Written by 3:40 pm Europe Economy

Von der Leyen’s state of the union details emergency E.U. energy measures

BRUSSELS — The European Commission on Wednesday proposed emergency measures to tackle the energy crisis, including a windfall tax on some energy companies and binding targets to reduce consumption, a sign of growing concern that the fallout from Russia’s war in Ukraine is pushing the region toward recession.

The plan, first outlined in European Commission President Ursula von der Leyen’s annual State of the European Union address on Wednesday, comes after weeks of debate about the best way to tackle high energy prices. Von der Leyen said that, in addition the emergency measures, Brussels is working to overhaul its energy markets.

The commission’s proposal, which must still be approved by member states, says the E.U. should tax the profits of non-gas power producers when they sell above a certain price point and requires fossil fuel companies to pay a “solidarity contribution” from their 2022 earnings. Von der Leyen said the measures could offer a roughly $140 billion cushion to consumers.

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The proposal also calls for a mandatory targets of at least a 5 percent reduction in gross electricity consumption during peak hours, covering at least 10 percent of the hours of each month where prices are expected to be the highest.

Von der Leyen said Wednesday that the escalating energy war with Russia would test the E.U. through the months ahead. “This is not only a war unleashed by Russia against Ukraine,” she said. “This is a war on our energy, a war on our economy, a war on our values and a war on our future.”

She said Russia is “actively manipulating” the bloc’s energy market to the point that it is no longer functioning, but Europe was fighting back. “I stand here with the conviction that with courage and solidarity, [Russian President Vladimir] Putin will fail and Europe will prevail,” she said.

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The annual speech comes more than six months after Russia launched its full-scale invasion of Ukraine, upending Europe’s post-Cold War security architecture and its energy strategy. The 27-member bloc moved with uncommon speed and unity, pulling together to hit the Kremlin with unprecedented sanctions and offering financial and military support to Ukraine.

On Wednesday, von der Leyen tried to allay fears that E.U. solidarity was fraying, or that sanctions might be retracted. “I want to make it very clear, the sanctions are here to stay,” she said. “This is the time for us to show resolve, not appeasement.”

But the European Union’s efforts to hit Russia’s war machine have accelerated Europe’s energy and cost-of-living crises, sending the price of electricity, as well as food and other essentials, way up. Although von der Leyen’s speech barely mentioned the food crisis, there is a growing fear that Europe’s economic woes could deepen social and economic pain elsewhere. The European Central Bank raised interest rates last week for the second time this year in a bid to cool off inflation without pushing the economy over the edge.

The White House is watching the situation closely. Aides to President Biden have been reviewing their efforts to export liquefied natural gas to Europe, to determine whether there’s any additional way for American producers to help. In a visit to Brussels last week, Secretary of State Antony Blinken said the United States will not “leave our European friends out in the cold.”

Since February, the European Union has taken steps to wean itself off Russian energy in the name of limiting Russian revenue and loosening the Kremlin’s grip on Europe. To some extent, the moves appear to be working.

Russian pipeline gas now makes up just 9 percent of E.U. gas imports, for instance, not the 40 percent it was at the beginning of the year. The E.U. reached its goal last week to get gas stores to more than 80 percent capacity well before the weather turns in November. In the short term, however, prices remain high and national governments are paying hundreds of billions to try to keep people afloat.

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Some people have questioned the wisdom of the windfall tax on energy companies, worried, for instance that the levy could discourage companies from making new investments at a critical time. Others have expressed concerns that capping prices will increase demand, compounding the fundamental problem: low supply.

E.U. officials have justified the levies by arguing, in essence, that exceptional circumstances require an exceptional response.

“These unprecedented measures are a necessary response to the energy supply shortages and high energy prices affecting Europe,” European Commission Executive Vice President Frans Timmermans said in a statement Wednesday. “A cap on outsize revenues will bring solidarity from energy companies with abnormally high profits toward their struggling customers.”

One measure that was floated by the commission in recent weeks — a price cap on Russian gas — proved divisive among member states and was not included in Wednesday’s proposal. E.U. officials said they will continue to explore ways to bring down gas prices.

Energy ministers from E.U. member states will meet on Sept. 30 to discuss next steps.

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