Policy- The EU is set to unveil mandatory energy use cuts as its standoff with Russia pushes supply lower.
- The proposal also includes a tax on oil and gas companies' extra profits, Bloomberg reported.
Europe is creeping closer to energy rationing policies as its standoff with Russia intensifies and prices soar higher.
The EU is expected to propose a mandatory target for power usage in order to cut overall demand, Bloomberg reported Tuesday. The measure will be included in a plan set to be announced by European Commission President Ursula von der Leyen later this week. If approved by member states, the target will mark a major escalation in the EU's conflict with Russia and a significant step toward stringent energy rationing.
The target is split into two parts, according to a draft proposal seen by Bloomberg. The first is a mandatory goal for easing usage during hours of peak demand. The goal would affect 3 to 4 hours per day, and could also include periods when energy generation from renewable sources is forecasted to be weak.
The other half of the target includes an objective to cut overall power consumption to a certain level, but the target threshold is not yet known.
The plan also includes an "exceptional and temporary" tax on companies in the oil, gas, coal, and refining sectors based on the firms' extra profits. Firms would pay taxes on any earnings above their average pre-tax profits for the three-year period that started in 2019. The commission will set a minimum tax with the plan and EU members will be allowed to apply for a higher rate.
The commission faces an uphill battle to win widespread support for its proposal. Ministers voiced some significant disagreements with the plan in a meeting last week, Bloomberg reported, signaling some elements might not make their way to the final package. Yet with energy prices still elevated and Russia slashing exports to Europe even further in recent weeks, the plan's authors argue urgency is paramount.
"The dramatic increase in electricity prices that we are observing is putting pressure on households, small and medium enterprises and industry and risks causing wider social and economic harm," the commission said in the draft proposal. "This economic context requires a rapid and coordinated EU-wide response."
The new plan comes amid looming energy crises across several of the world's biggest economies. Energy prices have skyrocketed in the UK and the EU as Russia retaliates against sanctions and cuts its exports of oil and natural gas to western Europe. The shift has forced them to quickly adopt measures boosting domestic energy supply and easing demand to avoid rolling blackouts and even more intense inflation.
The Group of Seven — Canada, France, Germany, Italy, Japan, the United Kingdom, and the US — rolled out plans for a price limit on Russian oil earlier in September, aiming to lower prices for consumers while sapping cash from the Kremlin's energy trade. The UK, meanwhile, has adopted price controls, with Prime Minister Liz Truss announcing Thursday the government will cap annual energy bills at £2,500 ($2,880) starting October 1.
President von der Leyen's original plan called for a price cap on Russian gas as well, but disagreements over the measure placed it on the back burner. A separate move to ease the supply strain in energy markets is being worked on, people familiar with the negotiations told Bloomberg.
If it wins support from EU countries, the president could reveal the plan's details in a speech scheduled for Wednesday. Experts from member governments would then debate the proposals before member governments' policymakers can vote on the measures. Some members have pushed for a deal by the end of September, but others have hinted it will take until scheduled meetings in October to reach an agreement.
By then, the energy standoff is likely to have only grown more intense. As the EU prepares for winter and the heating demands that come with it, the proposed energy limits could mean the difference between some informal rationing and the energy grid's collapse.