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 exploded because they are indexed to the price of gas, whether or not the electricity is produced with gas or from other sources. Gas prices are about 10 times higher than they have been compared to averages for the past decade.

Such a cap would mimic “the market outcomes that would be expected if global supply chains were functioning normally and were not subject to energy weaponization through gas supply disruptions,” the report says. committee document.

European Commission President Ursula von der Leyen said on Wednesday that low-carbon energy producers are making “huge revenues, revenues they never calculated, revenues they never never dreamed of and income that they cannot invest so quickly”.

These “windfalls” should be redirected to member states to support vulnerable households and businesses, she said.

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

It should, he added, also provide producers of low-cost renewables with enough profit margin to incentivize investment, which Brussels is keen to encourage in its efforts to tackle climate change.

Europe has seen pressure on natural gas from Russia, previously its biggest supplier, in response to Western support for Ukraine. The Kremlin warned on Monday that supply through the critical Nord Stream 1 pipeline, the largest between Europe and Russia, would be cut off completely until Western sanctions were lifted.

European industries have warned they face an “existential threat” unless policymakers step in to cut energy costs.

Proposals are expected to be discussed by diplomats from the 27 EU member states on Wednesday ahead of an emergency meeting of energy ministers on Friday.

The document also suggests a mandatory target of reducing electricity consumption by 5% during peak hours – something von der Leyen proposed as part of a package of five measures, including a cap on the price of electricity. Russian gas, changes to guarantee requirements for electricity companies and adjustments to state aid rules, to allow governments to bail out companies on the verge of collapse.

The committee document warns that incentives to reduce electricity demand must be “cost effective”, adding that member states must act together to avoid distortions in the EU’s internal market.

Several member states have complained that Brussels has not acted quickly enough. European Council President Charles Michel said in an interview on Saturday that the commission had “not a day to lose”.

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.

Several countries, including Italy, Spain and Austria, have called for a separation of gas and electricity markets, while others favor limits on gas prices.

An EU diplomat has warned that caps on wholesale gas could, however, “have negative consequences” if prices fall. The diplomat added that it would be better to have dynamic limits set against energy markets outside the EU.

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