Europe's High Energy Taxes Hinder Industries, Warns Power CEO

Governments aiming to support struggling European industries should prioritize tackling high energy taxes, which are eroding competitiveness, says the head of Europe's electricity lobby, Eurelectric, to Reuters. The European Union is currently drafting a package of measures to assist industries facing challenges, including manufacturing giants warning of plant closures and job losses due to rising costs.

Leonhard Birnbaum, Eurelectric President and CEO of German utility E.ON, told Reuters that while Europe's energy-intensive industries face numerous challenges, including a fragmented market and limited access to credit, policymakers should focus on removing extraneous costs from energy prices.

"We appreciate that states always need more money, but if you really want to electrify then you can't have, for example, an over-proportional tax burden on electricity compared to the tax burden on gas," Birnbaum stated. He emphasized the need for action, stating, "If we are serious about cost competitiveness, if we're serious about electrifying, if we're serious about decarbonising, I think we need to act on this."

Eurelectric's analysis indicates that EU industries pay electricity prices two to three times higher than their US counterparts. Taxes, on average, constituted 23% of the retail electricity price paid by European energy-intensive firms in 2023, according to think tank Bruegel. However, many of these levies are imposed at the national level, placing them beyond the direct control of the EU.

Negotiations regarding a proposed overhaul of EU tax rules to favor cleaner energy sources have stalled since 2021. The EU is set to unveil a plan addressing affordable energy prices early next year, but diplomats question the effectiveness of such measures given the ongoing tax issues and the gradual implementation of recent EU power market reforms.

A senior official from an EU country expressed skepticism about the effectiveness of tax cuts alone, suggesting that broader measures are necessary for European industries to compete with China. These measures could include EU regulations mandating public procurement of locally-made, greener products.

"We have trade policy tools, we have competition policy tools... We need to see a larger context," the official noted.

Wholesale power prices in Europe reached their highest point in over a year last month, although they remain significantly below their peak in 2022 following Russia's invasion of Ukraine and subsequent reduction of gas supplies to the EU.