London (CNN Business)The European Union wants to raise €140 billion ($140 billion) by tapping the windfall profits of some energy companies to help households and businesses pay eye-watering gas and electricity bills.
On Wednesday, the European Commission proposed capping the profits of renewable and nuclear electricity producers, and taxing the windfall earnings of oil and gas companies. Profits at power generators using wind, solar and nuclear energy have ballooned because their tariffs are linked to the wholesale price of natural gas, which soared to a record high in March after Russia invaded Ukraine, and now stands about 550% up on year-ago levels.Europe sanctioned Russian oil and coal exports after the invasion, prompting Moscow to slash supplies of gas in return. Russia's retreat in Ukraine won't save Europe from recession this winterEU Commission President Ursula von der Leyen said on Wednesday that the bloc would conduct a “deep and comprehensive reform” to decouple the cost of gas from the price of electricity. Read More”These companies are making revenues they never accounted for, they never even dreamt of,” she told EU lawmakers in a speech in Strasbourg, France. “It is wrong to receive extraordinary record profits benefiting from war and on the back of consumers,” she added. The Commission’s proposals still need to be debated and adopted by EU member states. The bloc could introduce a cap of €180 ($180) per megawatt hour on the electricity produced by renewable energy firms, the Commission said in a statement. Europe’s benchmark wholesale gas price is currently €212 ($212) per megawatt hour.Natural gas and oil prices started rising last year as countries reopened from their pandemic lockdowns, sparking a surge in demand. But Russia’s invasion of Ukraine in late February — and the resulting energy standoff between Europe and Moscow — sent them through the roof. Oil has since fallen back as a global economic slowdown leads to reduced demand, but natural gas prices remain higher than their March peak.The EU proposal is part of a package of measures to help the region weather the energy crisis this winter, when temperatures drop and demand normally spikes.The package includes a “crisis contribution” from oil, gas and coal producers, who have reaped similarly huge profits, and mandatory targets for countries to slash their electricity consumption during peak hours.The Commission said in its statement that EU member states should levy an extra tax on any profits that exceed the average earnings for the past three years by more than 20%. It did not specify the rate of tax. “They have to pay a fair share,” von der Leyen said.She also said that the billions national governments have already committed to support consumers would “not be enough” on their own. Together, European countries and the United Kingdom — which is mired its own energy crisis — have so far promised about €500 billion ($500 billion) in subsidies to help households and businesses cope with rocketing energy bills.The United Kingdom imposed a 25% tax on the windfall profits of its oil and gas companies earlier this year to help pay for an initial round of relief for customers this year. But Prime Minister Liz Truss has ruled out raising or extending the tax to help fund her much bolder plan to cap household bills at £2,500 ($2,888) a year for the next two years, and to support businesses over the next six months. Analysts say those measures could cost as much as £150 billion ($173 billion).