Draft proposals seen by Reuters could pave way for windfall taxes to help fund major acceleration of European clean energy and efficiency programmes

The European Commission is reportedly preparing a sweeping new package of reforms to bolster the bloc’s energy security in a move that appears designed to enable further sanctions against Russia in response to its invasion of Ukraine.

Reuters reported yesterday that the Commission is working on plans that would allow member countries to tax the windfall profits enjoyed by energy companies as a result of recent gas price spikes and invest the resulting revenue in renewable energy and energy efficiency measures.

There have been growing calls for windfall taxes across the bloc to help fund measures to help households and businesses cope with record high gas prices, but there have also beenm concerns that such moves could fall foul of EU tax and competition rules. The new Commission proposals are expected to confirm that such taxes would be permissable, as long as the resulting financial support packages do not distort competition.

Proposals are expected to be published as early next week, as the bloc seeks to drastically reduce its reliance on imported Russian gas, oil, and coal, better protect European economies against spikes in fossil fuel prices, and accelerate its decarbonisation efforts.

The move comes as Western governments prepare to take steps to introduce further sanctions on Moscow, following this week’s moves to lock the country out of much of the global banking system. Speaking today, British Prime Minister Boris Johnson again rejected calls for NATO powers to impose a no fly zone over Ukraine, but stressed that further sanctions on Russia were being planned.

Proposals to impose sanctions on fossil fuel exports that many commentators argue have helped to bankroll Russia’s military have been hampered by Europe’s reliance on Russian gas to meet a large chunk of its energy needs.

However, governments appear to be increasingly committed to imposing wider sanctions in response to Russia’s attacks on civilian targets in Ukraine. Ukraine’s government has called for western powers to impose a “full embargo” on Russian oil and gas, while White House press secretary Jen Psaki this weekend indicated that energy sanctions remain “on the table”.

“We have not taken those off [the table],” she told ABC’s This Week programme. “But we also want to do that and make sure we’re minimizing the impact on the global marketplace and do it in a united way.”

Meanwhile, there are also concerns Russian President Vladimir Putin could act first and block fossil fuel exports to Europe as tensions between Moscow and the West continue to escalate.

As such, a drastically accelerated clean energy and energy efficiency programme could play a critical role in protecting European economies against the likelihood of further increases in energy costs in the longer term, while also potentially enabling further sanctions on Russian oil and gas exports in the near term.

The draft proposal, which was seen by Reuters, would also allow EU member states to use the proceeds of windfall taxes to support consumers and industries hit by high electricity prices.

And it is expected to order EU members states to fill their gas storage capacity ahead of next winter and accelerate permitting processes for new renewables projects.

The news comes as the fallout from Russia’s invasion of Ukraine continues to reverberate around global energy markets.

Yesterday, oil and gas giant Shell followed BP’s decision to offload its stake in Russian gas giant Rosneft by announcing it would similarly exit its joint ventures with Gazprom. The move will see Shell exit its 27.5 per cent stake in the Sakhalin II liquefied natural gas facility, its 50 per cent stake in the Salym Petroleum Development, and the Gydan energy venture.

“We are shocked by the loss of life in Ukraine, which we deplore, resulting from a senseless act of military aggression which threatens European security,” said Shell’s chief executive officer, Ben van Beurden.

And British Gas owner Centrica today announced it was working to “exit our gas supply agreements with Russian counterparts, principally Gazprom, as a matter of urgency”.

However, French oil giant TotalEnergies sparked an angry response from campaigners after it stopped short of committing to offload its own interests in Russia, instead pledging only to halt new investment in the country.

“TotalEnergies supports the scope and strength of the sanctions put in place by Europe and will implement them regardless of the consequences (currently being assessed) on its activities in Russia,” the company said in a statement. “TotalEnergies will no longer provide capital for new projects in Russia.”

French Economy Minister Bruno Le Maire is expected to meet Total CEO, Patrick Pouyanné, in the coming days to discuss the decision.

Isabelle L’Heritier, lead campaigner for 350.org in France, said it was “outrageous that Total refuses to withdraw from fossil fuel projects in Russia”.

“Oil giants BP and Shell have both announced plans to drop holdings, worth tens of billions, in Russian fossil fuels,” she added. “It is an important first step and now we need to see more companies, like Total and Exxon, pulling their support for fossil fuel projects in Russia and around the world.”

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