In a first draft of emergency measures against the high electricity prices, the European Commission advises against an EU-wide gas price cap. The Brussels authority has analyzed a number of measures, including an extension of the gas price cap in Spain and Portugal to all of Europe, according to the draft available to the German Press Agency.
“Most of these options would not be suitable as they would lead to an increase in electricity and gas demand and pose a risk to security of electricity supply,” it said. Instead, the Brussels authority relies on energy-saving measures and wants to redistribute some of the profits from energy companies.
Specifically, the Commission makes three proposals: First, the demand for electricity should be reduced in a coordinated manner, similar to the gas savings targets of the EU. Second, the wholesale price of electricity produced from cheaper sources than gas – such as wind, solar, nuclear or coal – could be capped. Third, countries could collect and redistribute electricity companies’ profits that exceed this price cap to consumers – similar to an excess profits tax that the proposed measure would replace. The Commission cites direct payments to consumers, a reduction in surcharges and other interventions in retail prices as examples of redistribution.
Gas-fired power plants drive up the price of electricity
Due to the high demand, the price of electricity in Europe is currently given primarily by expensive gas-fired power plants that are used to produce electricity. Other energy companies that produce cheaper electricity, for example from the sun, make big profits because they can also sell their electricity at the higher price.
MEP Michael Bloss (Greens) commented that the Commission finally dared to tackle energy companies’ excess profits. “We are finally creating the basis for the urgently needed European energy money.” His colleague Markus Ferber (CSU), on the other hand, complained that the authority could not offer a quick solution to limiting electricity prices without jeopardizing the security of supply. “Saving electricity alone is not enough,” he said.
The discussion paper is to be discussed at a meeting of energy ministers next week. Commission President Ursula von der Leyen could then make a concrete proposal in her State of the Union address on September 14.
Spain lowers VAT on gas
Meanwhile, Spain’s Prime Minister Pedro Sánchez has announced further financial relief for his country’s citizens in the face of the energy crisis and inflation. In an interview with radio station Cadena Ser on Thursday, the socialist politician said his government will initially reduce VAT on gas from October to the end of December this year from 21 percent to five percent. Depending on the situation, the measure could be extended next year.
Sánchez emphasized that his government is not considering any restrictions on energy consumption next winter, despite the “very uncertain situation” caused by the Ukraine conflict. Spain is in a better position than other EU countries, which are more dependent on Russian gas supplies. Finance Minister María Jesús Montero said that because of the announced tax cut, the state would take 190 million euros less in the last quarter.
After an initial relief package in spring amounting to 16 billion euros, Madrid extended several measures until December 31 in early summer and announced further aid totaling nine billion. These include a reduction in VAT on electricity from ten to five percent, reductions in local public transport subscription rates by 30 to 100 percent, a 15 percent increase in lower old-age and disability pensions and a special payment of 200 euros for people with disabilities Annual income of less than 14,000 euros.
In July, Sánchez then announced a special tax on “war profits” from banks and energy companies. As a result, an additional seven billion euros should flow into the state coffers over the next two years. He also wants to use all of this money for social spending and “do everything to protect the middle class and the workers” from the consequences of the Ukraine war, the energy crisis and inflation.
