The head of the EU’s executive has outlined plans to introduce windfall taxes, mandatory energy savings and a cap on the price of Russian gas to limit the Kremlin’s revenue, which is being used to fund the “horrific” war in Ukraine.
Ursula von der Leyen has outlined a five-point plan to respond to the energy price crisis caused by Russia’s shutdown of the key Nord Stream 1 pipeline, but exacerbated by the climate crisis and the lingering effects of the Covid pandemic.
Low-carbon companies, renewable and nuclear energy providers that have made “enormous profits … that they never dreamed of” from power generation will be taxed on windfall profits, von der Leyen said, and the proceeds will go to helping domestic consumers and companies pay “astronomical” bills. .
Under EU energy rules, the price of electricity is determined by the cost of the most expensive fuel, usually gas, rather than cheaper renewables and nuclear power. As a result of the unprecedentedly high gas prices, low-carbon electricity generators have received a significant increase in income.
“These revenues do not reflect their production costs,” von der Leyen said. “So now is the time for consumers to benefit from the low cost of low-carbon sources.” The commission proposed to “redirect these windfalls” to allow member states to support vulnerable households and companies, she said.
Oil and gas companies that have made “enormous profits” will also be taxed on windfall profits, which von der Leyen called a “solidarity contribution”.
Although it did not give specific figures, a leaked document seen by the Guardian shows the commission wants to cap the cost of electricity generated by low-carbon technologies at €200 (£173) per megawatt hour. The paper says this “simulates market outcomes that would be expected if global supply chains were functioning normally and not being weaponized by energy through gas disruptions.”
The leaked document also shows that the EU executive is demanding a mandatory 5% reduction in electricity consumption during peak hours. This echoes an earlier plan to save gas, although EU member states have decided that these efficiency measures should be voluntary, raising questions about whether they will adopt a binding target.
Finally, von der Leyen proposed capping the price of Russian gas, saying it was necessary to cut the revenues that “Putin is using to finance his brutal war in Ukraine.”
The EU has spent nearly €88 billion on Russian fossil fuels since the invasion began on February 24, according to an NGO tracker Europe Beyond coal.
But the cap on Russian gas is likely to be contested by some EU member states. Poland argues that the EU should cap the price of all non-EU gas: it fears that an attack on Russia would trigger retaliatory measures that would deprive Ukraine of lucrative pipeline transit fees.
Speaking in Vladivostok, Vladimir Putin dismissed attempts to cap oil and gas prices as “stupid” and “pure nonsense”, while saying Russia had enough customers in Asia to survive the damage. “Will they make political decisions that contradict the contracts?” he said. “In that case, we will simply stop the supply if it is against our economic interests. We do not supply gas, oil, diesel, or coal.”
Asked for comment, von der Leyen said Russia had already partially or completely cut off gas to 13 EU countries. “We no longer give anything to these statements of Russia, because we know that they are blackmailing us. It is best to back up and go towards other providers. And be in solidarity.”
Kremlin-controlled state energy company Gazprom announced last Friday that it would not resume the flow of gas through Nord Stream 1, the largest gas pipeline connecting Russia and Europe. While Gazprom blamed “malfunctions” in a turbine along the pipeline, the Kremlin later said will not resume full gas supplies until Europe lifts sanctions introduced in response to Russia’s brutal invasion of Ukraine. Prior to the recent shutdown, gas supplies from Russia to the EU had fallen to 30% of their 2016-21 average.
Europe existed even before the war is already facing spiraling gas prices as Chinese demand for fuel rose as a result of the economic recovery from the pandemic. The problems were compounded by the fact that record hot dry summer this boosted demand for air conditioning while reducing hydropower from rivers and reservoirs. Meanwhile, half of France’s aging fleet of nuclear reactors was forced to shut down due to corrosion problems in key pipes and safety checks, upending the country’s traditional role as an exporter of electricity to its neighbors.
Von der Leyen said the EU was seeing the effects of climate change and drought and called renewable energy “our energy insurance for the future”.
The long-awaited plans will be discussed by EU energy ministers in emergency talks on Friday. Von der Leyen – who was accused of slow reaction to the rise in energy prices – it is planned to discuss these plans with the bloc’s ambassadors on Wednesday before further diplomatic talks.