EU aims to raise $140bn from windfall taxes on energy companies

Commission President declares Europe's electricity market 'is not fit for purpose'

European Commission President Ursula von der Leyen speaks during a debate on 'The State of the European Union'. AFP

European Commission President Ursula von der Leyen said on Wednesday that Europe’s electricity market needed deep reforms as she unveiled emergency temporary measures to tackle energy costs and soaring inflation, including raising more than $140 billion from energy companies for struggling member states.

The current electricity market “is not fit for purpose any more,” Ms von der Leyen told legislators in Strasburg, during her much-anticipated State of the Union address. “It is not just for consumers any more.”

The European Commission is proposing a cap on companies that make electricity from renewables, such as wind and solar, due to the EU’s system of pricing which allows for all electricity producers to be paid the same price for the power they are selling. The consequence of that system is that prices most often match those of gas, which have soared since Russia's invasion of Ukraine.

Czech Minister for European Affairs Mikulas Bek said on Tuesday that natural gas prices had reached a new high of €340 per megawatt hour in August, compared to €40 a year ago.

The EU commission is also requesting that fossil fuel electricity producers contribute to alleviating the crisis. “They have to pay a fair share — they have to give a crisis contribution”, said Ms von der Leyen.

Her proposal aims to “raise more than €140 billion for member states to cushion the blow directly.”

No gas price caps

“Don’t get me wrong,” the EU Commission chief said. “In our social market economy profits are OK, they are good. But in these times it is wrong to receive extraordinary record revenue benefiting from war on the back of our consumers. In these times, profits must be shared and channelled to those who need it most.”

Ms von der Leyen said that the influence of gas on the price of electricity should end. “That’s why we will do a deep and comprehensive reform of the electricity market.”

The EU Commission President had to shelve a proposal on capping Russian gas prices completely following reported opposition from some European countries, who fear that Russia will completely stop exporting the little gas it is still sending to the EU.

Some countries have also called for a global cap on gas prices, not just on Russia’s.

“We need to keep working on lower gas prices. So, on one hand, we have to ensure the security of supply. On the other hand, we have to ensure global competitiveness,” said Ms von der Leyen.

The EU commission will develop with member states a “set of measures to take into account the specific nature of [its] relationship with suppliers, ranging from unreliable suppliers such as Russia, to reliable friends such as our Norwegian friends for example.”

She said that she had agreed with Norwegian Prime Minister Jonas Gahr Store to set up a task force to examine lowering gas prices in a “reasonable manner”.

The EU’s efforts to diversify its gas sources since February contributed to Russian gas imports to plummet from 40 per cent of the continent’s gas imports last year to 9 per cent today.

Ms von der Leyen highlighted the EU’s need to wean itself away from fossil fuels and announced the creation of a European Hydrogen Bank that aims to invest €3 billion to build the future hydrogen market.

She admitted to past mistakes. “In the 1970s, the world faced another fossil fuel crisis”, she said. “We did not get rid of our dependency on oil. And worse, fossil fuels were even massively subsidised. This was wrong, not just for the climate, but also for our public finances, and our independence. And we are still paying for this today.”

'Unshakeable' solidarity

Ms von der Leyen started her speech by addressing the situation in war-torn Ukraine, speaking at times directly to the wife of Ukraine’s President Volodymyr Zelenskyy, Olena Zelenska, who was guest of honour.

“Europe’s solidarity with Ukraine will remain unshakeable,” said Ms von der Leyen, who is scheduled to travel to Kyiv later on Wednesday to discuss Ukraine’s access to Europe’s single market.

“Never before has this parliament debated the state of our union with war raging on European soil,” she added.

So far, the EU has provided over €19bn in financial assistance to Ukraine, excluding military support, and imposed punitive sanctions on the Russian economy.

Ms von der Leyen announced a further €100m to support the rebuilding of Ukrainian schools destroyed in the war.