The European Commission has presented plans to tax extra profits of energy companies and reduce power consumption to cut electricity and gas prices that have skyrocketed following Russia’s invasion of Ukraine.
EU sanctions on Russia – to which Moscow has responded by cutting gas supplies – have dramatically increased energy prices, placing European households and businesses under financial strain.
At an emergency meeting last Friday, EU energy ministers asked the European Commission to flesh out initial proposals to reduce energy consumption and tax extra profits by energy companies, in order to support the most vulnerable people across the EU.
This week’s proposals will have to be endorsed by EU ministers at another meeting on September 30th.
Meanwhile, national governments have also been taking action – both to cut their energy usage to avoid blackouts and to help households deal with rising costs through caps on energy bills and more general financial aid.
Here’s what is being planned this winter;
1) Taxes on energy companies’ excess profits
The Commission has proposed a temporary ‘solidarity contribution’ on excess profits made by companies in the oil, gas and coal sectors.
Because of gas price increases “these companies are making revenues they never accounted for, they never even dreamed of,” European Commission Ursula von der Leyen said, speaking at the European Parliament.
“In these times it is wrong to receive extraordinary record profits benefiting from war and on the back of consumers,” she argued.
National governments would therefore collect 33 percent on 2022 profits, above a 20 percent increase on the average profits made in the previous three years. The Commission is also proposing to cap temporarily the revenues of companies in the renewables, nuclear and lignite sector, which have lower costs and have also been making “exceptional” earnings because energy prices are tied to the gas price.
The Commission has proposed to set the revenue cap at €180 per megawatt hour, an amount that would not hit investments, with the extra collected by national governments.
These windfall taxes are expected to generate €140 billion, which should be redirected to energy consumers, “in particular vulnerable households, hard-hit companies and energy-intensive industries,” the Commission said.
2) Energy rationing
Under the Commission proposal, EU countries will have to reduce electricity use by at least 5 percent at peak times, when prices are the highest.
Each country will have to identify peak hours and determine ways to cut consumption. The Commission also proposes that EU countries reduce overall electricity demand by at least 10 percent until March 31st 2023.
3) Reform of the electricity market
Ursula von der Leyen also promised a “deep and comprehensive” reform of the electricity market, which would allow for the first time below-cost regulated electricity prices to help consumers and small businesses, with possible compensation for producers.
The Commission also wants to decouple the prices of gas and electricity and the temporary introduction of state aid to help energy utilities hit by the volatility of the market.
4) Diversification of energy sources
Earlier in the year, the EU had already adopted the ‘REPowerEU’ plan which seeks to reduce energy consumption by 15 percent and accelerate investments in renewable energy. The Commission announced on Wednesday the creation of a new bank to promote investments in hydrogen.
5) Gas storage
EU countries had also agreed to fill gas storage sites ahead of winter, securing supplies from countries such as the US, Norway, Algeria and Azerbaijan.
The Commission says the bloc’s gas reserves have hit 84 percent of capacity ahead of the October deadline and EU imports of Russian gas are down to 9 percent from 40 percent in March.
Meanwhile, many national governments have also taken their own measures to deal with the crisis.
6) Cap on energy prices
Countries such as Austria, France, Denmark and Spain have capped gas and electricity prices and France intends to fully nationalise power company EDF (which is already 83 percent state-owned) to force it to take the hit.
At the EU level, energy ministers have so far failed to agree a temporary cap on the gas price, opposed mainly by Germany and the Commission because it could put at risk supplies from other countries. A cap on Russian gas only, on the other hand, would penalise EU countries that are more dependent on Moscow.
7) Bilateral agreements
In a show of solidarity, France and Germany have agreed to support each other should they struggle with supplies this winter. French President Emmanuel Macron said France could deliver gas to Germany and Germany could contribute electricity to the French grid during peak hours.
8) Cash payouts
Countries such as Austria, Denmark, France, Germany, Italy and Sweden have already started to support households with cash payouts to the most exposed to the crisis, including low-income families, pensioners and students.
9) Tax relief and social security support
Several countries, including Austria, France, Italy, have reduced or paused taxes and levies on gas and electricity to help cut bills.
In order to help people deal with inflation and rising household bills, there is also a wide variety of financial aid – Austria also de-taxed employee bonuses up to €3,000; Germany reduced social security contributions for people with a monthly income below €2,000 and increased child allowances; France, Italy and Sweden raised benefits; Spain increased the amount of scholarships, grants and subsidies for students.
9) Campaigns to reduce energy consumption
Most countries are also trying to reduce energy consumption in public buildings and in the home. Austria aims to cut energy consumption by 11 percent and with the campaign “Mission 11” hopes to convince people to turn down the heating by two degrees, switch off devices and take a shower instead of a bath. A similar campaign was organised in Denmark over summer.
In France the aim to to lower the country’s total energy usage by 10 percent – the full energy-saving plan has not yet been finalised but among the measures already in place are – lowering the temperature in public swimming pools by one degree, to 25C; heating in public buildings will be limited to 19C while air-con cannot be lower than 26C; cities including Paris and Lille will stop lighting up public buildings at night (the Eiffel Tower will go dark at 11.45pm instead of 1am).
Spain has also set a limit of 27C for air-con in public buildings and shops and a heating limit of 19C with shops switching off window lights at 10pm.
10) Public transport
For summer, until the end of August, Germany allowed citizens to travel for a month on all buses, trams, metros and regional trains with a €9 ticket.
The extension of the programme, at a higher price, is currently in discussion. Spain introduced free travel on commuter trains for frequent users between September 1st and December 31st, with discounts available for other trains.
These measures were meant to reduce both transport costs and fuel consumption. Other measures by Germany, France, Italy, Spain and Sweden focused on cost reduction cutting taxes on petrol and compensating motorists. Sweden extended incentives for the purchase of electric vehicles to cut dependence on imported fossil fuels.
Italy planned to fund measures with a 10 percent windfall tax on energy companies.