EU Commission to Study Bloc-Wide Windfall Tax on Energy Firms as Fuel Prices Hit Records

The European Commission will study whether the EU should tax windfall profits of energy companies, after a meeting of the bloc's 27 finance ministers today, Oct. 9.

Simon Harris, Ireland's finance minister and current chair of the Ecofin Council, said the Commission "has been given a mandate to explore the possibility of taxes on windfall profits." He added that further technical and legal work is needed first, so nothing happens immediately.

Economy Commissioner Valdis Dombrovskis gave no dates. "We have begun the discussion," he told reporters. He repeated the Commission's position: "We believe that Member States are in a better position to set taxes in this area." Earlier this week he said the Commission had no plans "at this stage" for an EU-wide tax mechanism, while stressing member states are free to impose their own.

Why the pressure is building

The Iran war has pushed energy costs sharply higher. Oil futures are back above $100 a barrel, roughly 50% above pre-war levels, and derivatives markets do not point to a near-term drop.

Germany's motoring association ADAC put average diesel at a record €2.45 a litre on Wednesday, with petrol at a record €2.31. In the Netherlands petrol reached €2.73 a litre and diesel €2.78.

Across the EU, petrol is up 24% on a year ago, diesel 38%, and jet fuel more than 100%. Benchmark gas trades at €81 a megawatt hour, up 150%, with analysts suggesting it could reach €100.

Eight EU countries, including France, Italy, Spain and Poland, hold elections next year. Fuel prices are already a live political issue in France and Italy.

Who wants the tax

Germany, Portugal, Spain, Austria, Italy and Poland co-signed a letter earlier this year urging a windfall levy. German Finance Minister Lars Klingbeil has pressed the Commission to come back with models by next month.

"People can see how oil companies are exploiting the situation, overcharging and significantly increasing their profits," Klingbeil said. He said Thursday that France was not opposed.

In Ireland, Sinn Féin MEP Lynn Boylan seized on a remark from Energy Commissioner Dan Jørgensen on Oct. 7. Jørgensen said the Commission is "of the view that member states can take measures on the taxation of windfall profits to ensure social fairness."

Boylan said that leaves the Irish government with "nowhere to hide." She said ministers had long argued they had to wait for the EU to act. She also noted that almost 300,000 energy accounts in Ireland are in arrears. The government has not been quoted in response in the material at hand.

The track record and the holdouts

Brussels has been here before. After Russia's invasion of Ukraine, the EU capped revenues of inframarginal electricity generators such as wind and solar. According to Climate Commissioner Wopke Hoekstra, that cap fell short of its €50 billion target and triggered lawsuits.

Hoekstra also said a number of member states oppose a bloc-wide tax. "It is not without complications," he told reporters on arrival. "You always need to look at the full solution space."

The Commission's stated view that taxation is a national competence also limits what Brussels can do. Harris said the Commission's work will aim at "helping and assisting Member States" that want to impose such taxes.

Italy shows the budget squeeze

Rome is the clearest example of a government weighing windfall taxes against already costly relief. Prime Minister Giorgia Meloni's coalition this week said it would scrap road tax for 14.5 million cars and motorbikes from next year, at a cost of more than €2 billion. That comes on top of a diesel duty cut that has already cost €2.8 billion.

Public debt is expected to overtake Greece's this year as the highest in the 21-nation euro area. Government borrowing costs are rising, according to Reuters.

Deputy Economy Minister Maurizio Leo said Thursday the government is talking with banks and energy groups about contributing to state finances. "We don't want to slap people around," he said of banks. The League party says banks should contribute up to €3 billion, on top of about €12 billion already targeted from lenders and insurers through 2028.

Leading energy groups, including state-controlled Eni, announced fuel price caps last week. Reuters reported the move was widely seen as an attempt to head off a windfall tax. Economy Minister Giancarlo Giorgetti has not ruled out a domestic levy instead of waiting for an EU one.

What comes next

EU leaders are due to take up energy costs at a summit in Brussels next week. Italy is set to present its 2027 budget the same week, which will show whether Rome taxes energy firms and banks on its own.

It is unclear whether the Commission produces an EU-wide proposal at all, or just a framework member states can use individually. Klingbeil's deadline of next month will be the first test.