EU lines up windfall tax on renewables to fund cost-of-living relief

European Commission eyes price cap on gas and reduction in electricity use at peak times

Wind turbines spin as steam rises from a coal-fired power plant near Bedburg, Germany. Getty
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The European Union on Wednesday announced plans for a windfall tax on electricity companies, hoping to raise funds to help households and businesses through a winter of runaway fuel bills.

European Commission President Ursula von der Leyen said producers of cheap renewable energy should be stripped of “revenues they never calculated with … revenues they never dreamt of”.

She said the high gas price caused by Russian cuts was pushing up the market rate for electricity, generating excess profits in coal, nuclear, wind and solar generation despite producers being less affected by the increase in gas costs.

Oil and gas companies will separately be asked to make a “solidarity contribution” to help cover the costs of supporting consumers and building up more clean energy capacity at home.

“It is now time for consumers to benefit from the low costs of low-carbon sources,” said Ms von der Leyen, who has spoken of wanting to decouple the gas price from the going rate for electricity.

The commission is proposing that the EU should step up its efforts to save energy this winter, by bringing in mandatory targets to reduce electricity use at peak times.

“We have to save electricity, but we have to save it in a smart way,” Ms von der Leyen said.

The proposed package includes a price cap on Russian gas intended to cut the Kremlin’s revenues as it continues to wage war in Ukraine.

The suggestion comes days after G7 countries agreed to engineer a price cap on Russian oil by denying shipping insurance and other services to cargoes that flout the limit.

A cap on pipeline gas would function more simply, with EU countries simply naming their price and telling Russia to take it or leave it.

Energy ministers from the EU’s 27 member states, who would have to approve Ms von der Leyen’s proposals by majority vote, will discuss the proposals at an emergency summit in Brussels on Friday.

Russian President Vladimir Putin used a speech on Wednesday to blame western sanctions for the energy crisis and threatened to cut off all remaining gas supplies if Europe attempts to cap the price.

European Commission President Ursula von der Leyen announces the EU's plans to tackle the cost-of-living crisis. EPA

But German Chancellor Olaf Scholz took a more upbeat tone, saying Europe’s biggest economy was increasingly well placed for winter after storage tanks filled up to a healthy 87 per cent, ahead of schedule for the autumn.

“Don’t underestimate our country. Don’t underestimate the people of this country,” said Mr Scholz in an unusually combative speech to parliament.

Austria became the latest country to announce a domestic price cap on Wednesday, with households to be shielded from higher costs for 80 per cent of their typical energy use ― an incentive to use less.

The energy-saving measures come on top of an EU-wide target agreed in July of reducing gas consumption by 15 per cent, although a number of countries negotiated exemptions.

“We cannot magic away inflation, but we can counteract it in a targeted way,” said Austrian Vice Chancellor Werner Kogler.

Britain’s new Prime Minister Liz Truss said in her first encounter with MPs that she opposed a windfall tax but would announce new measures on Thursday to tackle the cost-of-living crisis.

MPs expect her to freeze energy bills that would otherwise rise by 80 per cent from October, but there are doubts over how the freeze would be paid for if Ms Truss is unwilling to tax excess profits.

“I believe it is the wrong thing to be putting companies off investing in the United Kingdom just when we need to be growing the economy,” she told the House of Commons.

Updated: September 07, 2022, 3:11 PM