EU agrees to tax windfall oil and gas gains amid

EU agrees to tax windfall oil and gas gains amid ‘mad race’ to resolve energy crisis

London CNN Business —

EU governments on Friday agreed to tax windfall profits from oil and gas companies and cap revenues from some power producers as the costs of Europe’s energy crisis mount.

But energy ministers from the 27 EU member states failed to reach agreement on a European Commission proposal to introduce a price cap on imports of Russian natural gas. The energy crisis was largely triggered by Russia’s invasion of Ukraine

“We still don’t have a consensus on this step,” says Kadri Simson, the European Commission’s top energy official said in a news conference on Friday.

United Nations Secretary-General António Guterres last week accused the oil and gas giants of “luxuriating in subsidies and windfall profits worth hundreds of billions of dollars while budgets shrink and our planet burns.” He called on rich economies to impose windfall taxes to fund aid for people struggling with energy bills and for countries hit by the climate crisis.

Claude Turmes, Luxembourg’s energy minister, said Europe must find alternatives to the “insane race” between countries trying to outbid each other to protect consumers and businesses from painful increases in their bills.

He spoke less than 24 hours after the federal government announced it would borrow 200 billion euros ($195 billion) to help lower energy bills, including capping natural gas prices for homes and businesses.

“It sends the wrong signal because it looks like Germany is using its fiscal powers to subsidize gas consumption in Germany at the expense of gas consumers in other parts of Europe,” said Jeromin Zettelmeyer, director of Bruegel, a Brussels-based company think tank, opposite CNN Business.

According to Bruegel, Germany’s borrowing adds to the €530 billion that European governments and the UK have pledged so far to protect consumers from unpayable increases in their bills.

This total of 730 billion euros ($712 billion) covers spending commitments made since September 2021 – when global energy prices started to rise – and includes some measures taken to address other cost-of-living pressures.

Great Britain is also planning a credit spree to contain the energy crisis. Last week Finance Minister Kwasi Kwarteng said a plan to freeze energy bills for households and businesses would cost £60 billion ($66 billion) for the first six months alone.

But the total cost of the price cap – – which will take two years for households – could amount to around £150 billion ($166 billion), a number included in Bruegel’s analysis, according to some experts.

The price will be funded entirely by additional government debt, a spokesman for Britain’s Treasury Department told CNN Business on Friday.

Measures agreed by EU energy ministers on Friday include a mandatory cut in electricity demand, a cap on revenue for some non-natural gas generators and a tax on windfall profits of fossil-fuel companies that the commission hopes will hit £140 billion raise dollars.

Retail energy prices are expected to rise 40.8% in September in the 19 countries using the euro, up from 38.6% in August, the EU statistics office said on Friday.

The wholesale cost of gas – which feeds directly into the retail price for heating and electricity paid for by consumers – started to rise last fall as economies opened up from their pandemic lockdowns, prompting a surge in demand.

But Russia’s invasion of Ukraine at the end of February and the resulting energy standoff between Moscow and the European Union pushed the European reference price for natural gas up 327% year-on-year.

Rising energy prices are driving up costs across the economy and weighing on growth.

Eurozone inflation hit a record high in September, buoyed by energy prices.

Consumer prices in the 19 countries that use the euro rose 10% from the same month last year – the highest rate of inflation in the currency’s 25-year history.

The European Central Bank hiked interest rates by a record 0.75 basis points earlier this month to rein in price spirals and could do so again at its next meeting in October.

The Organization for Economic Co-operation and Development forecasts that food and energy price shocks will reduce economic growth in Europe by more than 1.25 percentage points next year.

“This would push many countries into a full-year recession in 2023, while GDP growth would also be weakened in 2024,” the OECD said in a report earlier this week.

– Eve Brennan, Xiaofei Xu and Livvy Doherty contributed coverage.