Questions and Answers on the European Energy Plans

Europe is facing a tough time and solidarity among EU member states is more important than ever. With that message, among other things, European Commission President Ursula Von der Leyen took stock in her annual speech to the European Parliament. The war in Ukraine was covered extensively, as was President Putin‘s European energy dependency on Russia.

Recently, energy prices have risen exponentially and Europe is facing a tough winter. Reason for the Commission to intervene in the energy market so that energy bills remain affordable and citizens and companies do not immediately fall into financial slump when the bill falls on the mat.

What does the European Commission want?

There will be an income ceiling for producers of renewable electricity and nuclear energy. They are now making profits that they have never taken into account. This has to do with the fact that the price of gas is very decisive for the price of electricity, even though gas is only 14 percent the source of electricity in Europe. With a high price of gas, there is therefore a lot to earn for companies that draw from other sources.

The ceiling that the Commission is now proposing means that these producers will not receive more than 180 euros per megawatt hour. That’s much less than they‘re catching now: in recent weeks, the price has fluctuated between 400 and 800 euros per megawatt hour.

From December onwards, fossil energy producers will also face a substantial additional profit tax of 33 percent on the profits they have made extra. This looks at the profits they have achieved over the past three years, with an additional margin of 20 percent. Of everything they earn extra on top of that, they therefore have to pay a third in tax. The Commission calls this a ‘solidarity contribution‘.

Another measure is that European member states must reduce electricity demand. Overall, consumption should be reduced by 10 percent. Half of this should be saved at the so-called peak hours, i.e. the times of the day when the most energy is used. The idea is that less expensive gas is then needed to generate electricity.

Can Brussels do this?

Yes. The European Commission does not impose this on 27 EU Member States who still want to make extensive demands on this, but rather makes these proposals at the request of the EU countries. Of course, the Member States themselves decide how to implement this into policy, so there is little to say about how the Commission plans work out in practice.

For example, countries can also decide to levy more additional profit taxes than the European Commission proposes. Member States must also decide exactly how they want to reduce electricity demand. This will therefore be a matter of action by national governments in each of the 27 Member States, in consultation with national parliaments.

How do we feel about this in our wallets?

There is no very concrete answer to this on the basis of these proposals. With this package of measures, all EU member states together would free up a total of around 140 billion euros to cope with the energy crisis. Up to 117 billion of this comes from electricity producers. Around 25 billion comes from the fossil industry.

The countries can use that money against energy poverty and for sustainability, but what it ends up in which wallet is not determined in Brussels. So that’s what the Member States themselves are about.

The governments of the EU countries, in consultation with their national parliaments, must decide how to redistribute the money. Allowances for certain groups, such as minimums, can be considered. Other options include subsidies for better insulation or other energy-saving investments for households.

And what does the Dutch cabinet want?

It is clear that the cabinet is pleased with the proposals of the European Commission, although Minister Jetten of Energy wants to put more emphasis on reducing energy consumption.

Jetten says that the cabinet is already looking at how the big profits of some of the energy companies can be skimmed to support households, although he insists that not all suppliers make extreme profits. As for the companies that do make huge profits, the minister thinks it is โ€œnormal if society asks them to pay a little more tax on themโ€.

For precise elaboration of the plans for the Netherlands, Jetten refers to next Tuesday. Then it is the third Tuesday of September, i.e. Prinsjesdag, when the cabinet will present its own plans.