Five finance ministers from the have called for a tax on windfall profits of energy companies as fuel prices surge due to the ongoing war between the US, Israel and Iran, according to a joint letter sent to the European Commission and seen by Reuters on Saturday.
A windfall tax is a higher, temporary tax imposed by governments on specific companies or sectors that experience unexpectedly large profits due to unforeseen, external events.
The finance ministers of Germany, Italy, Spain, Portugal and Austria made the call in a letter dated Friday, stating that such a measure would be a signal that “we stand united and are able to take action”.
“It would also send a clear message that those who profit from the consequences of the war must do their part to ease the burden on the general public,” the ministers wrote.
Energy prices shoot up amid Middle East war
Oil and gas prices have spiked since the began on February 28, triggering widespread concerns about disruptions to global energy supplies. The conflict also led to the effective closure of the Strait of Hormuz, a vital corridor through which roughly one-fifth of the world’s oil and liquefied natural gas shipments pass.
These disruptions created a price shock similar to the energy crisis faced by Europe after Russia invaded Ukraine in 2022, even though EU countries are now getting more energy from renewable sources, Reuters said in a news report.
In Friday’s letter, which was addressed to EU Climate Commissioner Wopke Hoekstra, the ministers pointed to a similar emergency tax in 2022 to address high energy prices.
“Given the current market distortions and fiscal constraints, the European Commission should swiftly develop a similar EU-wide contribution instrument grounded on a solid legal basis,” they wrote.
However, the letter did not have any details on what level of windfall tax the ministers were proposing, or on which companies it should be applicable.
EU may revive energy crisis measures — what do they include?
The bloc’s energy chief said on Tuesday that it was considering reviving energy crisis measures which were used during in 2022, including proposals to curb grid tariffs and taxes on electricity.
The EU introduced a suite of emergency policies in 2022, after Russia suspended gas deliveries. They imposed an EU-wide cap on gas prices, a tax on energy companies’ windfall profits, and targets to curb gas demand.
Europe heavily relies on imports for its fuel requirements, leaving it particularly exposed to the volatile global energy prices due to the Middle East conflict. European gas rates have surged more than 70% since the US-Israeli war with Iran began on February 28. The war has now entered its fifth week.
EU Energy Commissioner Dan Jorgensen said Brussels was particularly concerned in the short term about Europe’s supply of refined petroleum products such as jet fuel and diesel, Reuters reported.
(with wire inputs from Reuters)
