The head of the EU executive, has set out plans for windfall taxes, mandatory electricity savings and a cap on the price of Russian gas to limit Kremlin revenues used to finance the “atrocious” war in Ukraine.
Ursula von der Leyen outlined a five-point plan in response to an energy price crisis, driven by the Russian shutdown of the key Nord Stream 1 pipeline but exacerbated by the climate crisis and lingering effects of the Covid pandemic.
Low-carbon energy companies, renewable and nuclear suppliers that have reaped “enormous revenues … they never dreamed of” from generating electricity will face a cap on their revenues, Von der Leyen said, with proceeds earmarked to help 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 all-time-high gas prices, low-carbon electricity generators have been rewarded with a big increase in income.
“These revenues do not reflect their production costs,” Von der Leyen said. “So it is now time for the consumers to benefit from the low costs of low-carbon sources.” The commission, she said, proposed “to re-channel these unexpected profits” to allow member states to support vulnerable households and companies.
Oil and gas companies that have made “massive profits” would also be subject to a windfall tax, which Von der Leyen called a “solidarity contribution”.
While she did not mention specific numbers, a leaked document seen by the Guardian shows the commission wants a €200 (£173) per megawatt hour limit to the price of electricity generated by low-carbon technologies. The paper states this “mimics the market outcomes that could be expected were global supply chains functioning normally and not subject to the weaponisation of energy through gas supply disruptions”.
The leaked document also reveals that the EU executive wants a mandatory 5% reduction in electricity use in peak hours. This echoes an earlier plan for gas savings, although EU member states decided those efficiency measures should be voluntary, raising questions about whether they will accept a mandatory target.
Finally, Von der Leyen proposed a cap on the price of Russian gas, saying it was necessary to cut revenues that “Putin uses to finance his atrocious war in Ukraine”.
The EU has spent nearly €88bn on Russian fossil fuels since the invasion began on 24 February, according to a tracker from the NGO Europe Beyond Coal.
The plan to cap Russian gas ran into immediate opposition from the Czech Republic’s industry minister, Jozef Síkela, who is due to chair an EU crisis meeting on Friday. “It’s not a constructive proposal,” he told the Czech senate, adding that it looked like further “sanctions against Russia [rather] than an actual solution to the energy crisis in Europe”.
Criticising the plan from a different angle, Poland argues the bloc should cap the price of all non-EU gas as it fears that targeting Russia will trigger retaliation that will deprive Ukraine of lucrative pipeline transit fees.
Speaking in Vladivostok, Vladimir Putin dismissed attempts to cap the prices of oil and gas as “completely stupid” and “sheer nonsense”, while claiming that Russia had enough customers in Asia to ride out the damage. “Will they make political decisions contradicting contracts?” he said. “In that case, we won’t supply anything if it goes against our economic interests. We don’t supply anything: no gas, no oil, no coal, no heating oil, nothing.”
Asked about his comments, Von der Leyen said Russia had already partially or completely cut off gas to 13 EU member states. “We don’t give anything any more on these announcements by Russia, because we know they’re blackmailing us. The best thing is to fortify ourselves and go towards other suppliers. And have solidarity.”
The Kremlin-controlled state energy company Gazprom announced last Friday it would not be restarting gas flows through Nord Stream 1, the biggest pipeline connecting Russia and Europe. While Gazprom blamed “malfunctions” in a turbine along the pipeline, the Kremlin later said it would not resume full gas supplies until Europe lifted sanctions imposed in response to Russia’s brutal invasion of Ukraine. Before the recent shutdown, gas deliveries from Russia to the EU had fallen to 30% of the 2016-21 average.
Even before the war, Europe was already facing spiralling gas prices as Chinese demand for fuel surged in the economic rebound after the pandemic. Problems have been compounded by the record-breaking hot dry summer that has pushed up demand for air-conditioning, while reducing hydropower from rivers and reservoirs. Meanwhile half of France’s ageing fleet of nuclear reactors have been forced offline because of corrosion problems in key pipes and safety checks, reversing the country’s traditional role as exporter of electricity to its neighbours.
Von der Leyen said the EU was seeing the effects of climate change and drought and described renewables as “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 has been accused of a slow response to the energy price surge – is due to discuss the plans with the bloc’s ambassadors on Wednesday, before further diplomatic talks.
