The European Union (EU) has confirmed it will impose a windfall tax on energy firms’ profits, as the bloc grapples with a cost of living crisis and the possibility of an energy crunch this winter.
Energy ministers from the 27 member states have agreed to the measure first proposed by the European Commission last week, aiming to raise funds to provide relief for families and businesses across the continent.
The measures include a levy on fossil fuel companies’ surplus profits made in 2022 or 2023 and another levy on excess revenues that low-cost power producers make from soaring electricity costs.
It also includes a mandatory five per cent cut in electricity use during peak price periods, with the EU looking to reduce energy usage over the coming winter.
However, the bloc remains divided on whether and how to cap the wholesale price of gas to contain the costs of energy.
Fifteen countries, including France, Italy and Poland, called on Brussels to propose a price cap on all wholesale gas transactions, to contain inflation.
However opponents such as Germany and Netherlands believe capping gas prices could leave countries struggling to attract supplies, if they cannot compete with buyers in price-competitive global markets for gas cargoes this winter.
EU Commission changes tune on gas price cap
The European Commission has also raised doubts over a full-scale cap.
The Commission previously suggested a Russian gas price cap last month, but shelved the idea after resistance from central and eastern European countries worried the Kremlin would retaliate by cutting off the remaining gas it still sends to them.
It has now argued that a wholesale gas price cap would require “significant financial resources” and could work only if a new entity was launched to allocate and ship scarce fuel supplies between states, outlining its thoughts in a paper published earlier this week.
Instead, the executive arm of the EU suggested countries should consider capping the price of Russian gas, or launching an EU price cap specifically on gas used for power generation.
Meanwhile, President Ursula von der Leyen condemned the referendums in four regions of Ukraine as a “sham” and has now presented proposals for an eighth package of sanctions against Russia including a cap on Kremlin-backed oil supplies.
Since then, there have been multiple leaks and explosions recorded across the Nord Stream 1 pipeline, while Kremlin-backed gas giant Gazprom has entered a vicious legal battle with Naftogaz, raising the prospect of no supplies via Ukraine this winter.
Meanwhile, Germany has set out a £177bn ‘defensive shield’ to protect its energy users, including a gas price brake and a cut in sales tax for the fuel, from the impact of soaring energy prices.