EU Gas Cap, Tax on Extra Profits and EU State of Alert
On 9 September 2022, a new meeting of the Council of Energy Ministers of the EU Council. On the table 3 discussions and possibly decisions: “gas cap”, “state of alert” and “tax on unexpected extra profits on energy”. Member States are divided on these three von der Leyen’s proposals.
Gas cap means two things: setting a price to be paid to EU gas supply companies and paying the difference by public authorities, or setting a maximum gas price that all EU countries are willing to pay to suppliers from third countries. The state of alert means imposing a 10% reduction in consumption in Europe (today the reductions are voluntary) and supplying gas and electricity to the countries that need them. The energy extra-profit tax is used to raise money to redistribute to the consumer.
The state of alert
If in the next few days the crisis in gas supplies and prices does not change, the European Commission will invoke Article 3 of the new Council Regulation to declare a “state of alert” and to oblige the countries EU to reduce its own gas consumption by up to 10% (not the 15% expected due to the opposition of many countries) and to activate mutual assistance for countries that will no longer have it. Two days ago, France and Germany signed a bilateral agreement on mutual assistance in the supply of gas and electricity.
But the reduction in gas consumption and mutual assistance do not appeal to many EU countries. First, because the state of alert could become a political blackmail to force all states to continue the uncompromising line of sanctions against Russia and the dispatch of arms, which would increase the risk of economic and social crisis and endanger many national governments.
At least five countries are asking for a state of alert: Poland, Latvia, Estonia, Lithuania, the Czech Republic. Not to mention Finland, which has already renounced supplies from Gazprom. Then, because Russian gas will continue to supply those countries through the European network anyway. It will be gas paid for in rubles by countries that have found a loophole, but which will benefit countries that officially no longer get their supplies directly from Russia.
Gas cap price
As for the gas cap, it is not clear which solution will be adopted. Pay the difference between the EU limit and the market price or set an EU buyer price?
Tax on extra profits
Since 2020, energy companies have made extra profits, both from the sale of derived energy products and for the production of electricity.
The market speculations and the mark-up for consumers that are bringing Europe to its knees have generated profits that are not justified, according to the European Commission, given the contribution of gas imported from Russia, which represents 38% of the gas normally consumed in Europe and russian gas represents only 9,1% of all energy consumed in the EU.
The tax on the extra profits of energy companies will certainly generate legal initiatives in all states, as has already happened in Italy, delaying or nullifying the tax measure.
Gas consumed and imported in EU
In 2020, the EU imported 58% of its energy needs and the domestic production was 42%.
In 2021 Gas was consumed by World was equal to 145 Exajoules and by UE 14,2 Exajoules. and gas covered 31% of primary energy consumption in the World and 24% in Europe (20% in 2000). Concerning gas import, in 2020 82% was represented by natural gas and 18% by LNG. Only 14% was imported from Russia.
How much gas does Europe import and from which countries?
In 2021, the European Union imported 155 billion cubic metres of natural gas from Russia, accounting for around 45% of EU gas imports and close to 40% of its total gas consumption. Progress towards Europe’s net zero ambitions will bring down its use and imports of gas over time, but today’s crisis raises the specific question about imports from Russia and what more can be done in the immediate future to bring them down.
Energy in the World
By the end of 2022, the world will have consumed about 600 million Terajoules and EU countries will consume 60 million terajoules, equal to 10% of world consumption. China is the country that consumes the most energy, followed by the U.S.A, India, Japan, Russia and Germany.
If we compare the 2021 World consumption of energy sources, we immediately notice that:
World energy consumption:
- fossils occupy by far the first position with 83%
- renewables represent 13%
- nuclear power stops at 4%
EU energy consumption:
- fossils occupy by far the first position with 70%
- renewables represent 19%
- nuclear power stops at 11%
Who consumes the most fossils in the World?
Nearly 15 billion metric tons of fossil fuels are consumed every year. Three countries use more fossil fuels than the rest of the world combined: China, the United States, and India. Together, these countries consume 54 % of the world’s fossil fuels by weight, according to the data collected by the UN Environment Program. Check out the map below to see how countries stack up in terms of fossil fuel consumption. Consumption includes extraction within the country and imports, minus exports to other countries.