The EU proposes an unexpected tax on energy companies

CNN Business

The European Union wants to raise 140 billion euros ($140 billion) by tapping some energy companies’ windfall profits to help households and businesses pay eye-popping gas and electricity bills.

On Wednesday, the European Commission proposed capping profits for producers of renewable energy and nuclear electricity and taxing oil and gas companies’ windfalls.

Profits at electricity producers using wind, solar and nuclear power have risen because their tariffs are linked to the wholesale price of natural gas, which rose to record highs in March after Russia invaded Ukraine, and is now about 550% higher than a year ago.

Europe sanctioned Russian oil and coal exports after the invasion, prompting Moscow to cut gas supplies in return.

European Commission President Ursula von der Leyen said on Wednesday that the bloc would implement a “deep and comprehensive reform” to decouple the price of gas from the price of electricity.

“These companies are making revenues they have never faced, they have never even dreamed of,” she told EU lawmakers in a speech in Strasbourg, France. “It is wrong to receive extraordinary record profits that profit from war and on the backs of consumers,” she added.

The Commission’s proposal still needs to be debated and adopted by the EU member states.

The bloc could impose a cap of €180 ($180) per megawatt hour on electricity produced by renewable energy companies, the Commission said in a statement. Europe’s benchmark wholesale gas price is currently €212 ($212) per megawatt hour.

Natural gas and oil prices started rising last year as countries reopened from their pandemic shutdowns, sparking a surge in demand. But Russia’s invasion of Ukraine in late February — and the resulting energy standoff between Europe and Moscow — sent them through the roof. Oil has since fallen back as a global economic slowdown leads to reduced demand, but natural gas prices remain higher than their peak in March.

The EU proposal is part of a package of measures to help the region cope with the energy crisis this winter, when temperatures drop and demand normally rises.

The package includes a “crisis contribution” from oil, gas and coal producers, which have reaped similarly large profits, and mandatory targets for countries to cut their electricity consumption during peak hours.

The Commission said in its statement that EU member states should levy an additional tax on any profits that exceed average earnings for the past three years by more than 20%. It did not specify the tax rate.

“They have to pay a fair share,” von der Leyen said.

She also said the billions national governments have already committed supporting consumers would “not be enough” alone.

Together, European countries and the United Kingdom – which is suffering its own energy crisis – have so far pledged about 500 billion euros ($500 billion) in subsidies to help households and businesses cope with skyrocketing energy bills.

The UK earlier this year imposed a 25% tax on its oil and gas companies’ windfall profits to help pay for an initial round of relief for customers this year.

But Prime Minister Liz Truss has ruled out raising or extending the tax to help fund her much bolder plan to cap household bills at £2,500 ($2,888) a year for the next two years and to support businesses over the next six months. Analysts say these measures could cost as much as £150 billion ($173 billion).

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