On 8 March 2022 the European Commission issued a communication entitled REPowerEU: Joint European Action for more affordable, secure and sustainable energy. This document notes that the current geopolitical situation requires independence from Russian gas. The communication therefore outlines new measures to promote green energy, diversify energy supplies and reduce the demand for energy, with the main focus on gas.

Incentives for energy efficiency

The European Commission has provided guidance for EU Member States on schemes for regulated prices. The member states could also introduce incentives for energy efficiency and savings, making use of options available under the EU State aid rules to give short-term relief to companies affected by high energy prices; and reduce their exposure to energy price volatility. This relief would be based on the guidelines on rescue and restructuring. Special attention would be given to gas utilities and intermediaries trying to cope with increased supply costs after disruption to contracts.

The EU Emissions Trading System (ETS) State aid guidelines give scope to Member States to offer support to particular sectors that are most at risk of carbon leakage because of indirect emission costs. In the agricultural sector, State aid rules permit investment aid in relation to sustainable energy.

The European Commission is to consult the Member States on a new Temporary Crisis Framework. This could permit liquidity support for enterprises affected by the crisis and allow aid to be offered to enterprises such as energy-intensive consumers that are experiencing cost increases. The Commission has consulted on targeted amendments to the ETS State aid guidelines, to expand the list of eligible sectors, while limiting distortions to trade.

Tax on windfall profits

Member States may introduce temporary tax measures on windfall profits, to finance the relief measures. These taxes should not be retroactive; and must allow electricity producers to cover their costs and protect the long-term market.

The tax measures must be designed to avoid unnecessary market distortions; and should aim to incentivise additional investment in renewable energy. The time period during which the measures are in force should be limited and should relate to the specific crisis situation. The measures must not affect long-term price trends from structural market developments or the carbon price signal from the EU ETS.

The windfall tax measures should clearly identify and justify the method for calculating the excessive economic rents (the windfall) arising from the specific crisis. The mechanisms for triggering or deactivating the measures would need to be clear, using verifiable criteria and events. The tax measures should not distinguish between different types of energy generation; and should apply whether or not the type of energy generation is covered by other support schemes or capacity remuneration mechanisms (but taking these into account if necessary). The tax should not continue in force beyond 30 June 2022, and the measures should not be retroactive.

The tax revenue collected from the measures should be passed on to households, e.g. as rebates, or should support all final consumers without being selective. If exemptions from the profit taxes result in selective advantages to particular undertakings, the State aid rules may apply.

Member States would also be able to use higher than expected revenues from the emissions trading scheme to fund relief.

The European Commission is to make a legislative proposal by April 2022 to ensure adequate levels of gas storage.