European Energy Companies Brace for Heavy Taxes

Oil, gas and energy companies in Europe are bracing themselves to pay heavy taxes going forward as Germany, Ireland, Spain, Finland, the Czech Republic and others have started implementing the European Union's (EU's) "windfall tax" directive.

Germany, Europe's largest economic nation, has introduced its 99 billion-euro (US$103 billion) energy support scheme that will be largely funded by a 33% windfall tax on energy companies that will run from this month until the middle of next year at the earliest and until April 2024 if needed. The plan aims to reduce gas, heat and electricity prices for consumers and industry by capping the costs. The scheme's costs will be divided between 56 billion euro (US$58 billion) to subsidize fossil gas, including district heating, and 43 billion euro (US$44.5 billion) for electricity. Chancellor Olaf Scholz (SPD) stated: "The price brakes for gas, electricity and district heating are coming. We are capping the price of energy so that citizens can cope with the new prices and the challenges. "The government is doing everything to ensure that our country gets through the winter well." However, since the scheme cannot be enacted in law until March 2023, businesses and consumers will have to continue to pay high prices until then and claim back costs retroactively.

Last week, Industrial Info reported on the U.K.'s decision to increase its windfall tax on oil and gas companies from the 25% rate introduced in May to 35% from January 1 next year. It also revealed that the tax will remain in place until the end of March 2028, instead of 2025 as originally announced. The government also introduced a "temporary" 45% windfall tax on the excess profits of electricity generators for the first time over the same period. For additional information, see November 29, 2022, article -?U.K. Jacks Up Windfall Tax to 35% on Oil & Gas Companies.

Germany's windfall tax scheme received a mixed response from industry and energy groups. "The planned legislative procedure before Christmas gives hope for a speedy relief for the economy in the energy crisis," commented Siegfried Russwurm, president of the Federation of German Industries (BDI). "The federal government's decision gives industrial companies the planning security they urgently need and reliable orientation. The electricity and gas price brake is important to secure the existence of large parts of the industry."

The largest energy industry association in Germany, BDEW, agreed on the need for measures but spoke out against the slowness of implementation and the potential impact on the industry if the tax is extended into 2024. Kerstin Andreae, chairwoman of the BDEW executive board, said: "The energy industry supports the plan to relieve households and industry. This is particularly important given the sharp rise in energy prices. In order for the relief to actually reach people, the gas, heat and electricity price brakes must also be able to be implemented quickly and easily. This is still very questionable, especially in the case of the electricity price brake. The longer this significant market intervention lasts, the greater the risk that the supply on the electricity market will become scarcer and thus favor high wholesale electricity prices. It is important that Germany remains an attractive investment location for renewable energies, grid expansion and security of supply. We can only invest our way out of this crisis."

Ireland has agreed to place a cap on all market revenues of non-gas electricity generators, including wind, solar, oil and coal. It will operate for six months from December. The government is also implementing the temporary solidarity contribution, as set out by the European Commission, to oil and gas producers and those in refining for the years 2022 and 2023. Profits higher than a set 20% baseline will be subject to a 75% contribution rate. In Spain, an amended windfall tax proposal for banks and large energy companies was passed by the lower house of the government and will now need Senate approval. Finland's government is preparing to introduce a new temporary tax on excessive profits of energy companies, while the Czech government adopted a 60% windfall tax for energy, oil and mining companies and banks that it expects will raise 3.5 billion euro (US$3.6 billion) next year to help cover the costs of price caps on gas and electricity.

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