The EU plans to raise €140bn from energy companies’ profits to cushion the shock of record high prices this winter, which will amount to a new bloc-wide levy in response to the crisis on Ukraine.
A proposed windfall tax on power companies that do not burn gas, the price of which has recently risen, would be on fossil fuel clusters, among other measures.
European Commission President Ursula von der Leyen said, “It is wrong to take extraordinary record profits from war and on the backs of consumers in these times, as she outlined proposals to funnel profits for homes and businesses.
“Profits must be shared and broadcast to those who need it most. . . Our proposal will raise more than €140bn to deal a direct blow to member states,” she said in a State of the Union address in Strasbourg on Wednesday couple.
The Commission’s proposal would set a mandatory limit for prices charged by companies that produce low-cost, non-gas energy, such as nuclear and renewables.
Companies will have to pay EU states “extra profit” generated above this level, which the Commission wants to set at €180/MWh. But member states would be free to set their own lower limits.
Energy Commissioner Kadri Simson said the commission’s level would cover the operating cost of lignite, a type of coal that is the most expensive non-gas fuel.
The proposals will have to be approved by member states, who differ on the issue, and will meet on 30 September to discuss it. But in the wake of Russia’s invasion of Ukraine and growing fears of an energy shortage this winter, many governments are under pressure to act amid concerns Moscow will cut off any remaining gas supplies to the European Union.
Von der Leyen said the EU also sought a separate levy – “crisis contributions” from “major oil, gas and coal companies”. [that] are also making huge profits.” It will also form part of the €140bn Brussels wants member states to raise.
But she noted that such payments and unpredictable taxes would be “all emergency and temporary measures” and the bloc would need to cut electricity demand, lower gas prices and ensure security of supply in the long term.
Von der Leyen said Brussels would work on a comprehensive reform of its energy markets to break the “major effect” of the gas price on electricity costs.
These markets need to be redesigned so that consumers can better reap the benefits of low-cost renewable energy, he said, an alternative to the commonly used European benchmark for gas prices. To be discovered, Dutch TTF, which is largely determined by pipeline gas. ,
Traders resisted the suggestion, however, with a European gas and electricity trader saying it smacks of “political jaws” as the commission struggles to address how to lower prices.
“There is no better benchmark from the market point of view,” the trader said. “There is no viable alternative yet that is market-based.”
The president suggested that energy ministers discuss a possible gas price range last week and that the commission would now begin talks with specific suppliers. Von der Leyen said the EU and Norway would set up a task force to reduce the price of gas.
Norway’s prime minister, Jonas Gahr Store, will meet with gas companies on Thursday to “discuss longer contracts that could perhaps contribute to stabilizing prices”, he told state broadcaster NRK. But he has previously said he is “skeptical” about the price cap on gas because it will not solve the fundamental problem of gas shortages in Europe.
Laurent Ruskes at S&P Global Commodity Insights said the proposals were “all extraordinarily complex” and “it would be impossible to work out and implement in time for the winter, even if there is a political consensus behind them – which is not”.
Separately, France said on Wednesday it would raise electricity and gas prices for consumers by 15 percent in 2023 as it implements its own measures. Finance Minister Bruno Le Maire said France’s price cap package would cost a net €16bn. The government is benefiting from mechanisms built into contracts with renewable energy producers that allow money to be recovered when prices reach a certain level.
The Commission has stated that member states have their own plans to limit price increases, and to limit electricity producers’ revenue as long as they do not distort markets and are in line with EU law. “More ambitious measures” are able to be launched.
However, diplomats and officials predicted that member states would like to build more flexibility in the EU’s proposed regulation for price increases as well as their own national measures limiting various industry structures.
An EU diplomat said, “It is understandable to agree to EU-wide goals and measures, but without allowing the national flexibility to get there we risk sabotaging the markets we are trying to fix.” are doing.”
Von der Leyen said that the EU was “for the long haul” as it responded to Russia’s invasion of Ukraine, adding that it was in talks with President Volodymyr Zelensky about expanding the benefits of the European single market to his country. Will travel to Kyiv to talk with him. The European Union also wants to expand mobile phone roaming in Ukraine, she said.
Declaring that the EU sanctions on Moscow had left the country’s industry “scattered”, von der Leyen said they were “here to stay”.
Additional reporting by David Shepard and Richard Milne