VINACHEM

Germany’s chemical producers’ trade group VCI is skeptical about a tax on “windfall profits” on energy producers under the country’s third and latest energy cost relief package.

Proceeds from the tax will be used to finance the €65bn package, which is primarily aimed at helping households cope with high electricity and heating costs over the coming winter.

Under the electricity market’s so-called “merit order principle”,  the most expensive power plant that is still needed to cover demand determines the electricity price – meaning that pricing is currently driven by the high cost of  natural gas-based electricity generation.

This mechanism of setting electricity prices meant that energy companies with lower costs – renewables, coal and nuclear – were currently earning “an insane amount of money”, economic affairs minister Robert Habeck said in introducing the package on 4 September.

In this situation, it was therefore fair to tax these high profits, and use the tax proceeds to help households, the minister said.

However, chemical producers’ group VCI said that a windfall profit tax would make the already complex electricity regulations even more complicated.

Just introducing the new term of windfall profits and starting to tax them did not address the challenges Germany is facing, the group said.

Rather, Berlin needed to do more to help industrial producers, it said.

“If companies are not massively supported now”, entire industrial structures and value chains would collapse, along with the jobs and the tax revenues – “not just for a short time, but permanently”, said VCI director general Wolfgang Grosse Entrup.

“Support must not be limited to just financial resources. We also need a new attitude from society towards industry,” Grosse Entrup added.

In related news, Bundesnetzagentur, a government agency that oversees gas availability, said in an update on Tuesday that the supply situation “is tense and a further worsening of the situation cannot be ruled out.”

However, due to increased precautionary measures taken in the past few months, Germany was now better prepared for the halt to Russian supplies, the agency said.

The total gas storage level in Germany is currently at 86.10% of capacity, it added.