervene in electricity markets and bring down high energy prices during a Council meeting in Brussels on Friday (30 September).

But the main topic of the day was how to deal with the price of gas itself – and opinions differ on how best to do it.

“We are in an energy war with Russia. Winter is coming. We have to act now,” the Czech Industry Minister Jozef Síkela, whose country holds the EU Council Presidency, urged his colleagues before the meeting.

The greenlit proposal, negotiated in less than a month, includes mandatory electricity savings, a cap on excess revenue from low-cost electricity generators such as renewables and nuclear power plants, and a so-called “solidarity contribution mechanism” for fossil fuels. fuel extractors.

“It is now crucial that these steps are implemented quickly so that they can have the intended impact,” said Energy Commissioner Kadri Simson.

According to the new rules, EU countries would be obliged to reduce electricity consumption by five percent during peak periods – i.e. when the demand for electricity is at its highest.

Energy ministers also agreed to temporarily cap the price at which low-carbon power companies sell electricity to €180 per megawatt-hour (MWh).

They argued that because gas acts as the pricing mechanism for the ultimate price of electricity, renewables and nuclear power plants have made “unexpectedly large financial gains” in recent months.

Despite criticism of the risk of creating a patchwork of measures that could hamper investment in renewable energy, ministers introduced some flexibilities for individual member states. This includes the ability to set different and higher caps for different types of power generation.

Finally, the deal also includes a levy on fossil fuel companies that will cover 33 percent of taxable excess profits from 2022 and/or 2023. This means that windfall profits from fossil fuel extraction can be exempted from the market revenue cap from 2022.

The EU Commission’s initial proposal states that the solidarity contribution should be calculated over a baseline period of three years (2019-2021), but governments have extended this to 2018.

This is seen by green groups as a “loophole” and a missed opportunity to support Europe’s most vulnerable households and businesses struggling to pay their soaring energy bills.

“The EU and governments must tax all these windfall profits now, not next year. This money is urgently needed to protect the most vulnerable people this winter,” said Thomas Gelin, a Greenpeace activist.

“All eyes on Germany”

Capping gas prices is seen by many as the missing piece of the puzzle.

“All these temporary measures are very good, but in order to find a solution to help our citizens in this energy crisis, we need to cap the price of gas,” Croatian Economy Minister Davor Filipovic said ahead of the meeting.

More and more member states are asking the Commission to come up with a direct gas price cap proposal covering all imported gas as well as gas traded within the Union. Supporters include Belgium, France, Poland, Portugal, Romania, Slovakia, Slovenia, Greece, Italy and Spain.

“All eyes are on Germany,” Belgian energy minister Tinne Van der Straeten said ahead of the meeting, hoping Berlin would support the proposal. “Germany is constructive,” she also said.

The Commission has argued that a price cap covering both liquefied natural gas (LNG) and pipeline deliveries would be difficult to implement and could pose risks to energy security.

Germany, Denmark and the Netherlands have expressed similar concerns.

The Commission is expected to present an action plan on gas price caps in mid-October.

Three ideas

In an informal document, the EU executive has proposed three ideas: capping the price of Russian gas imports, negotiating a lower gas price with other suppliers such as those in Norway, and capping the price of gas for electricity generation on the EU market.

“Russia is a special case. I think we could set a price cap for all imported gas from Russia, including LNG. However, some member states see this as a sanction and we do not yet have a consensus on this step,” he told Simson.

However, some countries are not convinced by the proposal.

Van der Straeten said a cap on Russian gas will not have a major impact on consumer bills, noting that the majority of countries want price intervention to have a direct solution to rising bills.

The cap should be set at a level that is “high” and “flexible enough” to allow Europe to attract the supplies it needs, argue Belgium, Greece, Poland and Italy in a note outlining their approach, seen by Reuters .

“A wholesale gas price gap is a legitimate option, but it requires radical market intervention, which means several non-negotiable conditions need to be met beforehand,” said Commissioner Simson. One of those conditions would require EU countries to commit to cutting gas demand beyond the current 15 percent voluntary reduction plan, she added.