E.U. Calls for Taxes to Battle Rising Energy Prices

With the war in Ukraine spurring a mounting energy crisis, the European Commission on Wednesday proposed a series of emergency measures, including imposing taxes on energy companies to finance support for struggling households and businesses.

If backed by member states, the legislation would mark a radical, if temporary, change in the energy policy of the world’s biggest trading bloc as it grapples with spiraling energy prices stoked by the conflict.

Outlining the proposals, Ursula von der Leyen, the president of the European Commission, said the bloc also needed to overhaul the way it determined electricity prices.

“Not just a quick fix, but a change of paradigm, a leap into the future,” is what Europe needed to overcome the energy crisis, Ms. von der Leyen said on Wednesday during her annual “State of the Union” speech.

Consumers across the European Union are facing punishing electricity bills, which have increased as much as fivefold over the past year. And national governments, confronted with energy shortages, have been on a frenzied hunt for new suppliers.

The European Commission said that national governments should cap the revenue generated by suppliers of nuclear and renewable energy at 180 euros, or about $180, per a megawatt-hour. It said that, in turn, would generate an excess profit of about 117 billion euros per year, or around $117, that should then be channeled into subsidies for struggling households and businesses facing soaring energy bills.

In order to avoid a winter of blackouts and rationing, the European Commission also recommended that Europeans reduce their energy consumption by 5 percent during peak hours and encouraged governments to look for more energy savings. Some European businesses have already voluntarily switched their working hours to off-peak hours, when electricity is cheaper.

There was no way out of the crisis, the Commission warned, unless European countries reduced energy demand.

At the heart of the energy crisis are two issues.

In the first place, Europe has been highly dependent on Russian gas, which accounted for 40 percent of the bloc’s consumption before the war. But in order to punish Europe for supporting Ukraine after the Russian invasion, Moscow has abruptly all but stopped supplying the bloc with natural gas.

The second, more structural issue is that in the European Union, electricity prices are determined using the price of the most expensive fuel as a benchmark — at the moment, natural gas. As a result, renewable energy companies, which are using much cheaper wind or solar to generate electricity, charge the same high prices as companies that generate electricity using natural gas.

And although member nations rely on different mixes of energy supply and have different policies, the bloc’s energy market is regulated in Brussels, the headquarters of the European Union. That, in turn, requires a joint response to manage emergencies, like a war, and longer-term challenges, like how to calculate electricity prices across a sprawling European Union.

Ms. von der Leyen said the current design of the electricity market was “not doing justice to consumers anymore.” She called for electricity prices to be decoupled from gas prices, in what would constitute a sweeping change to the bloc’s policies.

The Commission also proposed that taxes should be levied on fossil fuel companies, saying that it would bring in an additional 25 billion euros annually.

To become policy, the proposals need the approval of at least 15 of the bloc’s 27 member states, representing at least 65 percent of the E.U. population.

Frans Timmermans, the European Union’s top climate official, said the bloc needed to present a united front at a time when Russia was using its energy supplies as a political weapon to try and bludgeon Europe.

“Putin seeks to divide us,” he said, “but we have to show to him that we’re much stronger than that.”