EU targets €140bn from windfall taxes on energy companies

The EU is planning to raise €140bn from energy companies’ profits to soften the blow of record high prices this winter, in what would amount to a new bloc-wide levy in response to the crisis over Ukraine.

A proposed windfall tax on power companies that do not burn gas, the price of which has recently soared, would be accompanied by other measures on fossil fuel groups.

“In these times it is wrong to receive extraordinary record profits benefiting from war and on the back of consumers,” said European Commission president Ursula von der Leyen, as she outlined the proposals to funnel windfall profits back to households and businesses.

“Profits must be shared and channelled to those who need it the most . . . Our proposal will raise more than €140bn for member states to cushion the blow directly,” she added, in a State of the Union address in Strasbourg on Wednesday.

The commission proposal would set a mandatory threshold for prices charged by companies that produce low-cost, non-gas energy, such as nuclear and renewables groups, according to draft proposals seen by the Financial Times.

Companies would have to give EU states the “excess profits” generated beyond this level, which the commission seeks to set at €180/MWh. But member states would be free to put in place lower thresholds of their own.

The proposals will have to be approved by member states, which are at odds over the issue and will meet to discuss it on September 30. But in the wake of Russia’s invasion of Ukraine and fears growing of energy shortages this winter, many governments are under pressure to act amid concerns that Russia will cut off any remaining gas supplies to the EU.

Von der Leyen said in addition the EU sought a “crisis contribution” — a separate levy — from “major oil, gas and coal companies [that] are also making huge profits”. This would also make up part of the €140bn Brussels wants member states to raise.

But she noted that both such payments and the windfall tax would be “all emergency and temporary measures” and that the bloc needed to cut electricity demand, lower gas prices and ensure security of supply over the longer term.

Von der Leyen said Brussels would work on a comprehensive reform of its energy markets to break the “dominant influence” of the price of gas on electricity costs.

The design of these markets needed to be redesigned so consumers could better reap the benefits of low-cost renewables, she said, adding that the commonly used European benchmark for gas prices, the Dutch TTF, needed to be reformed.

Traders hit back against this suggestion, however, with one European gas and power trader saying it smacked of “political jawboning” as the commission struggles to address how to bring down prices.

“Market-wise there is no better benchmark,” the trader said. “There’s not yet a practical alternative that’s market-based.”

Energy ministers discussed a possible gas price cap last week and the commission would now start talks with specific suppliers, the president suggested. The EU and Norway would set up a taskforce to reduce the price of gas, von der Leyen said.

Jonas Gahr Støre, Norway’s prime minister, will meet gas companies on Thursday to “discuss longer contracts that can maybe contribute to stabilising prices”, he told state broadcaster NRK. But he has previously stated that he is “sceptical” about a price cap on gas as it will not solve the fundamental problem of gas shortages in Europe.

Laurent Ruseckas, at S&P Global Commodity Insights, said the proposals were “all extraordinarily complex” and “would be impossible to work out and implement in time for winter even if there were political consensus behind them — which there isn’t”.

Von der Leyen said the EU was “in for the long haul” as it responded to Russia’s invasion of Ukraine, saying she will travel to Kyiv to talk with President Volodymyr Zelenskyy about extending the benefits of the European single market to his country. The EU also wanted to extend mobile phone roaming to Ukraine, she said.

Declaring that the EU’s sanctions on Russia had left the country’s industry “in tatters”, von der Leyen added that they were “here to stay”.

Additional reporting by David Sheppard and Richard Milne