The inaction of the European Union on electricity prices only leaves room for countries to reduce taxation

The European Council summit at the end of last week in Brussels extended the decision of the community shock plan to address the sudden and continued rise in electricity bills in the EU. A waiting period during which the Union’s Energy Ministers will continue to forge the essential lines of an agreement that the Heads of State and Government will have to endorse in December, according to the itinerary set at their recent meeting in the Belgian capital.

The Government's shock plan to lower the electricity cuts 2,600 million to electricity companies

The Government’s shock plan to lower the electricity cuts 2,600 million to electricity companies

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In the meantime, the approach to the shock plan of the Spanish Executive, which relies largely on a substantial reduction in the tax burden that supports the electricity bill, seems to gain supporters and, above all, compelling reasons. Judging by the tax pressure, in which Spain has become the fourth European partner with the highest tax burden on electricity bills at the end of the first half of the year.

The data, recently revealed by Eurostat, leave a reading of special relevance, which assumes the diagnosis of the European statistics office itself. The extraordinary increase in the price of energy, propagated by the long rise in gas during almost all of this year, and which has infected the oil barrel – Brent has settled above $ 80 – is due to a range of concatenated factors. These range from geopolitical to fiscal, through cost surcharges for the use of infrastructures, obstacles in trade flows or environmental protection costs; without forgetting the configuration of the energy mix of each partner, the severity of the weather conditions – past and future – and, of course, the different room for maneuver left by taxation to correct the recent instability in prices, after a long decade of relative inflationary calm.

An evidence that is reflected when comparing this latest statistical X-ray with that of the second half of 2020, when the electricity bill of Spanish homes was the fifth most expensive in the entire EU -behind the German, Danish, Belgian and the Irishman-, but the fourth in tax pressure. With Ireland, the country that preceded it in shortage of electricity, with the fourth lowest tax burden, only above the Netherlands, Belgium and Bulgaria. A symptom that external factors, essentially the supply contraction, and inventory flight are those that determine the inflationary pressures of energy and that the reduction of taxes alleviates but does not by itself correct a rise in prices such as current.

Eurostat’s approach – and the market – is also shared by the German research and data firm Strom, whose experts assure that “taxes and fees are the main differential factors” in European electricity bills. This is the section where you should act preferentially, according to this firm, given that tax burdens have gone, on average, from representing 25.6% of the receipt in 2011, to 40.3% at the end of 2020, within of a scale that oscillates between 66% of pressure that the Danes support to only 3.4% of the Dutch or the 6% that registers the receipt of the electricity of the Maltese homes.

More specifically, from Strom they put the accent on VAT. In Europe – they explain in this consultancy – the average VAT levy stands at 15.5%, within a range that ranges between 4.8% in Malta and 21.2% in Hungary, the partner with the highest tax burden of this figure. The Spanish Executive in its decree at the end of September has approved the reduction of this tax with the cut of the tax rate from 21% to 10%.

In this tribute, Spanish households would be the fifth, along with Italians, with a lower contribution of VAT. The 10% tax is only above that of Luxembourg (8%), Portugal and Croatia (6%), France 5.5% and Malta 5%, after leaving the 21% block of the VAT of Belgium, Estonia, Lithuania, Czech Republic or Netherlands.

In the Netherlands there is a curious case, because the tax contribution to the electricity bill is negative, by three tenths, due to the discount applied by the country and which affects the rest of the taxation associated with electricity.

Accessions of European partners

Spain, due to the characteristics, the structure of its electricity market and the weight of the different productive sources of its mix, transfers the inflationary effect of the electricity bill to the consumer with great ease and speed through three figures: VAT, Especial de la Electricidad -which the Government has lowered from 5% to 0.5% in the shock plan to lower the price of electricity- and the one that taxes the Value of Electric Power Production, known as the generation rate, 7% and that is in suspension until the end of the year.

Also from several European partners similar approaches to that of the Spanish tax rebates arise. As shown, two buttons. Germany has announced that it will cut the additional and supplementary tax passed on to its consumers to support the transition to renewable energy, which is 42.7%. The reduction, of 3.72 cents of euros per kilowatt hour (kWh), will take effect until next January 1, which will stop entering 3.250 million euros for this concept. The rate, which was already lowered last year to 3.9% in an attempt to boost the economy during the health crisis, is intended to pay for wind and solar electrical installations.

Germany is not only one of the European economies with the highest tax burden on electricity generation with 53% of the bill – it is only behind Denmark, with 66% of tax support – but it was the market in which the most The price of electricity grew throughout the past financial years, with a rise of 20%, to 0.30 euros per kWh. It has also led the increases in the receipt in the first semester, up to 0.31 euros; ahead of Denmark, with 0.29 euros, according to the latest Eurostat semi-annual diagnosis, revealed on October 20.

Another country that has assumed the thesis of tax cuts on the electricity of President Pedro Sánchez has been the Czech Republic, whose Minister of Finance, Alena Schillerova, made official a request to the Commission to approve the total exemption of VAT, between November and December , which is charged on energy sales. The Czech Government does not rule out extending this “immediate action” measure to all of 2022 – a zero levy on this indirect tax – given the “extraordinary situation” of the European electricity markets.

In the absence of knowing the opinion of the European authorities, the OCU recalls that the price of electricity in Spain remained at record levels in the first half of October, exceeding 200 euros / MWh. “In the wholesale market, the cost of each MWh amounted to no less than 202.77 euros, beating historical levels”, which has raised the electricity bill by 30% compared to September: 156.15 euros / MWh. The interannual rate for the last twelve months has been multiplied by six; that is, since October 2020, when it marked a record of 35.56 euros per MWh.

In the opinion of the consumer association, “the current escalation has no signs of abating”, due to gas prices, but also to the high cost of CO2 rights. While remembering that the term of energy has traditionally accounted for 30% of the electricity bill; the rest “are tolls, charges and taxes,” they recall from the OCU. Although, due to the onslaught of the market – they qualify – the purely energy part “has increased to far exceed 50%”.

In the organization they say they do not trust an articulated measure of tax reduction by the Commission. Its commissioner, the Estonian Kadri Simson, called for “concerted actions” within the Union on the dates prior to the Council meeting, so that this energy crossroads does not damage the transition to the green economy or increase the use of fossil fuels. Although, at the same time, it emphasizes that “the best way to ensure that the electricity bills of all consumers remain low is to guarantee that the general design of the system is efficient” without requiring advances on the tax side.

OECD and IEA support

From multilateral forums such as the OECD, its partners and, of course, the entire European orbit are urged to take advantage of the current situation to differentiate the electricity bill with a different treatment of taxes on fossil and renewable sources. The idea is to tilt the direct tax burden on the former to promote the energy transition and to stimulate green technology investments in companies.

The International Energy Agency (IEA) emphasizes that the establishment of a tax system according to the strategic value that has been granted in many latitudes of the planet – and, above all, in Europe – to the electric vehicle and the suppression of the decarbonisation will be key. of the carbon footprint.

The IEA emphasizes that this double objective is essential to be able to cut the 18% of missions that the transport sector must correct and requires a rapid and forceful electrification of the energy system and the economic model. “In the same way that the taxation of polluting sources -fossils- should be increased, the tax map on electricity must be readjusted,” says the IEA.


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