The Greens are preparing to push for a windfall tax on energy companies as part of budget negotiations as consumers and businesses brace for a costly winter.
End-user energy prices have risen dramatically over the past year, putting financial pressure on households and SMEs in particular, as wholesale prices for gas and other fuels have skyrocketed due to the war in Ukraine.
These prices have leaked through to Irish energy companies, which are price-takers in the wholesale markets, but an increase in profits at some of these companies has led to talks of clawing back some of the money.
The idea is to convert part of the income into cost-of-living relief. But not surprisingly, the industry isn’t interested.
Plans had been in the making for months when it became clear that temporary anti-inflation measures like the fuel rebate would not be enough to quell the huge rise in the cost of living.
By July, Treasury officials were working on proposals for a tax on energy companies that could raise up to €60 million – enough to pay 65,000 homes under the fuel allowance scheme.
But the issue received new impetus earlier this month when Bord Gáis Energy (BGE), the country’s second-biggest electricity supplier, reported £33m (€39m, owned by British company Centrica) profit for 2021.
That was a big jump from the £19m it earned in 2020, although it was only a modest increase from the £30m return in 2019 .
And not only opposition politicians and Greens are looking for their pound of meat. Business lobby group ISME is also urging the government to meet the energy companies to help small businesses.
One proposal that is reportedly being considered – and partly carried over from a measure already introduced in the UK – is for a 25 per cent tax on corporate profits.
A model launched in Spain charges a 1.2 percent levy, but on total sales – a much higher figure than profit.
Obviously, energy companies won’t like their profits being scrounged for government spending plans
The idea is to spend the money on anti-inflationary measures or targeted rebates while preventing energy companies from charging additional fees to make up the difference.
This could help families and business owners weather what is expected to be an expensive winter season of energy shortages and price spikes.
What are the disadvantages?
It’s a truism that you get less of what you tax.
Obviously, energy companies won’t like their profits being scrounged for government spending plans.
Industry sources have warned that further investment in the country’s generation capacity and distribution grid could be jeopardized if Ireland becomes a less profitable market.
BGE invests 250 million euros in two new gas-fired power plants. Such facilities are needed to facilitate the transition from the most carbon-intensive fuels. It should also be said that Ireland’s energy companies generate and distribute electricity.
They’re subject to the same wild swings in energy markets — where, for example, gas prices rose 15 percent in one day on Monday — as the end user. You don’t really reap big returns.
In fact, some small players in the Irish market, such as Iberdrola, Bright Energy and Glowpower, have already withdrawn. With market share going mostly to semi-state owned Electric Ireland, which already pays a dividend to the government, more could follow if the cost of doing business here rises.
However, energy producers are doing very well because the price of commodity fuels is high, but their infrastructure costs the same.
So why not tax these companies?
Great Britain does. But unlike the UK, Ireland does not have a large, profitable power generation sector. The UK has its North Sea companies and these oil and gas producers are making big wartime profits indeed. But there is no comparable industry in Ireland.
So are there better ways to help consumers deal with energy inflation?
Thankfully, public finances are in good shape and the government is targeting a large surplus of maybe €5 billion this year, thanks to strong employment levels, solid VAT receipts and high corporate tax receipts.
Economists at the Fiscal Council, ESRI and other bodies have more or less unanimously stated that the best fiscal approach to fighting inflation involves targeted measures to support low-income households and those on fixed incomes such as retirees.
There is money for that and Ministers Paschal Donohoe and Michael McGrath have already indicated that general action is on the way. But if the government wants an energy-specific instrument, rebates are probably the quickest and easiest route.
https://www.independent.ie/opinion/comment/power-play-green-party-to-push-for-energy-firms-to-cough-up-cash-through-windfall-tax-ahead-of-budget-41937914.html Power play – Greens are pushing energy companies to spend money ahead of budget through windfall taxes