EU windfall taxes will give Government ‘firepower’ to help households with energy bills - Taoiseach

Revenue from EU windfall taxes will provide the Government with “firepower” to give additional help to households to deal with energy bills next year, Taoiseach Micheál Martin said on Friday morning.

On the second day of the EU summit in Brussels, Mr Martin said the revenue from the windfall taxes should begin to flow “early next year” and, would add to the Government’s existing surpluses.

“So we will have reserves and that revenue will add to those reserves to give us firepower to do things if we have to do it,” he said.

Mr Martin said that the EU leaders were seeking to stabilise the gas market and eliminate “spikes” in prices.

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“That’s the key objective to ensure that Europe is not subject to occasional spikes and significant spikes in energy prices,” he said.

“We do believe that if we can redesign the market to decouple the impact that gas has on the broader electricity prices, that would be beneficial to customers more generally,” Mr Martin said.

“We think the decision that was taken on windfall that was taken earlier by the energy council will help Irish consumers because we will get a windfall from companies and also a solidarity revenue which we will be able use in respect of alleviating pressure on households.”

After several hours of discussions at the Brussels summit, EU leaders reached agreement late last night on a series of measures intended to limit gas prices, but there remains significant work to do to flesh out how the plans will work in practice.

The leaders have resumed discussions this morning when relations with China will be among the items on the agenda.

Temporary price cap

The European Union late on Thursday night agreed to press ahead with a set of emergency actions to address the bloc’s energy crisis, with Germany yielding to pressure from other member states to pave the way for a temporary price cap on natural gas prices.

“We sent also a clear signal to the market,” European Council president Charles Michel said at a news conference early Friday. “It means that we are ready to act together, that we are able to work together and there’s strong political willingness. I’m confident that there will be an effect very soon.”

German chancellor Olaf Scholz came into the meeting firmly opposed to more radical interventions in the gas market, even as a majority of the bloc’s 27 nations were seeking a political endorsement of a price cap.

After hours of intense negotiations, the leaders agreed to ask the EU’s executive arm to propose a “temporary dynamic price corridor on natural gas transactions to immediately limit episodes of excessive gas prices”. They also said they would pursue a temporary framework to cap the price of gas in electricity generation, including a cost-and-benefit analysis.

“We will develop a complementary new index to reflect better the LNG price situation and for the meantime we will establish a market correction mechanism to limit episodes of excessive gas prices,” European Commission president Ursula von der Leyen said at a news conference. “We will work with energy ministers to submit a legal proposal to operationalise the market mechanism.”

Leaders also agreed to ask for steps to avoid extreme price rises and to use their joint purchasing power as leverage in negotiations with global gas suppliers.

Joint purchasing would be voluntary but with a requirement for 15 per cent of the volume needed to fill gas storage bought as a bloc.

Friday meeting

EU leaders are meeting on Friday for the second day of their summit, with economics on the agenda. The bloc’s energy ministers will meet next week to continue trying to hash out the details.

Countries including France, Italy and Poland had been pushing hard to limit the cost of gas, which is roiling economies and fuelling inflation as the region heads for a winter with drastically reduced shipments from Russia after its invasion of Ukraine. If the bloc cannot agree on significant enough steps, it risks having national governments take diverging routes to address the fallout.

The leaders also stressed the need for Europe to pursue joint action to alleviate the impact of the crisis on companies and consumers, maintaining the level playing field and avoiding undermining the bloc’s single market.

European natural gas prices have declined by more than 60 per cent since the peak in August, with strong flows of liquefied natural gas helping to replace Russian supplies and fill up storage sites. A mild start to the winter heating season has also helped damp demand, but temperatures are set to drop as winter kicks in, and gas prices are likely to rise in the coming months.

Industry and households’ ability to cut consumption in response to high prices will be key to managing shortages. On the supply side, Europe needs to continue attracting LNG cargoes ahead of buyers in Asia. — Additional reporting Bloomberg