At this years State of the Union Address on 14 September 2022, Commission President Ursula von der Leyen announced an excess profit (windfall) tax for energy companies. This means levying the profits generated by the energy sector due to rising energy prices and redistributing them to consumers. On the same day, Vice President Frans Timmermans and EU Commissioner Kadri Simson presented the concrete draft regulation.
The third State of the Union Address by Ursula von der Leyen in her role as EU Commission President was dominated by the impact of the ongoing Russian war of aggression against Ukraine, whereby the main focus was on the dramatic developments in the European energy market, which in view of the coming winter will represent a great challenge to the EU and its Member States. She outlined the path of the EU Commission for the coming months, which should provide Member States with more than 140 billion Euro for necessary aid measures to support those who are most affected by the increasing energy prices.
Concrete proposal for a Council Regulation
The EU Commission’s proposal provides a temporary revenue cap for companies generating energy by renewable energies, nuclear energy or lignite. The proposed cap should be set at 180 Euro/MWh. According to the ideas of the EU Commission, any profits, exceeding this amount, will be skimmed off by Member States themselves and shall be returned to consumers.
In respect of companies, generating at least 75 % of turnover in the oil, gas, coal and refinery sector, the EU Commission proposes a temporary solidarity contribution. Member States shall skim off 33 % of profits, which exceed the average profits from 2019 to 2021, plus an allowance of 20 %. These surpluses shall also predominantly benefit consumers. However, they may also be used to promote investments in efficient, renewable energies.
Finally, the proposed set of measures by the EU Commission also provides for an obligation to reduce electricity consumption at peak hours by at least 5 %. Apart from that, non-binding guidelines apply to Member States, to reduce overall consumption by at least 10 % by the end of March 2023.
AK welcomes that the EU Commission has at last presented a proposal to skim off excess profits in the energy sector. AK has recently presented a concrete model as to how taxation of excess profits could be directly implemented at national level. However, that this skimming off should only apply until 31 March 2023, must be criticised the same way as the cap of 180 Euro/MWh. After all, the average electricity wholesale prices of the past years had always been below 70 Euro/MWh. Furthermore, the tax rate for fossil excess profits of 33 % is also too low, from AK’s point of view.
The regulation proposed by the EU Commission is a specifically regulated emergency instrument, meaning that it is solely up to the Council to adopt the proposal with a qualified majority. In this event, the EU Parliament, as it would usually be the case, is not involved as a co-legislator.
Further dossiers on the Green Deal in the EU Parliament
Apart from the keynote address by Ursula von der Leyen in the EU Parliament, the plenary also voted on some important dossiers on the Green Deal. Hence, the plenary adopted the report on the Regulation on deforestation-free products and those on the Directives on energy efficiency and on renewable energies. This ensured that the trilogue negations with Council and EU Commission can begin.
AK EUROPA Factsheet: Taxing excess profits
European Commission: 2022 State of the Union Address
European Commission: Proposal for a Council Regulation on an emergency intervention to address high energy prices
AK EUROPA: EU Parliament supports more ambitious targets for renewable energies and energy efficiency
AK EUROPA: EU law to ensure deforestation-free supply chains