Households may lose out on extra cost-of-living respite from tax on energy firms

The public could lose out on extra cost-of-living benefits funded by a windfall tax on energy companies, with proceeds instead used to fund measures already announced, internal Government documents show.

While the Coalition hopes to raise up to €1.9 billion from the levy on energy companies, Ministers were privately told on Tuesday that the money could ultimately be swallowed up by measures already announced.

Minister for the Environment and Green Party leader Eamon Ryan has said he wants the money to be ringfenced to help “protect” people facing record energy bills — in line with the European Council regulation that sets out how revenues arising from the cap have to be used to finance measures that mitigate the impact of high electricity prices.

But a memo given to Ministers shows that while the funds will be retained in the electricity sector, “there remains significant flexibility in how the proceeds should be spent”.

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The relevant council regulation, Ministers were told, “provides flexibility for member states to pre-finance support measures to electricity customers and collect the market revenues at a later stage”.

[ Windfall tax on energy firms’ profits could net up to €1.9bn ]

Government “may decide in future to use the proceeds to offset the cost of supports which are already being provided”, the memo states. The Coalition has already committed to a range of once-off measures to address the cost-of-living crisis in this budget cycle — including spending €1.2 billion on household energy credits and another €1.25 billion on business supports.

The budget also allowed for a range of bumper welfare and other payments before Christmas, including a double child benefit, paid this month and a double cost-of-living support payment to social welfare recipients, costing nearly another €500 million between them.

‘Additional resources’

On Wednesday, Tánaiste Leo Varadkar indicated that it had not yet been determined what would be done with the windfall sums. “We will review the situation later in the year to see whether we need to extend and do more,” he said.

“One of the advantages of having this windfall tax is that we have additional resources that we didn’t have on budget day. And we can use that to provide further help for households and businesses next year but it’s too soon to make that call now, we need to see where we stand,” he said.

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The document also warns that Ireland could struggle to secure the reductions in electricity demand it is bound to achieve by the same council regulation — an overall reduction of 10 per cent of gross electricity consumption for the period November 2022 to March 2023 and a 5 per cent reduction in peak consumption during the period December 2022 to March 2023.

Significant reductions

“In the context of significant electricity demand growth, meeting the demand reduction targets will likely be extremely challenging. In particular, it should be noted that the 5 per cent reduction at peak times is mandatory which will require significant reductions in electricity use by electricity consumers at those times.”

Asked about whether there had been a noticeable reduction in electricity demand a Government spokeswoman replied it was early in the winter and the weather has been mild so it would be too early to derive any conclusions in relation to demand reduction. She said the Government had rolled out a Reduce your Use campaign and the Commission for the Regulation of Utilities (CRU) had introduced higher network charges at peak times for large users and those with smart meters and tariffs.

“The department is continuing to work with the CRU, EirGrid and ESB Networks to maximise the outcomes from current initiatives and potentially consider the introduction of new measures.”