Dáil Éireann Debate, Thursday - 28 April 2022
2. Deputy Ged Nash asked the Minister for Finance if he intends to introduce a windfall tax on the extraordinary profits of energy companies to fund measures to combat the rising cost of energy for households and enterprises; and if he will make a statement on the matter. [21422/22]
View answer3. Deputy Pearse Doherty asked the Minister for Finance if he will consider introducing a windfall tax on excess profits made by energy suppliers in the context of the rising cost of energy; if his Department has undertaken any preparatory work on the introduction of such a tax and the revenue it could raise; and if he will make a statement on the matter. [21563/22]
View answerDoes the Minister for Finance intend to introduce a windfall tax on the extraordinary profits of energy companies to fund measures to combat the rising cost of energy for households and enterprises? Earlier this month the Minister indicated that he was finally, as it was put, evaluating the potential of slapping energy suppliers with windfall tax bills. I want to know if that will come to fruition.
I propose to take Questions Nos. 2 and 3 together.
I am aware the European Commission has confirmed that EU member states can consider imposing temporary tax measures on windfall profits of energy providers and use the revenue generated to provide consumers with relief from high prices. Officials in the Department and in the Department of the Environment, Climate and Communications are evaluating the potential for such a proposal. The Deputy will appreciate that significant work would have to be undertaken as part of any such evaluation.
With regard to tax generally, the trading profits of companies in Ireland are typically taxed at the standard corporation tax rate of 12.5%. Some of the main features of the current regime are its simplicity and that it applies to a broad base. Changing this rate or imposing additional levies on certain sectors could have unforeseen consequences. There is a risk of such taxes leading to higher consumer costs and negative impacts on investment in the energy sector, in particular in the area of renewables. These are the factors that must be taken into account in terms of whether it will affect investment.
The Government has taken a number of measures to reduce the burden on consumers in relation to the cost of energy. This includes providing €200 worth of energy credit to every household in the country, reductions in fuel excise duty, and a reduction in the VAT rate for electricity and gas.
In relation to energy policy, which is the remit of my colleague, the Minister for the Environment, Climate and Communications, Deputy Ryan, a well-functioning EU electricity market remains crucial for the integration of the internal energy market at EU level and for providing investment signals for the integration of new renewables, which are essential ultimately to break our dependence on fossil fuels. The best long-term approach for Ireland to insulate consumers from volatility on international wholesale energy markets is to invest in energy efficiency and renewable energy. Cutting our dependence on fossil fuels and generating power from our own renewable sources will ensure a cleaner, cheaper energy future in the long term. Electricity and gas retail markets in Ireland operate within a European regulatory regime wherein electricity and gas markets are commercial, liberalised, and competitive. Responsibility for the regulation of the electricity and gas markets is solely a matter for the Commission for Regulation of Utilities, CRU, which is independent of the Minister.
The renewable electricity support scheme, RESS, is Ireland's flagship policy to deliver on the Government's target of up to 80% renewable electricity by the end of the decade. Electricity technologies now compete through regular auctions under the RESS, as well as through other routes to market such as corporate power purchase agreements. The RESS contains strong consumer protection measures, with wholesale market revenues above the auction price returned to electricity consumers through the public service obligation levy. Renewable energy sources, such as wind and solar generation, reduce electricity consumer costs by lowering wholesale electricity prices during periods when they are generating power, highlighting the need to accelerate energy system decarbonisation to reduce reliance on fossil fuels.
The war in Ukraine has dramatically concentrated EU efforts to address European dependence on Russian oil and gas through proposed new measures to diversify fossil fuel imports, enhance security of supply, and accelerate energy system decarbonisation, as set out in the recent REPowerEU communication. The European Commission is working closely with member states to protect the resilience of Europe's gas security of supply through solidarity measures. Both the International Energy Agency and the EU have stressed that the current situation further strengthens collective resolve to accelerate the clean energy transition, in line with the European Green Deal.
I welcome the fact the Government has finally come around at least to evaluating, to use the Minister's word, a windfall tax on extraordinary profits. This is a proposal the Government voted against in January when the Labour Party included it as part of our cost-of-living motion. We know energy companies like the ESB, which are not immediately tied into rising prices, made €679 million in profits last year, as thousands of homeowners struggled to pay soaring energy bills. Next week, ESB's Electric Ireland will go ahead with a near 25% increase in electricity and gas prices. We know that a conservative estimate, based on 2020 figures, suggests this could raise to the tune of €60 million to help pay for cost-of-living supports for households. Will the Minister of State give us a clearer indication as to the timelines for the completion of the evaluation?
There were 35 energy price increases last year alone. We know the price rises are stark. We can see, for example, that Bord Gáis has increased its price by 82% since October 2020 and its electricity price has gone up by 72%, increasing the average energy bill by €1,313. The increases are massive. We understand the driving forces behind this: the price of fossil fuels, the energy spike in the wholesale market last year, several power plants being out of action due to low wind at the time, and the war in Ukraine, but we must ensure shareholders are not profiting from these difficulties. Many suppliers have stated they will not price gouge, but it is not good enough to take them at their word. The Minister of State says the Government is looking at an analysis of the situation. When will the analysis be completed and when will a decision be taken? Is the Government monitoring the financial statements of energy suppliers at this time and will it monitor them in the future? What does the Minister of State believe is a reasonable profit margin for suppliers during this crisis?
I thank the Deputies. Windfall taxes on energy companies require careful consideration. A windfall tax could create unintended consequences. For example, it could disincentivise investment in renewable energy generation, as there would be uncertainty on profits returned for generators entering the market. Interventions such as windfall taxes may have the potential to reduce the energy costs for consumers through redistribution of additional tax revenues, but they may also themselves be a driver of costs to consumers in that, if a company's tax rate changes, it will factor that into its return on its investment and it will potentially add to the amount it will want to charge for its product. I must stress it is a two-way situation.
It is a complex area. I have stressed that our corporation tax, which is 12.5%, is clear and simple, and the more variations we have to it, the more complicated it is. We are working with the European Commissioners and other member states to consider a policy proposal, outlined under REPowerEU, designated to aid consumers and businesses to deal with increasing costs of energy. The best long-term approach for Ireland is to insulate consumers from volatility on the international wholesale market by investing in energy efficiency and renewable energy.
Cutting our dependence on fossil fuels and generating power from our own renewable sources will ensure cleaner, cheaper energy into the future. I believe that is the direction in which we need to travel.
That will not cut the mustard with the businesses and households I deal with in my constituency. The Spanish Government was able to do this. It introduced a windfall tax on energy companies last September. Therefore, there is a precedent set in the European Union on this. I want to give some solace to the small businesses and householders in my constituency. The Spanish case is a clear example of how funds generated through the windfall tax are paying for the country's VAT energy tax cut introduced in the same month last year. There is proof of concept and this tax is working in another EU member state. I ask that greater urgency be given to this concept, thereby bringing to fruition a windfall tax on profits.
In March, the European Commission issued a communication to all member states in addressing the energy crisis. Part of that, as the Minister of State may be aware, included the introduction of a windfall tax on energy producers and suppliers. This was echoed by the International Energy Agency, IEA, which warned that, given today's market design, high gas prices in Europe feed through to the wholesale energy markets in ways that can lead to windfall profits for companies. The IEA warned that current wholesale energy markets create the potential for profits that are well in excess of the cost related to operation and capital recovery. The agency estimated that under current conditions, this could lead to excess profits of up to €200 billion. We do not know exactly how this will translate in the Irish context, but we have had a glimpse with the ESB recording operating profits of €679 million. While the ESB is a semi-State body, other suppliers are not, with windfall profits likely to benefit their private shareholders.
Has the Minister considered the design of a windfall tax? Again, I repeat my question, and maybe the Minister of State might answer this one. What does he believe is an appropriate profit margin for energy companies at this time when households are suffering so much from high energy costs?
I again thank the Deputies. I confirm that the Government is working with the European Commission and member states to consider the policy proposal outlined in its REPowerEU document designed to aid consumers and businesses to deal with the increasing cost of energy. A number of potential measures have been set out by the European Commission under that initiative at European level, including introducing a price cap on the wholesale price of electricity, price limits for trading gas in the EU, and negotiating volume and price with international suppliers. Such interventions, including windfall taxes, may have the potential to reduce energy costs for consumers, but they may also become drivers of cost. There is a plus and a minus to that equation. It is a relatively new issue for which there is not a timetable. The matter is being considered in that context.
I wish to put on the record, in the context of people requesting a windfall tax on energy generators, the ESB through Electric Ireland has 47% of the market, so we have to start on that basis. If people want to put a windfall tax on the ESB in regard to Electric Ireland, they might want to consider that case. That is a substantial implication of what is being requested.
