“Windfall tax is to ensure oil companies pay fair share in these difficult times” – EU

Jan 09, 2023 News

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– as Commission respond to Exxon’s lawsuit to block tax on ‘big profits’

Kaieteur News – The European Union (EU) has responded to American oil giant, ExxonMobil, lawsuit to challenge and stop the Commission imposed windfall taxes.

In their response, the European Commission maintained its position that the windfall tax was imposed fully compliant with EU’s law and elaborated  that the windfall tax is expected to ensure, “the whole energy sector pays its fair share in these difficult times for many to address the extraordinary energy crisis…” – Offshore Energy reported.

Kaieteur News had reported that on December 28, 2022, Exxon filed the lawsuit against the EU, arguing that the Brussels exceeded its legal authority by imposing the levy. A windfall tax is a one-off tax imposed by a Government on a company, specifically targeting those that benefit from something they were not responsible for.  In this instance, the ongoing Russia-Ukraine war has sent oil prices soaring and triggering a cost of living crisis in many countries. Amid the war, oil and gas companies have been seeing record-shattering profits and as such, many Western Governments have introduced a windfall tax on the big profits to alleviate the cost-of-living crisis and balance their economy.

Back in September 2022, Ursula von der Leyen, European Commission President, disclosed a set of five measures, including “a solidarity contribution from fossil fuel companies” in a bid to “protect vulnerable consumers and businesses” from the energy market volatility and high prices, as “oil and gas companies have also made massive profits.”

As a result, the EU decided on an emergency intervention to “address high energy prices” with a new regulation, which includes a temporary minimum 33 percent tax as “a solidarity contribution” on the fossil fuel and refinery companies’ profits from 2022 or 2023 – depending on the country – which exceed a four-year historical average by 20 per cent.

The Financial Times had reported that the lawsuit is the most significant response yet against the tax from the oil industry. The action threatens the viability of a levy the European Commission said would raise €25bn “to help bring down energy bills”.

Exxon had announced that the lawsuit was filed by its German and Dutch subsidiaries at the European General Court in Luxembourg City. The lawsuit challenges the Council of the EU’s legal authority to impose the new tax — a power historically reserved for sovereign countries — and its use of emergency powers to secure member states’ approval for the measure.

To get more information about this case, Offshore Energy contacted the European Commission and ExxonMobil.

Offshore Energy reported that while no response from ExxonMobil has been received at that time, two spokespersons for the EC, Arianna Podestà and Daniel Ferrie, confirmed that the European Commission has taken “note of the application against the Council Regulation. It will be now up to the General Court to rule on this case. The Commission maintains that the measures in question are fully compliant with EU law.”

“The Commission would like to recall that in September this year, it proposed an emergency intervention in Europe’s energy markets to tackle recent dramatic price rises. The proposal was presented in a spirit of solidarity under Article 122 of the Treaty to address the serious energy crisis. On 30 September, the Council agreed on a Council Regulation which introduced common measures to reduce electricity demand and to collect and redistribute the energy sector’s surplus revenues to final customers,” added the spokespersons.

Furthermore, the spokespersons outlined that the European Commission put forward “a temporary solidarity contribution on excess profits generated from activities in the oil, gas, coal and refinery sectors, which are not covered by the inframarginal revenue cap” within the overall framework of the package measures proposed to tackle the current energy crisis.

The aim behind this proposal is to maintain investment incentives for the green transition while “redirecting collected revenues to energy consumers, in particular, vulnerable households, hard-hit companies, and energy-intensive industries,” as pointed out by the EC spokespersons. It was also emphasised that this temporary solidarity contribution could generate around €25 billion (over US$26.65 billion) of public revenues, to be redistributed by the Member States subject to compliance with EU law.

Within their statement, Podestà and Ferrie elaborated that this windfall tax is expected to ensure “the whole energy sector pays its fair share in these difficult times for many to address the extraordinary energy crisis resulting from the weaponisation of the energy supply by Russia.”

Moreover, the spokespersons for the EC highlighted that this tax, targeting “the extraordinary surplus profits that the fossil fuel industry has made due to the energy crisis,” complements the revenue cap on inframarginal technologies. This is expected to enable the solidarity contributions to be “both fair and proportional,” as underlined by Podestà and Ferrie.

In addition, this windfall tax on fossil fuel companies’ profits – as a European instrument – is anticipated to help in avoiding “negative spillovers within the internal energy market stemming from uncoordinated national measures,” while ensuring “consistency with the objectives of REPowerEU,” concluded the EC spokespersons.  As there are no time limits on the EU court to make a decision regarding this case, years can pass before a judgment is pronounced, thus, the lawsuit does not prevent the legislation from taking effect.

 

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• EU, European Commission President, ExxonMobil, lawsuit, Offshore Energy, Ursula von der Leyen

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