EU chief proposes energy market reform, $140bn revenue cap

Energy market reforms include the taxation of energy companies and decoupling gas prices from overall electricity bills.

European Commission President Ursula von der Leyen
European Commission President Ursula von der Leyen delivers a speech on the State of the European Union as part of a plenary session in Strasbourg, eastern France, on September 14, 2022 [Yves Herman/Reuters]

Ursula von der Leyen, the president of the European Commission, has unveiled a legislative proposal to impose windfall levies worth $140bn on energy companies, in a bid to lessen the effects of surging gas and electricity prices that threaten economies and households this winter.

In her State of the European Union speech addressing the plenary session of the European Parliament in Strasbourg, von der Leyen outlined a structural reform of the European energy market that has been under serious strain following Russia’s invasion of Ukraine.

“In these times, profits must be shared and channelled to those who need it the most,” von der Leyen said, explaining that paying bills has become “a source of anxiety for millions of businesses and households” after gas prices have risen 10 times in the past two years.

Her speech came after Russia said earlier this month it would not reopen its main Nord Stream 1 pipeline to supply Europe – the latest in a string of supply cuts, which Moscow blames on Western sanctions imposed over its invasion of Ukraine.

The European Commission proposes to cap the revenues of companies that produce electricity at low costs, which will “raise more than €140bn ($140bn) for member states to cushion the blow directly”, von der Leyen asserted.

Fossil fuel companies will also have to give a “crisis contribution” because of their “huge profits”, she added from the French city.

EU energy ministers are due to meet on September 30 to discuss the commission’s proposals.

A draft law seen by dpa news agency would impose a revenue cap of 180 euros ($180) per megawatt hour (MWh) on companies that generate electricity from cheaper sources than gas, including renewables, nuclear or coal.

As an important difference from her previous proposals, von der Leyen dropped the idea of limiting the price of natural gas, but she promised to “keep working on lower gas prices”.

“We have to decouple the dominant influence of gas on the price of electricity,” she said, suggesting instead a “deep and comprehensive reform of the electricity market”.

Electricity prices in the EU have risen sharply due to high gas prices, as electricity prices are determined by the most expensive energy source needed for its production.

Thomas O’Donnell, a lecturer at the Hertie School of Governance, described von der Leyen’s proposal as making “perfect sense” as “a wartime measure”.

“If you need more electricity, you buy the highest price fuel, and right now that’s natural gas,” he told Al Jazeera. “It’s astronomically high, so that pushes up the price of all of the electricity, and all of the companies get that high price”.

The European Commission wants to “take that away, especially from nuclear and renewable companies, and distribute it to consumers who have to pay these high prices – and also to certain companies who are under the threat of going bankrupt”, O’Donnell said.

The draft EU proposal also called for a mandatory target for countries to cut electricity consumption this winter, in a move aimed at ensuring Europe has enough fuel to last the colder months.

In her speech, von der Leyen also said the European Commission would authorise temporary state aid for European businesses to balance the effects of volatile energy markets.

Addressing the wider context of challenges for the European economy, she stressed the bloc had to secure its own supply of lithium and other rare earth elements because “soon they will become more important than oil and gas.”

Source: Al Jazeera and news agencies