Windfall tax on profits of energy suppliers to be introduced

THE GOVERNMENT plans to hand over €75 million raised in a new tax on power companies to some of the Republic’s biggest employers, but sources warn that the initiative could hit small business and householders.

Minister for Energy Eamon Ryan said yesterday that he intends imposing a temporary windfall tax on profits earned by electricity suppliers from free carbon credits.

His department said the tax would raise €75 million a year and confirmed that the money will be passed on to big, mainly multi-national, employers, who are among the Republic’s biggest electricity consumers and face large energy bills as a result.

Many of them have been lobbying the Government about the cost of energy and have warned that it is damaging their competitiveness and ability to maintain their operations here.

“The Government is of the view that it is imperative to take all possible action to support the enterprise sector and employment by focusing efforts on reducing costs, where we can, for large energy users,” the department said yesterday. However, energy industry sources warned yesterday that the tax could result in driving up the electricity bills paid by small and medium-sized businesses and ultimately by householders.

They point out that the windfall earned by power companies on the free carbon credits is recycled back to customers in the form of discounts.

They say that preventing them from doing this will drive up the cost of electricity on the open market.

They argue that the higher cost will in turn be passed on to small and medium-sized businesses and to householders, who lack the bargaining power of large energy users.

For over two years, consumers have been paying the full cost of the greenhouse gas emissions that result from the electricity they use.

However, under EU rules, the generators themselves, which include the ESB and Virdian-owned Huntstown Power, are not paying the full cost of these emissions, and will not have to do so until 2012, which means that they are profiting from the fact that customers are paying the full price.

Estimates of what electricity customers have been paying run to €200 million a year. However, the Department of Energy said yesterday that these calculations are out of date and stuck to its estimates that the windfall tax will raise around €75 million.

The tax will be dropped in 2012, when power companies will have to carry the full cost of emissions themselves and will have to buy carbon credits on the open market.

Last year, the ESB passed back €300 million of its profits to the market to help offset energy price rises that resulted from an increase in the cost of oil.

A department source said yesterday that while the ESB initiative paid dividends it was “ad hoc” and explained that the Minister felt that the windfall tax was a more structured way of tackling energy prices.