The EU considers a tax on fossil fuel companies in the midst of an energy crisis

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Fossil fuel companies may have to share their excess profits to help European households and industries cope with red-hot energy bills, according to a draft European Union plan unveiled. Monday, as the cost of the West’s “energy war” with Russia takes an ever-increasing toll.

Energy prices and inflation have soared as Moscow has cut gas supplies in response to Western sanctions imposed over its actions in Ukraine, prompting France to tell consumers they would have to share some of the impact, while the UK is among the countries facing the threat of recession.

The European Commission’s draft proposal, expected to be released this week, calls for the 27 EU countries to introduce a “solidarity contribution” for the fossil fuel industry.

Oil , gas, coal and refining companies would have to make a financial contribution based on excess taxable profits made in the 2022 fiscal year, according to the draft, which could still change and must be approved by EU governments.

“Such benefits do not correspond to the regular benefits that these entities would obtain or could have expected to obtain under normal circumstances,” said the draft EU plan, seen by Reuters.

BP (LON: BP ) and Shell (LON: RDSb ) had no immediate comment. TotalEnergies did not immediately respond to a request for comment.

The proposals are also expected to include a rescue plan for electricity companies facing a liquidity crisis. However, the countries are divided on the details and the possibility of imposing a cap on the price they pay for gas, according to the diplomats. Russia has said it will cut off all supplies if its gas is capped.

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Meanwhile, across Europe, businesses and governments are scrambling to find ways to deal with the crisis.

IRRESPONSIBILITY

In France, Economy Minister Bruno Le Maire said consumers would be protected by new caps on energy prices when the current ones run out this winter, although there would be some increases, as it would be “completely irresponsible to put the burden on … solely in the state budget”.

In neighboring Spain, Iberdrola (BME: IBE ) said it would guarantee gas and electricity supplies for five months to customers deemed vulnerable by the Red Cross, after which all outstanding bills must be paid. 

Italy’s main business lobby group, Confindustria, said it was in talks with the government on how any potential gas rationing would be carried out.

The EU wants to diversify its energy supply. The Finnish company Gasgrid has declared that it wants to start importing liquefied natural gas (LNG) through a floating terminal planned for January.

Separately, the EU securities watchdog said it was “actively studying” possible measures to ease tensions in energy markets, where some participants are struggling to find enough cash to cover their positions.

In the UK, where inflation has hit a 40-year high of over 10%, the economy expanded 0.2% in July compared to June, less than the 0.4% expected. The sharp increase in energy costs affected the demand for electricity and the increase in the cost of materials affected the construction sector.

A “disappointingly small rebound in real GDP in July suggests the economy has little momentum and is probably already in a recession,” said Paul Dales of Capital Economics.

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GAS SHORTAGE

As the European Commission drafts the new set of EU measures, Norway warned against gas price caps.

“A maximum price would not solve the fundamental problem, which is that there is too little gas in Europe,” Norwegian Prime Minister Jonas Gahr Stoere said after a call with European Commission President Ursula von der Leyen.

Norway, which is a close ally of the EU, has become the bloc’s biggest gas supplier after Russia curtailed exports following the Ukraine war, allowing it to reap record revenue from its oil industry as it soared. prices.

EU ministers have already backtracked on capping Russian gas prices, which accounted for around 40% of the bloc’s gas before the Ukraine invasion. That percentage has plummeted to 9% as Moscow has cut off supply, citing technical problems caused by sanctions.

UNPREDICTABLE

Meanwhile, Russia said it was difficult to predict the consequences for the transit of gas to Europe from a new arbitration process initiated by the Ukrainian energy company Naftogaz.

Naftogaz said on Friday that Gazprom (MCX: GAZP ) had not paid for its gas transportation through Ukraine on time or in full.

“There could be a lot of unforeseeable things both on the part of our Western colleagues and the leaders of the Ukrainian gas industry,” Kremlin spokesman Dmitri Peskov said.

Natural gas flows from Russia to Europe via key routes were stable on Monday, while the Nord Stream 1 pipeline remained closed.

Oil prices rose as talks over Iran’s nuclear program appeared to hit a snag and an embargo on Russian oil shipments looms as tight supply struggles to meet still-robust demand.

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