Image Source: Bloomberg
To combat rising costs, EU Commission President Ursula von der Leyen has called for reductions in electricity use across the union as well as windfall taxation on energy companies.
She informed the European Parliament that gas and power prices had reached record high following Russia’s invasion of Ukraine.
She demanded a minimum 5% reduction in peak electricity use.
However, proposals to control the price of natural gas, a significant Russian export to the EU, were postponed.
The Strasbourg plan calls for skimming off low-carbon electricity companies’ earnings and imposing a de facto windfall tax on the oil, gas, and coal industries to raise “excess revenues.”
Families and businesses in all 27 EU member states will benefit from the anticipated €140 billion (£121 billion; $141 billion) in funds raised.
Companies that produce electricity from low-carbon sources, including wind, solar, and nuclear, would have their revenue capped at €180 per megawatt-hour (MWh).
In contrast, the front-year electricity price in Germany, the EU’s largest economy, was trading at slightly under €500/MWh on Wednesday.
According to Vice-President of the European Commission Frans Timmermans, “power generators with lower operational costs have been able to harvest enormous profits, much above what may have fairly been expected based on investment decisions.”
The windfall tax on producers and refiners of fossil fuels would entail them paying 33% of their taxable surplus earnings.
The EU’s member states will carefully consider the recommendations to reach a decision by the end of this month.
In addition, Ms. von der Leyen declared that she would return to Ukraine on Wednesday to meet with President Volodymyr Zelensky.
Olena Zelensky, the wife of Mr. Zelensky, attended the speech as a guest of honor in the legislature.
Making ends meet is “becoming a source of anxiety for millions of enterprises and people,” according to Ms. von der Leyen.
Since the imposition of broad sanctions in the spring, Russia has mostly avoided the anticipated economic collapse. Instead, it has softened the damage with money from gas and oil sales.
Since June, Ukraine has been recognized for membership in the EU.
It recently launched a counteroffensive to push back Russian soldiers, and this month, it reportedly regained thousands of sq km of terrain in the east and south.
The EU imposed broad sanctions in response to the invasion, and Russia, a major energy provider, is engaged in a bitter economic war.
40% of the gas imported by the EU before the invasion came from Russia. Since then, it has decreased to less than 10%.
Gas prices in Europe this summer were around ten times higher than they had been on average over the previous ten years.
High gas costs also result in higher power bills because some of the gas is burned to produce electricity.
According to Ms. von der Leyen, EU member states were able to build up their winter gas supplies to 84% of capacity well before the deadline in October.
She listed the US, Norway, and Algeria as “reliable” gas sources.
She also disclosed plans to establish a European Hydrogen Bank to encourage investments of up to €3 billion in that fuel as a green substitute for fossil fuels.
The EU is unwavering in its decision to cut electricity use
The topics covered in a State of the Union speech are often broad, and this one was no exception. However, the situation has undoubtedly drastically changed since Ursula von der Leyen’s previous address a year ago.
The consequences of Russia’s invasion of Ukraine have made the energy crisis the main problem facing the bloc at the moment. Deeper, longer-term energy market reforms are being discussed, but from what I hear, those won’t be ready until the next year.
The immediate solutions to high prices focus on reducing usage and imposing de facto windfall taxes on energy companies.
Read Also: Germany approves new methods to save energy
The head of the European Commission wanted to emphasize how determined Europe is this winter. She stated that sanctions on Russia were “here to stay.” Though its government and people will eagerly follow promises of bringing Ukraine closer to the EU’s orbit and economy, doubts still linger about the EU’s willingness to apply harsher sanctions against President Putin.