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EU Leaders Poised to Support Taxing Windfall Energy Profits

EU Leaders Poised to Support Taxing Windfall Energy Profits

European Union leaders will likely give the political green light to a proposal by the bloc’s executive arm to consider a temporary tax on exceptional profits of some energy companies linked to surging gas and power prices.

The EU heads of government are due to debate during a two-day summit starting Thursday how to provide further relief to the most vulnerable consumers and to support the region’s companies amid an unprecedented energy crisis, aggravated by Russia’s invasion of Ukraine. They will discuss a set of solutions outlined by the European Commission to cushion the impact of the soaring prices, potentially endorsing the use of a new state aid crisis framework, according to a draft political statement seen by Bloomberg News.

“As proposed by the commission, temporary taxation of windfall profits can be a useful source of financing,” they may say in the statement, which could still change before being adopted.

The EU’s executive arm floated the option of such a tax in the past weeks, noting that the returns of some energy companies that don’t depend on gas -- and therefore aren’t facing extremely high production costs -- could be subject to special measures, with proceeds used to aid consumers.

Current market conditions could lead to excess profits of up to 200 billion euro ($220 billion) in the EU for gas, coal, nuclear, hydropower and other renewables in 2022, according to the International Energy Agency.

The leaders will probably stop short of endorsing intervention in the wholesale energy market, asking ministers instead to urgently analyze various short-term options, particularly decoupling power and gas prices. 

They may also pledge to phase out Europe’s dependence on Russian fossil fuels and start filling depleted gas reserves as soon as possible, backing a plan outlined by the commission to reduce imports from Moscow by almost two-thirds by the end of this year. Before the summit, the EU’s executive arm plans to put forward a regulatory proposal to ensure existing storage facilities in the region be filled up before the heating season.

“We need to act in a very urgent way to fill in the gas storage for the next winter,” Cristina Lobillo, the commission’s director for energy strategy, told members of the European Parliament’s environment committee on Tuesday. “This is why the European Commission is working to publish, probably tomorrow, Wednesday, a legal proposal to make compulsory a minimum level of gas storage for the next winter. And this figure could be at least 90% by the Nov. 1.”

EU members also plan to vow to work together with the commission on joint purchases of gas, LNG and hydrogen, according to the draft summit statement. The idea is to use the bloc’s leverage as the largest buyer of gas from pipelines in talks with international partners.

©2022 Bloomberg L.P.