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EU governments to struggle delivering benefits of energy levies

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With the energy council on Friday fast approaching, the flurry of proposals (and national policy papers) is intensifying. One idea that seems to be easier in theory than practice is how to funnel windfall profits to households most in need — a central plank of the European Commission’s draft plans.

On the national front, Italy yesterday joined (somewhat belatedly) the ranks of fellow countries urging consumers to spend less energy in the coming months.

We’ll also look at the reasons why a Swedish tech billionaire is visiting Brussels today.

And lastly Nato secretary-general Jens Stoltenberg has warned of possible “civil unrest” this winter as voters recoil from the economic costs of defending Ukraine from Russia’s invasion, in an opinion piece for the FT that comes as EU governments worry about the public backlash to the impact on household finances from the war.

To target or not to target

The goal of the commission’s proposed five-point energy package, according to Ursula von der Leyen, is to “bring back social balance” by recycling windfall profits back to “vulnerable” households and businesses, write Sam Fleming and Valentina Pop in Brussels.

But delivering on that laudable-sounding goal will hardly be easy. In particular, not all member states are convinced by the idea of implementing a swath of national levies on both fossil fuel producers and renewable power companies, suggesting there could be a lively debate among ministers this week.

Some member state diplomats question how anything that looks like a tax measure will get past member states in the absence of unanimous consent.

The idea of imposing a price cap on Russian gas is also contentious — given some capitals fear that any retribution by Vladimir Putin would target the last remaining gas flows into the EU via Ukraine — depriving Kyiv of critical transit fees.

And then there is the vexed question of how member states identify those vulnerable households and companies upon whom support should be focused. Economists argue that far too many of the current interventions by EU member states have been poorly targeted, as governments spray money around in energy subsidies rather than focusing on the neediest consumers.

The result is that measures are often not only hugely costly, but they end up propping up demand at a time when the EU needs to pare back its appetite for energy. European governments have to date spent some €280bn fighting the energy crisis, according to Bruegel, and the bill is rising by the day.

The question of how to identify which households are in need, a core tenet of the commission proposals to be discussed by energy ministers on Friday, will probably be left for member states to decide for themselves.

But some countries are already struggling with logistics of helping out with energy costs. A case in point is Germany, where finance minister Christian Lindner recently said it would take over a year to implement the new legislation on support with energy bills, because there was no centralised database linking tax contributors with their bank details.

“We have a few, for instance with social services and the fiscal authority. But to integrate them, to bring together all this data, would take some 18 months, according to my experts,” Lindner said in a news conference on August 31.

And Germany’s logistical problems don’t end there. Lindner went on: “The public administration with its current IT systems would only be able to make 100,000 transactions a day. Think about how many Germans we are! How long will it take until millions of people receive [the money].”

In prepared remarks yesterday, von der Leyen said the EU needed to save electricity in “a smart way”. That is easier said than done.

Chart du jour: Global impact

Bar chart of respondents listing Russia's invasion as a top global challenge showing Ukraine war awareness

The impact of Russia’s invasion of Ukraine is being felt around the globe, though at different levels of intensity, according to this survey by Open Society Foundations published today.

Winter is coming, Italian-style

Italy is slowly coming around to the realisation that the upcoming months are best braced if overall energy demand goes down, issuing public recommendations already made by Germany, France and other EU governments, writes Giuliana Ricozzi in Rome.

“Winter is coming” is not just a nostalgic reference to the original Game of Thrones series; it is also a refrain other Europeans have been hearing even at the height of the hot, dry summer. And as Russian gas supplies dwindle to a trickle and prices continue to rise, Italy is also starting to prepare for a dark, cold winter.

While not going as far as rationing hot water or dimming street lights, Rome is recommending people at home to lower their thermostat to 19 degrees Celsius instead of 20, and to switch off the heating one hour earlier than planned. This applies to offices too, while on industrial premises, the temperature will be regulated at 17 degrees.

The Italian government will also start an awareness campaign aimed at encouraging virtuous behaviours limiting gas consumption: shorter showers, and best lukewarm instead of hot. If you have someone over for pasta, best remember to set the cooker on lower temperature once the water has boiled.

In addition to changing individual behaviour, the government also seeks to boost electricity production from sources alternative to gas (including coal) and to come to an agreement with industries to limit their gas consumption. If all these measures are added up, Italy could reduce its overall gas consumption by 15 per cent, the government estimates.

What the Ek? Dan is in town

It is not everyday that you see a tech billionaire visiting Brussels. But today Spotify founder Daniel Ek will hold high profile meetings with senior officials, including competition commissioner Margrethe Vestager and internal markets commissioner Thierry Breton, writes Javier Espinoza in Brussels.

Ek is in town partly to express concerns over the slow pace of an antitrust case he initiated: that Apple is displaying anti-competitive behaviour by trying to push its rival Apple Music service to the detriment of Spotify. “There is dissatisfaction on the timing,” said one person briefed on the matter. Move fast and move effectively, Ek is expected to tell antitrust officials.

People familiar with his visit stressed that his agenda was much broader than the push for the antitrust case. He is also, for example, speaking to students at Vlerick Business School about entrepreneurship.

Spotify’s claim is that Apple was taking a 30 per cent cut of its subscription fees for featuring it in the App Store and denying it the right to tell its users that other ways of upgrading were available. Rivals to Spotify claim the company doesn’t necessarily have a strong point on the basis that it will be very difficult to argue that it risks going under because of Apple’s actions.

The company has also faced some controversy recently. A number of artists revolted against Spotify over the hosting of podcaster Joe Rogan, who was accused of spreading Covid misinformation on his show. Both Rogan and Ek issued apologies for the content in the show.

What to watch today

  1. Commission chief Ursula von der Leyen meets EU ambassadors ahead of Friday’s energy council

  2. EU health ministers meet in Prague

Notable, Quotable

  • Reset, possible: Britain’s new prime minister Liz Truss is expected to pull back from an early confrontation with the EU over post-Brexit trading rules with Northern Ireland, with Brussels and Dublin hoping for a narrow “opportunity” to reset relations with London.

  • Sanguine about Meloni: For all its disappointment over the early collapse of Draghi’s government, Italy’s business community appears sanguine about the prospect of Giorgia Meloni becoming prime minister, betting that she will want to prove she can deliver economically.

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