Ireland expects EU windfall energy tax to raise €1bn-€2bn as deal reached

The Government estimates it can raise at least one to two billion euro from a European Union agreement for a windfall energy tax and revenue cap to reduce high gas and electricity bills, Minister for Environment Eamon Ryan has said after a deal was reached in Brussels.

This assistance would come in addition to measures announced in the recent budget, the Minister told The Irish Times as he left an extraordinary EU summit that agreed the emergency legislation.

“The revenues will start coming in next year, and that will help us next winter as well,” Mr Ryan said. “Because this crisis does not look like it’s going to be short-lived.”

It should raise “between one and two billion, but that could go larger, it depends on how long it’s in place for. But that’s the lower end of what should be possible to collect.”

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The amount raised is approximate, because it depends on the price of gas over the next six months.

Under the agreement, which was reached by the 27 EU member states at an extraordinary energy summit on Friday, national governments can cap the price of energy sold by renewable, lignite and nuclear producers at €180 per megawatt hour, and siphon off all revenues above that rate.

In addition, governments can impose a windfall tax, referred to as a “solidarity contribution”, on extraordinary profits booked by fossil-fuel energy producers located within their taxation jurisdiction.

The levy would apply to profits that are more than 20 per cent higher than average profits booked in the previous tax years, and would apply to returns for the 2022 and/or 2023 fiscal years. The EU agreement suggests a minimum rate for the levy of 33 per cent, but member states have flexibility on what rate to apply.

Putting in place the revenue cap on inframarginal producers will take some time due to its complexity. It does not apply to long-term contracts that energy producers agreed in the past, which locked in rates to sell energy that are far below current market prices now.

Speaking at the Fianna Fáil ardfheis in Dublin on Friday, Taoiseach Micheál Martin said funds from the EU’s windfall tax would be “substantial” and would help to meet further energy supports if they were required next year.

Mr Martin implicitly contrasted the situation in the UK with the Irish Government’s approach, saying that the budget had showed a “steady approach”, helping businesses and households with energy bill and rising costs “whilst also ensuring that the public finances remain sound and that the markets have clear visibility in terms of the Irish fiscal strategy, both on the revenue side and the expenditure side”.

He said the Government had “put money aside ... so as to make sure that we have firepower in the event of other events happening that we don’t know of yet”.

Mr Ryan said he expected the revenue cap to be in place early next year, while the windfall tax would be gathered when four major producers in the Corrib gas field file their annual accounts on their respective dates.

Asked how the revenues would be spent, Mr Ryan said the details would now have to be worked out by the Government.

He said he expected the Government would “use the revenues to ... actually lower the bills of consumers in both the gas and electricity market”.

Under the plan, all EU countries will have a mandatory target to cut electricity use by 5 per cent during peak hours of usage between December and March, to stop gas plants kicking in to meet surges in demand and causing energy prices to spike.

National governments must identify which hours are “peak” hours when the usage cuts would kick in. There is also a voluntary overall target of cutting electricity use by 10 per cent.

Political agreement was reached on the plan by all 27 member states on Friday. EU officials will draw up a joint legal text, which is expected to be formally approved as an emergency intervention next week.

In recent days, a group of 15 member states have piled pressure on the European Commission to draw up a plan to place a cap on the price that can be paid for gas.

But officials are concerned that such a measure could be difficult to implement and have unintended consequences, and not all member states are behind the idea.