EU energy ministers have agreed to impose windfall taxes on energy companies’ profits and cut electricity use, but remain at odds over proposals to cap the price of gas.
Meeting in Brussels on Friday, the bloc’s 27 energy ministers signed proposals to levy a “solidarity contribution” from fossil fuel producers who have benefited from rising energy prices.
In response to the “unexpectedly large financial gains” made in recent months by linking their profits to the price of expensive gas and coal, renewable energy and nuclear power companies will have their revenues capped, according to an EU statement.
The measures, which together could raise €140 billion (£123 billion) to cut consumer bills and fund the green energy shift across the EU, stand in contrast to the UK government’s approach. Liz Truss, Britain’s Prime Minister, has ruled out an extension of the £5 billion energy tax introduced by former Chancellor Rishi Sunak.
Unlike the UK, the EU is also pushing ahead with plans to cut energy demand. Ministers agreed on a voluntary target of reducing electricity consumption by 10% and a mandatory 5% energy savings target during peak periods. The binding peak-time target was deemed necessary to prevent electricity from simply being shifted from the most efficient to the least efficient countries in the EU’s common electricity market.
The 10% reduction in electricity consumption is expected to be achieved between December 1st and the end of March. A voluntary target of 15% to reduce gas consumption in winter was agreed in July.
EU officials said if demand-cutting plans were successful, governments would earn less than the estimated €140 billion in windfall taxes, but consumers would benefit from lower bills.
The emergency measures were agreed after gas supplies from Russia to the EU fell by 37% between January and August following the invasion of Ukraine. The risks to the EU’s energy supply became even more apparent this week when four leaks were found in two Nord Stream gas pipelines, which EU leaders saw as acts of sabotage.
Despite consensus on a windfall tax and energy savings, ministers remain divided over plans to cap the price of gas. France, Italy, Spain and Poland were among 15 countries this week to urge the European Commission to define a price cap as “the only measure that will help each member state to contain inflationary pressures, manage expectations and provide a framework in case.” of a potential supply to provide disruption and limit the additional profits in the industry”.
Industry Minister of the Czech Republic Jozef Síkela, who chaired Friday’s meeting, called on the Commission to come up with additional measures to cut gas prices as soon as possible. “Households and businesses need the help now. We are in the energy war with Russia and we must act. Now means now… Now isn’t in a week and definitely not in a month,” he said.
But Germany, the Netherlands and EU officials are skeptical about a price cap, fearing it could affect the EU’s ability to secure scarce supplies of liquefied natural gas in a competitive global market.
Critics also say the system would require an EU agency to allocate and allocate gas to member states, a politically difficult task that has never been done at EU level. Luxembourg’s Energy Minister Claude Turmes said capping the wholesale price of gas came with risks. “What happens if the clearing doesn’t happen? So who decides where the gas goes? [Is the] Decision of the EU Commission? … Look, I think this is a system that can be very, very difficult to manage.”
The Commission continues to advocate a price cap on Russian gas, a measure supported only by the Baltic states and unlikely to pass.
Kadri Simson, EU Energy Commissioner, said the Commission was “ready to develop a temporary EU-wide measure to cap the price of gas in electricity generation”, which she described as a far-reaching step.
“A wholesale price cap on gas is a legitimate option,” she told reporters, “but it requires radical intervention in the market, which means several non-negotiable conditions must be met before that cap will work.” One of those conditions, she said she, would be a gas savings target that goes beyond the 15% already set.
Riina Sikkut, Estonia’s infrastructure minister, dismissed suggestions that Europeans were faced with a choice between heating and eating. “We must not forget that we are in a war situation,” she said. “The Ukrainians pay with their lives. This allows us to temporarily pay higher bills or grocery store prices.”
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