The European Commission has proposed an unprecedented intervention in the energy market in an attempt to slow the spike in prices on the continent due to Russia’s war in Ukraine and the arming of its energy resources. The European Union executive plans to raise more than 140 billion euros to protect consumers from high prices by taking away revenue from low-cost power producers and fossil fuel companies, which are reaping windfall profits. It will also require countries to reduce electricity consumption by at least 5 percent during peak hours and ask them to reduce their overall electricity demand by at least 10 percent by the end of March. Member states will be able to use their share of the €140 billion to provide income support or rebates to consumers or invest in renewable energy or energy efficiency. Retail electricity prices in the EU have risen by nearly 50 percent year-on-year since July 2021, largely due to high prices for the natural gas that powers much of the bloc’s power generation. Earlier this month, Russia said it would not reopen the main Nord Stream 1 pipeline to supply Europe – the latest in a series of supply cuts, which Moscow blames on Western sanctions imposed over its invasion of Ukraine . And energy prices are expected to remain high due to the risk of further disruption of Russian gas to the EU. Commission President Ursula von der Leyen told the EU parliament in Strasbourg on Wednesday that the bloc must be decisive in its response to Russian aggression and manipulation affecting global and European energy markets. Power companies that generate electricity at low cost “are making revenue that they never imagined, never even dreamed of,” he said. “In these times, it’s wrong to take record profits profiting from war and on the backs of consumers. In these times, profits must be shared and channeled to those who need them most.” Calling the proposals “unprecedented”, European Commission Executive Vice-President Frans Timmermans said the measures were “a necessary response to energy supply shortages and high energy prices affecting Europe”. In the EU system, natural gas utilities often set the price of electricity. Power producers who don’t use gas sell their electricity at the resulting prices, even though they don’t have to pay huge bills for natural gas or coal, the price of which has also skyrocketed. The Commission’s proposal would limit the revenue received by wind, solar, nuclear and lignite plants for electricity production to €180 per megawatt hour until March. Ms von der Leyen said the fossil fuel industry should also step up during the current energy crisis. “The big oil, gas and coal companies are also making huge profits. So they have to pay a fair share – they have to contribute to the crisis,” he said. Under proposals filed Wednesday, that contribution would take the form of a temporary windfall tax on the profits of fossil fuel companies, including the oil, gas, coal and refinery sectors. It will apply to 33 percent of companies’ taxable surplus profits from 2022 (with surpluses defined as those that are 20 percent above a company’s average taxable profits over the past three years). The EU country where the profits are made will collect the cash and redirect it to energy consumers, including vulnerable households, hard-hit businesses and energy-intensive industries. It could also be used to promote investment in renewable energy, energy efficiency or other decarbonisation technologies. Mr Timmermans said the revenue cap would transfer unusually high profits to customers struggling with their bills. “This crisis highlights that the era of cheap fossil fuels is over and that we need to accelerate the transition to domestic, renewable energy,” Mr Timmermans said. The fossil fuel levy will raise around €25 billion, according to the Commission – bringing the expected total from the two EU measures to just over €140 billion. Quarterly earnings rose recently at major European oil and gas companies. France’s TotalEnergies SE posted second-quarter adjusted earnings of US$9.8 billion, while London-based Shell PLC posted adjusted earnings of US$11.5 billion. London-based BP PLC reported second-quarter earnings of $9.3 billion. Peter Tertzakian, associate director of the ARC Energy Research Institute, said in an interview that taxing utilities and producers — and redistributing wealth — may be little more than a Band-Aid solution for the winter. “Taxing energy producers is a negative signal for investors,” he said. “We want investors to invest more in energy supply, including much more renewables, for a long-term solution.” Britain announced a surprise tax on oil and gas producers in May. In June, Alberta Energy Minister Sonya Savage told the World Energy Expo in Calgary that her province’s oil and gas sector fears Ottawa may try to follow suit, warning that such “aggressive action” would cause reactions in the prairies. He said in an email Wednesday that it would be “deeply irresponsible” to create “arbitrary new taxes targeting the energy industry” while promoting energy security in Canada’s allies and relying on the industry for huge investments in carbon capture technologies. Lisa Baiton, president and CEO of the Canadian Association of Petroleum Producers, said in an e-mail that windfall taxes are unnecessary in Canada because – unlike many other jurisdictions – they are built into rights and tax frameworks. “All provincial royalty regimes in Canada have a sliding scale approach to royalties that incorporates higher commodity prices — in other words, royalty rates rise with higher oil and gas prices,” he said. “Higher commodity prices translate into higher government output across the country.” Neither Natural Resources Canada nor the finance ministry responded to a request for comment Wednesday on whether Ottawa is considering such a tax. The EU’s emergency proposals would have to be approved by a majority of members, although the Commission said many intended to approve the plan quickly. Reported by Reuters
