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    Europe open to taxing renewables windfall profits but stuck on Russian gas cap


    September 9, 2022 - CE Noticias Financieras

     

      The vertiginous spiral of energy prices does not lend itself to high-risk ordagos. The European energy ministers meeting this Friday in Brussels for an extraordinary session are preparing to put aside the most "political" and thorny proposals, such as the idea of setting a price for Russian gas, to try to expedite a minimal but urgent list of measures that can be approved and implemented in a matter of weeks. Among the ideas that could go ahead are taxing the extraordinary benefits of renewable energies, agreeing on a reduction of electricity demand and approving liquidity and rescue mechanisms for energy companies, according to agreed sources.

      In recent days, the idea of taxing in some way the windfall or extraordinary profits of the so-called infra-marginal energies (renewables and nuclear) has been gaining ground. Brussels wants to redirect the pockets of the most vulnerable households and companies with revenues that companies in the sector "never dreamed of" and that "do not reflect their production costs", in the words of Commission President Ursula von der Leyen.

      In the preparatory meetings with representatives of the EU-27 there has been a "good atmosphere" to agree on some kind of tax on these energies - an issue that Spain already put on the table almost a year ago - which contribute to the final price of the electricity bill, corroborated on Thursday a senior Community source who has followed this week's meetings in Brussels. Hence, it is very likely that a mandate in this sense will come out of the Brussels meeting this Friday, although nobody dares to say yet if it will be a mere idea or if it will be detailed how to do it.

      A Commission draft set a maximum price of 200 euros per megawatt hour (MWh) of electricity. The figure, which some consider too high, was eventually withdrawn from the proposal. There are those who, for their part, advocate direct taxation of these so-called "windfall profits". If a high ceiling is finally chosen, the possibility of taxing the rest of the income would not necessarily be exclusive, say EU sources.

      Although the climate is not necessarily entirely favorable, it is possible that Spain will take advantage of the meeting to propose applying the electricity pricing mechanism currently used on the peninsula: the so-called Iberian exception. This idea had been ruled out in one of Brussels' drafts on the grounds that this type of measure subsidizes the generation of electricity with fossil fuels and could, therefore, "hinder efforts to reduce their use".

      The Commission also advocates asking for a "temporary solidarity contribution" to fossil fuels - the European executive is very careful not to talk about taxes. This has not been discussed at the preparatory meetings, but, in view of the favorable atmosphere for this type of levy, it is very likely that it will end up being included in the final package.

      Similarly, there should be no major problems for the EU-27 ministers to give their approval to the idea of encouraging a reduction in electricity demand, as is already the case for gas. What remains untouched for the moment - it remains to be seen whether the ministers will discuss it or whether it will pass to a second stage of negotiations - is the format of the measures: in its draft, the Commission speaks of a mandatory reduction of electricity consumption at peak times of at least 5% and a commitment by the States that they will also try to reduce generalized monthly net electricity consumption by 10% (compared with the period used as a reference). But several countries have already warned, among other things, that peak demand hours and peak prices do not always coincide, so the mechanisms would need to be adjusted.

      EU sources also say that the idea of approving liquidity and rescue mechanisms for energy companies that are too exposed to market volatility should end up on the list of measures entrusted to the Commission for final preparation.

      The idea is that Von der Leyen will outline them in her annual speech at the opening of the political year before the European Parliament in Strasbourg next Wednesday. The Czech EU presidency does not rule out a further extraordinary meeting of energy ministers to speed up the final approval of the emergency measures, which should be ready for implementation in the first weeks of October at the latest.

      However, the speech of the President of the Community Executive could have a bitter aftertaste. The decision not to act on the limitation of Russian gas is a political slap in the face for the President of the Commission. The German had personally decided to make an ordago to Moscow's gas blackmail by imposing a maximum price on gas imports. In the last few hours, however, too many countries have more or less openly shown their reluctance to take this step, among them giants such as Germany or, more explicitly, Belgium, whose Energy Minister, Tinne Van der Straeten, described the measure as too "political". "Our intention is first and foremost to lower prices. A cap alone on Russian gas is not going to lower prices. It is purely political," he said in an interview with Reuters.

      "At the moment, there seem to be more member states against the measure than in favor," a senior EU source corroborated on the eve of the ministerial meeting. That does not mean, he stressed, that the issue will be taken off the table. But it is not part of the "immediate tasks" that the countries should entrust to the Commission this Friday, he explained.

      The image to be conveyed from Wednesday's meeting is, above all, one of "unity" in the face of Putin's attempts to divide the EU-27 in the face of a complicated winter. "It is very important that we show unity between states and institutions, it is important to send this signal to the markets and to the world that we are prepared, that we have a plan and that, after painful discussions and exercises, we have a fairly solid opinion on what needs to be done", European officials stress. And all this has to be done quickly. The cold is coming.

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