Europe agrees to scrap oil and gas tax amid ‘mad race’ to tackle energy crisis

CNN business

EU governments agreed on Friday to tax the profits of oil and gas companies and cap the revenue of some power generators, as the cost of Europe’s energy crisis rises.

But the energy ministers of the 27 EU states failed to reach an agreement on a proposal by the European Commission to impose a price cap on Russian natural gas imports. The energy crisis is largely caused by Russia’s invasion of Ukraine

“We still don’t have a consensus on this step,” Kadri Simson, The European Commission’s chief energy officer said at a press conference on Friday.

United Nations Secretary-General António Guterres last week accused oil and gas giants of “eating hundreds of billions of dollars in subsidies and profiteering while slashing domestic budgets and burning our planet.” He demanded that rich economies tax people struggling with energy bills and finance aid to countries hit by the climate crisis.

Luxembourg’s Energy Minister Claude Turmes said Europe needed to find alternatives to the “crazy race” between countries trying to outspend each other to protect consumers and businesses from painful bill hikes.

He was speaking less than 24 hours after the German government said it would borrow 200 billion euros ($195 billion) to help lower energy costs, including capping natural gas prices for homes and businesses.

“It sends the wrong signal that Germany seems to be flexing its fiscal muscle to subsidize gas consumption in Germany at the expense of gas consumers elsewhere in Europe,” Bruegel CEO Jeromin Zettelmeyer told CNN Business. .

Germany’s loan adds to the 530 billion euros ($518 billion) that European governments and the United Kingdom have so far pledged to protect consumers from unaffordable increases in their bills, according to Bruegel.

A total of €730 billion ($712 billion) covers spending commitments from September 2021 – when global energy prices began to rise – and it includes measures taken to help with other cost-of-living pressures.

The United Kingdom is also planning a debt job to support the energy crisis. Last week, Finance Minister Kwasi Kwarteng said a plan to freeze household and business energy bills would cost £60 billion ($66 billion) over the first six months. only months

But the full cost of the price cap – which will last two years in homes — could be around 150 billion pounds ($166 billion) according to some experts, a figure that was included in Bruegel’s analysis.

The price will be financed entirely by additional government debt, a spokeswoman for the UK finance department told CNN Business on Friday.

Among the measures agreed by EU energy ministers on Friday are mandatory electricity demand reductions, revenue caps for some electricity producers that do not use natural gas, and a tax on profits from fossil fuel companies, the Commission expects. Collected 140,000 billion dollars.

Retail energy prices are expected to rise 40.8% in September, from 38.6% in August, in the 19 countries that use the euro, the EU’s statistics office said on Friday.

Wholesale cost of gas – which is directly included in the retail price What consumers pay for heating and electricity – started rising last fall as economies opened up from pandemic lockdowns, leading to a surge in demand.

But Russia’s invasion of Ukraine at the end of February, and as a result the energy situation between Moscow and the European Union, has increased the European reference price of natural gas by 327% compared to a year ago.

Rising energy prices are driving up costs across the economy and fueling growth.

Eurozone inflation hit a record high in September, boosted by energy prices.

Consumer prices in the 19 countries that use the euro rose by 10% compared to the same month last year – the highest inflation rate in the 25 years since the introduction of the currency.

The European Central Bank raised its rate by a record 0.75 basis points earlier this month in an attempt to tame spiraling prices, and may do so again at its next meeting in October.

The Organization for Economic Co-operation and Development predicts that food and energy price shocks will reduce economic growth in Europe by more than 1.25 percentage points next year.

“This would push many countries into a full-year recession in 2023, and GDP growth would also weaken in 2024,” the OECD said in a report earlier this week.

– Eve Brennan, Xiaofei Xu and Livvy Doherty contributed reporting.