European Commission Blames Taxes And Levies For High Energy Prices

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Originally published on Energy Post
by Sonja van Renssen

Image Credit: ShalomTesciuba
Image Credit: ShalomTesciuba

Retail energy prices are rising dramatically across Europe even as wholesale prices and consumption are coming down. Taxes and levies – set by national governments – are the main culprit, says the European Commission. Energy Post offers a sneak preview of an analysis of energy prices and costs expected from the European Commission on 22nd January.

The European Commission has nearly finalised its policy paper on energy prices and costs, plus an analysis of their drivers and implications. Below, Energy Post gives a “top 10” selection of insights from the analysis, based on the latest draft. The paper is due to be formally approved by all 28 Commissioners on 22 January. It will be issued alongside a new industrial policy for Europe (see our article “Climate policy bumps into competitiveness in Europe”), 2030 climate and energy proposals and non-binding guidelines for shale gas development.

  1. Electricity retail prices are rising despite wholesale prices coming down. Wholesale electricity prices declined by 35-45% from 2008-12, even as retail prices rose by 17.5% for industry and 20% for households. Wholesale prices have converged – thanks to EU energy policies – even as retail prices continue to diverge. The Commission plants to launch “an action plan on retail markets” by the summer.
  1. Gas prices for industry have increased by less than inflation. They grew by less than 1% a year from 2008-12; for households, they grew by 3% a year. In comparison, retail electricity prices rose by 3.5% a year for industry and 4% a year for households.
  1. Taxes and levies are primarily responsible for driving up European electricity prices. Since 2008, this is the component of the retail price that has seen the greatest increase: 36.5% for households and 127% for industry (not counting exemptions). This has not helped competitiveness: EU electricity and gas taxation is higher than elsewhere in the world.
  1. Electricity and gas prices could be a lot more competitive. Over half of EU households still face some kind of electricity price regulation. This curbs the scope for competition and the potential for the drop in wholesale prices to be reflected in retail prices. Vulnerable consumers should ideally be protected through social or industrial policy. Over half of the gas used in Europe is still indexed to oil.
  1. Energy costs for households and industry have increased even as consumption has decreased.Energy efficiency improvements have been insufficient to keep up with rising prices. Households’ share of budget for energy grew by 15% from 2008-12 although electricity consumption dropped by 1% and gas consumption by 15% from 2008-11. Industry consumed 4% less electricity but paid 4% more in for it in total.
  1. Retail prices are diverging, not converging across Europe. The gap between the highest and lowest prices paid for electricity and gas by consumers across member states has grown over time, especially for households. Consumers in the most expensive member states pay 2.5-4 times as much as those in the cheapest.
  1. European averages hide tremendous variation. National increases in household electricity prices range from -34% to +55% and although the average EU gas price rose by less than 1% a year for 2008-12, some industries reported rises of 27-40% from 2010-12.
  1. Network costs are the hardest to understand. Gas is particularly difficult. Even for electricity, there is great variation among member states driven by national differences on network tariffs and the physical infrastructure in place.
  1. The energy price gap between the EU and other major partners is growing. EU industry gas prices are 3-4 times more than in the US, India and Russia, and 12% more than in China. EU industrial electricity prices are more than double those in the US and Russia, and 20% more than in China (although 20% less than in Japan). The Commission posits that European electricity supply is more reliable than elsewhere, however.
  1. EU energy-intensive goods still dominate global export markets. This is true despite the widening disparities in energy prices since 2008. But the International Energy Agency (IEA) predicts that this share will go down, with energy prices as one driving factor; others include recession in Europe and global shifts in demand.

Underpinning this European Commission paper on energy prices and costs is a much more detailed analysis of this issue prepared by the Commission’s Economic and Financial Affairs department. Energy Post will therefore follow up next week with a more in-depth analysis of what make energy prices tick in Europe and how they compare to the rest of the world.

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8 thoughts on “European Commission Blames Taxes And Levies For High Energy Prices

  • Electricity prices rising 17% and 20% are not sky-rocketing energy prices.
    They go up but it’s not sky-rocketing, saying they are sky-rocketing is alarmist.

  • While this is not good for our competitiveness, it is good for the environment. Therefore I tend to think that the solution is not to reduce prices but to invest even more in efficiency, so that the companies and households need less energy. And also to continue subsidizing renewable energy for energy-intensive companies.

    • If member states were allowed, or better still forced, to support new renewables with capital grants, the money could be better targeted, it would be a far more effective way of driving the introduction of disruptive technology and there would be no upward pressure on prices.

      “But it’s not clear what the funding support is for pumped storage hydro. For regulatory purposes, it doesn’t count as a renewable source . . So there is no mechanism in place to encourage development of the technology.”

      Energy storage isn’t advanced under existing, incompetent regimes, because the ‘market’ doesn’t recognise its value and neither government nor industry have taken responsibility for its development.

      There’s nothing driving R&D in wind either:-

      “It is blaming technical difficulties . . . there’s a lot of volcanic rock that has to be drilled . . . the sea swell is a bigger challenge than previously calculated. The cost . . . is not falling as anticipated.”

      Then bring on floating turbines mounted on a wave energy converter – cheaper installation (no difficult foundations) and a bigger energy harvest . . . win/win.

  • while electricity prices explode, skyrocketing,
    my solar panels payback real fast.
    I mounted 4000 Kwh, will add 8000 Kwh more
    and buy an electric car.
    and make a lot of money with electricity price skyrocketing.
    I pray every day for a price rise.
    I live in the Netherlands
    hurray, its like buying stock, guaranteed dividends.
    with solar panels.

  • Nowhere is this more evident than in Spain. In countries like this,and the UK, where there is a significant proportion of low income families, it is a life-or-death issue, particularly during cold snaps.

    To treat household heating any less sympathetically than other basics, like foodstuffs, is callous in the extreme on the part of the governments involved.

  • The problem stems from their bankrupt ideology.

    “Taxes and levies – set by national governments – are the main culprit, says the European Commission.”

    The European Commission is responsible for that situation, through their dumb imposition of state aid rules, which severely limit what member states can spend on infrastructure development. The switch to renewables has been ‘incentivised’ by loading levies and ‘subsidies’, in the form of price support, onto electricity bills. It’s hardly surprising that consumers don’t enjoy stable, or even falling prices. If infrastructure build was funded by central government, out of taxation, as it should be, there would be no problem.

    Gas is over-priced because of an arbitrary ‘market’ link to oil prices. Why is this allowed? What price democracy?

    • Dave, I think they are pretty much trying to tie the real price of fossil fuel use to the the actual human cost. If having “cheaper gas” kills more people and creates unknown long term results, it might be wiser to raise that price to some equivalency….
      Should someone be left with out heat in the winter…No…

      • The EU don’t have, and don’t want to have, control over the price of gas. Their ideal is an economic structure that is ‘market-led’. I don’t think that will ever work. It places the onus on big business to ‘design’ the strategy going forward, but their choices are always driven by commercial expediency.

        Administrations are all paranoid about the effect state ‘subsidies’ may have on ‘competition’, so rules are put in place to restrict government support to ensure it’s not ‘distorting’ the ‘market’.

        Indeed, the European Court ruled that price support devices such as FITs and ROCs were NOT subsidies, because the cost was carried by bill-payers, not tax-payers!! But obviously, these interventions not only distort the market, they guarantee higher prices are paid by all, rich or poor. If the definition of insanity is repeatedly doing the same thing and expecting a different result, then these guys are all insane!

        The worst aspect of their bankrupt ideology is the restrictions placed on R&D grants. These are awarded as a percentage of the money put in by the company (match funding), so big business gets millions out of tax-payers and the innovative SMEs that take the most risk on new ideas get peanuts.

        On a personal level, UK schemes a few years back covered the cost of loft and cavity wall insulation on my property. That was a sensible use of ‘tax-payers money’, but the budget was tiny, out of all proportion to the problem, (the lousy quality of the housing stock) and NOT targeted on the poorest consumers, who live in the worst housing and pay the highest kwh rates.

        The new scheme, the Green Deal, is debt-financed. Unsurprisingly, it is a spectacular failure. If it had worked, the main beneficiaries would be the money-lenders, so it’s a good thing nobody’s been conned into taking it up.

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