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E.U. Calls for Taxes to Battle Rising Energy Prices

As the war in Ukraine sparked a deepening energy crisis, the European Commission on Wednesday proposed a series of emergency measures, including imposing taxes on energy companies to fund support for struggling families and businesses.

If supported by member states, the legislation would radically, albeit temporary, change the energy policy of the world’s largest trading bloc as it grapples with the rising energy prices fueled by the conflict.

Ursula von der Leyen, the president of the European Commission, outlined the proposals and said the bloc should also review the way it set electricity prices.

“Not just a quick fix, but a paradigm shift, a leap into the future” is what Europe needed to overcome the energy crisis, Ms von der Leyen said during her annual State of the Union address on Wednesday. .

Consumers across the European Union are faced with high electricity bills, which have increased fivefold in the past year. And national governments, faced with energy shortages, have been on a frenzied hunt for new suppliers.

The European Commission said national governments should limit the revenues of nuclear and renewable energy suppliers to 180 euros, or about $180, per megawatt hour. It said this, in turn, would generate a surplus of about $117 billion a year, or about $117, which would then have to be funneled into subsidies for struggling households and businesses dealing with rising energy bills.

To avoid a winter of power outages and rationing, the European Commission has also recommended Europeans cut their energy consumption by 5 percent during peak hours and encouraged governments to look for more energy savings. Some European companies have already voluntarily shifted their working hours to off-peak hours, when electricity is cheaper.

There was no way out of the crisis, the Commission warned, unless European countries reduce energy demand.

At the heart of the energy crisis are two issues.

First, Europe has been heavily dependent on Russian gas, which accounted for 40 percent of the bloc’s consumption before the war. But to punish Europe for backing Ukraine after the Russian invasion, Moscow abruptly stopped supplying natural gas to the bloc.

The second, more structural problem is that in the European Union, electricity prices are determined by the price of the most expensive fuel as a benchmark – currently natural gas. As a result, sustainable energy companies that use much cheaper wind or solar energy to generate electricity charge the same high prices as companies that generate electricity with natural gas.

And while member states depend on different energy supply mixes and have different policies, the bloc’s energy market is regulated in Brussels, the headquarters of the European Union. That, in turn, requires a concerted response to manage emergencies, such as war, and longer-term challenges, such as how to calculate electricity prices in a sprawling European Union.

Ms von der Leyen said the current electricity market set-up “did not do the consumer justice anymore”. She called for a decoupling of electricity prices from gas prices, which would mean a major change in the bloc’s policy.

The Commission also proposed levying taxes on fossil fuel companies, saying this would bring in an additional €25 billion annually.

To become policy, the proposals require the approval of at least 15 of the bloc’s 27 member states, representing at least 65 percent of the EU’s population.

Frans Timmermans, the European Union’s top climate official, said the bloc needed to form a united front at a time when Russia was using its energy supply as a political weapon to try to club Europe.

“Putin is trying to divide us,” he said, “but we have to show him that we are much stronger than that.”