why France supports a “European contribution” from energy operators rather than a tax

why France supports a "European contribution" from energy operators rather than a tax

Tax or no tax? The debate over the super-profits of companies profiting from the war in Ukraine continues to rebound. Whereas parliament rejected tax proposalin August, Ihe German government reignited the controversy on Sunday 4 September by announcing that it supported the European Commission’s proposal to introduce a compulsory contribution from companies in the energy sector.

An announcement that does not have failed to raise the French left, calling on the government to reverse its decision not to tax record profits linked to the war in Ukraine. Twenty-four hours later, Emmanuel Macron in turn assured that France supported the European proposal, which the Twenty-Seven are to discuss on Friday during an Energy Council. It constitutes, according to him, the approach “the most coherent, the fairest, the most effective”, as households face ever-higher energy prices.

Tax on super profits against “mechanism of coEuropean contribution” : what differentiates the two proposals? If the European solution were adopted, the effort would be required of the “energy operators whose production costs are much lower than the selling price on the market”, said Emmanuel Macron. Since the Russian invasion, energy companies “produce electricity based on [d’énergies] renewables, coal or nuclear” while they have “still low production costs” that before the war, recalled German Economy Minister Robert Habeck on Sunday.

Due to a complicated mechanism (that the European Union wants to reform), the sale price of electricity is aligned with that of gas. So when gas is expensive, as at the moment, electricity is also expensive, despite production costs that do not change… Which saves these operators “lots of money”, underlined the German minister. The European logic is therefore to ask them to contribute to the support plans of the European States, under these “undue profits”detailed Emmanuel Macron. This contribution can to be seated “on the turnover or the amount of production, for example. The contribution is therefore decorrelated from profitability: it is not a tax based on benefits” which would be considered too important, explains Sophie Blégent-Delapille, tax lawyer and managing partner of Deloitte. A difference in logic in which the Minister of the Economy, Bruno Le Maire, finds himself more, who said again at the end of August: “I don’t know what a super-profit is.”

There is also a target difference. The mechanicEuropean ism would only concern energy operators, sor a much smaller number of companies than the French socialist proposal, for example, which wanted to tax the super-profits of the big gas and oil companies as well as those of the maritime and motorway concessions. “Then why stop there? Companies that sell helicopters and weapons are also making super profits”comments Sophie Blégent-Delapille, who points “lack of consistency”. However, a broad proposal is not to the taste of the government, which is reluctant in principle to tax business income too much. “Taxing more in France means producing less in France”justified Bruno Le Maire, at the end of August. Conversely, the European proposal would have the advantage of standardizing practices, without harming the attractiveness of the country, which alone would introduce significant taxation, believes Bercy, who puts forward the model of minimum taxation at 15 % of multinationals in the world, adopted at the end of 2021.

The left’s proposal also lacked “feasibility”, according to the Ministry of the Economy, arguing that the majority of the profits of energy companies are located in the country where the hydrocarbons are produced (Algeria, Norway, Nigeria, etc.) and not in the countries of consumption. Not to mention that this poses the problem of “Sharing this windfall: is it fair for us to take advantage of these benefits, when the producing countries want it too?”valued Sophie Blégent-Delapille.

Finally, the Ministry of the Economy recalls that if it supports the European proposal for a contribution from energy companies… it is because“we are already doing it for renewables”. In France, to encourage energy operators to embark on the energy transition, renewable energies are supported by a system of additional remuneration between the market price and a fixed price. “target” fixed when awarding each project. In short: the State pays the operators when the market price is lower than the price it guarantees them. Conversely, the latter donate money to the State when the market price exceeds the guaranteed price… This is the case since the explosion in energy prices. This agreement could thus bring 8.6 billion euros to the State in 2022 and 2023, according to thea Energy Regulation Commission.

In addition, and in order to contain the rise in regulated electricity tariffs to 4% in 2022, the government has this year forced EDF to increase by 20% the annual quota of electricity sold at a reduced price to its competitors, in the framework of the mechanism called “Regulated access to historical nuclear electricity” (Arenh). The group was thus forced to sell its production at a knockdown price, when electricity peaked on the wholesale markets. A mechanism different from that proposed by the European Commission, but which has the same “logic” contribution, assures Bercy.

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