The European Commission will analyze the potential impacts of imposing a bloc-wide tax on windfall profits made by energy companies, as governments grapple with how best to cushion a price shock going into winter.
The European Union’s executive branch told a meeting of finance ministers in Luxembourg Friday that it would look into the feasibility of using a regional windfall tax to provide relief to citizens, according to people familiar with the matter. That follows calls from several member states, including Germany, to examine such an initiative.
During the energy crisis that followed Russia’s invasion of Ukraine, the EU introduced a revenue cap on so-called inframarginal electricity producers, like wind and solar. But the measure fell well short of a €50 billion ($56 billion) collection estimate, and triggered court cases that the EU is still dealing with, according to EU Climate Commissioner Wopke Hoekstra.
“You always need to look at the full solution space,” Hoekstra told reporters when he arrived for Friday’s meeting. “It is not without complications,” he said, adding that a number of member states were opposed to such a tax.
The Iran war has disrupted oil and gas flows through the Strait of Hormuz, leading to a sharp increase in the price of products like diesel. Governments across the 27-member bloc are grappling with how to cushion the blow to consumers and businesses at a time when many countries are already facing fiscal constraints.
In a letter earlier this year, Germany, Portugal, Spain, Austria, Italy and Poland called on the EU to put forward a windfall tax to ease the shock. German Finance Minister Lars Klingbeil also said that France wasn’t opposed .
“We can see how refineries and oil companies are profiting from this crisis, while consumers are ultimately the ones bearing the burden,” Klingbeil said on Thursday. “I have a clear expectation that the commission will now put proposals on the table.”
Lowering energy prices is set to be a key topic for discussion among EU leaders at a summit in Brussels next week. But there are few obvious solutions given that the bloc is reliant on imports for the vast majority of its fossil fuel demand. The commission has already said that member states could implement a windfall profit cap at a national level.
A split among member states is also likely to be reflected within the commission. EU energy chief Dan Jorgensen told Bloomberg in Copenhagen that he doesn’t support a bloc-wide approach.
We “stand ready to help develop models and look at best practices, but it is something that member states need to decide for themselves,” he said.