EU to assess windfall tax on energy firms to soften price shock

Governments across the 27-member bloc are grappling with how to cushion the blow to consumers and businesses. File picture

The European Commission will analyse the potential impacts of imposing a bloc-wide tax on windfall profits made by energy companies, as governments grapple with how best to cushion a price shock going into winter.

The European Union’s executive branch told a meeting of finance ministers in Luxembourg on Friday that it would look into the feasibility of using a regional windfall tax to provide relief to citizens, according to people familiar with the matter. 

That follows calls from several member states, including Germany, to examine such an initiative.

During the energy crisis that followed Russia’s invasion of Ukraine, the EU introduced a revenue cap on so-called inframarginal electricity producers, like wind and solar. But the measure fell well short of a €50bn collection estimate, and triggered court cases that the EU is still dealing with, according to EU Climate Commissioner Wopke Hoekstra.

“You always need to look at the full solution space,” Hoekstra told reporters when he arrived for Friday’s meeting. “It is not without complications,” he said, adding that a number of member states were opposed to such a tax.

The Iran war has disrupted oil and gas flows through the Strait of Hormuz, leading to a sharp increase in the price of products like diesel. Governments across the 27-member bloc are grappling with how to cushion the blow to consumers and businesses at a time when many countries are already facing fiscal constraints.

In a letter earlier this year, Germany, Portugal, Spain, Austria, Italy and Poland called on the EU to put forward a windfall tax to ease the shock. German finance minister Lars Klingbeil also said that France wasn’t opposed.

“We can see how refineries and oil companies are profiting from this crisis, while consumers are ultimately the ones bearing the burden,” Klingbeil said on Thursday. 

“I have a clear expectation that the commission will now put proposals on the table.” 

Lowering energy prices is set to be a key discussion among EU leaders at a summit in Brussels next week. Yet there are few obvious solutions given that the bloc is reliant on third countries for the vast majority of its fossil fuel supplies. 

The commission has already said that member states could implement a windfall profit cap at a national level.

Bloomberg