EU seeks one-off tax trigger well below market rate

Brussels is seeking to move forward with an exceptional levy on European power companies by setting a threshold at less than half of current market rates.

In draft proposals seen by the Financial Times, the European Commission recommends that governments impose a tax on revenues generated by non-gas electricity producers when market prices exceed €200/MWh. The current electricity spot price in Germany, the regional benchmark, is above €450/MWh. Excess income would be redistributed to help businesses and households.

Wholesale electricity prices have skyrocketed because they are indexed to the price of gas, whether or not the electricity is produced from gas or other sources. Gas prices are about 10 times higher than they have been compared to averages for the past decade due to supply cuts from Russia in response to Western support for Ukraine.

European Commission President Ursula von der Leyen said on Wednesday that producers of low-carbon energy – such as wind, solar and nuclear power – were making “huge revenues, revenues that they don’t ‘have never calculated, income they never dreamed of and income they cannot invest so quickly”. .

These “unexpected benefits” should be forwarded to Member States to support vulnerable consumers and businesses, she said.

The exceptional tax is part of a package of five measures proposed to member states by Brussels on Wednesday in response to enlargement energy crisis.

The commission’s other proposals include a mandatory reduction in peak electricity demand, a Russian gas price capchanges to guarantee requirements for electricity companies and changes to state aid rules, to allow governments to bail out companies on the verge of collapse.

The proposed threshold of €200/MWh for the fallout tax quickly drew criticism from Spain, a major producer of wind and solar energy.

Teresa Ribera, Spain’s energy and environment minister, said: “This does not correspond to the real costs and does not help electrification and the deployment of renewable energies.”

An official document outlining the options released on Wednesday did not give specific figures on the level of the bargain threshold, but a senior EU official said they would be defined after an emergency meeting of EU ministers. energy friday. The draft suggested that the reduction in peak electricity consumption be set at 5%.

The Kremlin warned on Monday that supply through the critical Nord Stream 1 pipeline would be completely cut off until Western sanctions have been lifted. Gas imports from Russia to the EU have fallen from around 40% of the bloc’s total consumption last year to around 9%.

Henning Gloystein, director of energy and climate at Eurasia Group, said a €200/MWh limit on gasless power generators was “high enough to meet the expected demand reduction in Europe this winter. , while giving industry and small consumers at least some assurance that costs will not increase further”.

Several EU diplomats and analysts have said a blanket threshold for all non-gas producers ignores the fact that coal producers incur much higher costs than wind or solar producers. Coal use in the EU has increased to compensate for gas cuts.

Brussels has also presented a proposal for a “solidarity contribution” from fossil fuel producers which would be calculated at national level from the profits of the energy majors.

The commission was keen to avoid calling any of the proposed measures taxes. EU-wide tax legislation requires unanimous agreement between Member States.

Diplomats from the 27 EU member states will discuss the proposals on Wednesday ahead of Friday’s meeting of energy ministers.

Von der Leyen said the EU was facing “difficult times and they are not over any time soon”, and that any measures taken should be implemented “as soon as possible”.

EU capitals are generally supportive of plans to encourage demand cuts as the quickest way to deal with the crisis, but are divided on how to deal with soaring energy prices.

A senior EU diplomat said the commission’s plan had been “welcomed” by member states, but there were significant differences over the details. Several, including Poland, Greece and Italy, oppose a specific cap on Russian gas prices, fearing that Moscow will make further supply cuts.

Other countries such as Spain and Austria have called for a separation of the gas and electricity markets, which the commission said it is considering in the long term.

EU officials said the measures proposed on Wednesday would be time-limited, to be agreed with EU capitals.

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