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Energy windfall levies and gas price caps supported by EU

Energy windfall levies and gas price caps supported by EU

October 03, 2022: -On Friday, European Union countries agreed to impose emergency levies on energy companies’ windfall profits. They began talks on their next move to tackle Europe’s energy crunch, possibly a bloc-wide gas price cap.

Ministers from the 27 EU member countries encounter in Brussels on Friday. They approved measures to contain an energy price surge stoking record-high inflation and threatening a recession.

The package contains a levy on fossil fuel companies’ surplus profits in the coming year, another levy on excess revenues low-cost power producers make, which soars electricity costs, and an almost 5% cut in electricity use in the peak price periods.

With the deal done, countries started talks morning on the EU’s next move to contain the price crunch, which majority of the countries want to be a broad gas price cap, though others remain opposed.

“All these temporary measures are well, but to find the solution to help our citizens in this energy crisis, capping the gas price,” Croatian economy minister Davor Filipovic added on his arrival at Friday’s meeting.

This week, fifteen countries, including France, Italy, and Poland, asked Brussels to propose a price cap on all wholesale gas transactions to have inflation.

On Thursday, the cap should be “high and flexible enough to permit Europe is attracting the required resources,” Belgium, Greece, Poland, and Italy said in a note which explains their proposal. 

The countries are disputing the Commission’s claim that a broad gas price cap would require “huge financial resources” to finance emergency gas purchases should market prices break the EU’s cap.

Belgian energy minister Tinne Van der Straeten added that only 2 billion euros would be required. Most European imports decrease under long-term contracts or arrive by pipeline with no easy alternative buyers.

That would be 40 billion euros the EU expects its windfall profit levies on energy companies to raise.

But Germany, Austria, the Netherlands, and others warn of broad gas price caps to leave countries struggling which purchases gas if they cannot compete with buyers in price-competitive global markets.

A diplomat from one EU country added that the idea posed “risks to the security of supply” as Europe heads into winter with tight energy supplies following Russia’s slashed flowing to Europe in retaliation for Western sanctions regarding Moscow for intervening in Ukraine.

The European Commission has raised doubts and suggested the EU move ahead with narrower price caps, targeting Russian gas alone, specifically gas used for power generation.

“We have to present a price cap for all Russian gas,” EU energy policy chief Kadri Simson said.

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Energy windfall levies and gas price caps supported by EU