Taxing energy firms' profits among proposals brought forward by EU energy ministers

Environment Minister Eamon Ryan: “We cannot be ideological, we have to intervene.”

The European Union will next week draw up official proposals to cap the price countries pay for importing gas, reduce electricity use and redistribute profits made by energy companies in a bid to tackle skyrocketing prices.

Energy ministers at an emergency meeting in Brussels indicated they are in favour of the move which would see market intervention never-before seen in the European Union. Ireland has traditionally been opposed to such market tinkering but that position appears to be changing.

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“We cannot be ideological, we have to intervene,” said Minister for the Environment, Climate and Communications Eamon Ryan on his way into the meetings. “The big interference here is the Russian government. The measures proposed do retain an open market.” 

Last week, Electric Ireland announced it will increase residential electricity bills by 26.7% and residential gas bills by 37.5% with effect from October 1, 2022. Their price hike was followed quickly by another from Bord Gáis and Energia.

“We have to be honest with consumers,” said Ryan. “We can’t cushion the full blow. We need to cushion some of it.” 

At Friday’s meeting, EU energy ministers agreed that Brussels should put forward proposals on a potential tax on the profits of energy companies, including low-cost production from solar, wind and nuclear, and redistribute that wealth to households struggling with high energy bills.

They also agreed to receive proposals on how the EU could inject liquidity into energy markets as well as on targets to reduce the use of electricity at peak hours.

The EU Commission accepted that member states favour voluntary reductions and are against binding energy reduction targets, but the EU executive's preference is for mandatory reductions and the proposal adopted next week may reflect that. In that case, national governments would have to make sure households and companies reduce electricity consumption during peak hours, or risk getting fined by the Commission.

Price cap

The decision by the ministers in Brussels to task the European Commission to draw up a cap on all gas imports is seen as a way to avoid a potential Hungarian veto on only targeting Russia.

That may need the full unanimity of all 27 EU countries whereas a broad price cap could be agreed in the EU by the approval of a majority of countries.

"The price cap [against Russia] is a hidden energy sanction,” said Hungary’s pro-Russia Foreign Minister Peter Szijjarto at the energy council. “We have made it clear that we are not even willing to negotiate energy sanctions."

The Russian President Vladimir Putin has already said that Moscow will cut all gas to Europe if a cap were applied by the EU.

EU Energy Commissioner Kadri Simpson, now tasked with drawing up the proposal, said the cap is intended to "hit Putin's coffers and not allow Russia to maintain revenue despite cutting supply."

“If the purpose of our policy is to counter Russia’s manipulation of gas deliveries to Europe, it makes sense to only target Russian gas,” said Simpson. “At this stage nothing is off the table.” 

Earlier this week, Moscow halted supplies of gas into the EU through the Nordstream 1 pipeline in retaliation to EU sanctions. Since Russia’s invasion in Ukraine, EU countries have reduced gas imports from Russia from 40% down to 9% collectively.

The EU was also keen to highlight that gas supplies have been secured through the winter after countries managed to exceed a target of filling gas storage facilities to 80% - a goal which was reached at the end of August.

Decoupling gas and electricity

One measure which did not get approval at the meeting of energy ministers was the idea of decoupling of gas and electricity prices in the European Union - long-favoured by countries like France and Spain.

The EU energy market works on a system whereby all producers of electricity - whether wind, solar, nuclear or fossil fuel - offer their energy to the market at a price based on production costs. Many EU member states still rely on fossil fuels for their electricity so its price is largely controlled by the price of natural gas.

National governments could have to make sure households and companies reduce electricity consumption during peak hours. File photo

Economic experts like Jacob Kirkegaard from the German Marshall Fund warn that decoupling may seem desirable in the short-term but could affect the green transition long-term.

“You risk undermining incentives for private investors. The current gas price spike is not likely to last more than a couple of years, after which we will have shifted away from the emergency measures of previously mothballed coal/gas powered power generation” Kirkegaard told the Irish Examiner.

“Many will argue that you should not change the market pricing system fundamentally for a crisis that only will last a couple of years - though this of course is a lifetime in politics.” Ireland remains largely reliant on the UK for its gas supply, not from fellow EU countries, but is directly affected by surging prices.