Worth 65 billion euros and decided in a 22-hour marathon meeting: the federal government’s third relief package has a few surprises in store. Also striking was the announcement by Chancellor Olaf Scholz (SPD) that he wanted to skim off excessive profits on the electricity market – in close cooperation with the European Union. Otherwise, the federal government wants to implement the measure “quickly” at the national level. The Chancellor spoke of “great and dramatic relief”. Specifically: “The first task is to use such chance profits to relieve the burden on the citizens.”
So is the excess profit tax coming? At the press conference on Sunday, no one from the traffic light coalition wanted to say that word. Scholz only briefly mentions the word in speculation on the electricity market: “There are random profits, excess profits that are made.” It is therefore a matter of apportioning random profits.
But what does that mean specifically? First of all, Scholz plans to “set a revenue cap for those on the electricity market who do not have to pay the high gas prices.” That means wind, solar and hydroelectric power plants as well as operators of gas and nuclear power plants.
There is an easy way to reduce electricity and gas costs. Comparing gas and electricity prices is extremely straightforward.
According to Scholz, the excessive profits should “be skimmed off, as is the case with the EEG surcharge, only the other way around.” Finance Minister Christian Lindner (FDP) later also spoke of an EEG surcharge with the opposite sign. According to Scholz, the “many, many billions that we make in the process” should be used to “relieve the burden on citizens. With an electricity price brake that helps the public to be able to use a basic supply of electricity at cheaper prices.” It remains unclear whether the electricity price brake applies to a specific contingent.
Lindner explains that they want to use “the chance profits that arise there in the electricity market” in order to relieve the burden on citizens. So an excess profit tax after all? Lindner is already rowing back: This is a “measure of energy law and not tax law”.
Lindner later hints why the term excess profit tax is avoided as far as possible: “The alternative of an excess profit tax was of course controversial. However, there are constitutional concerns about this and the comparison with other European countries shows that this is not a secure source of income with which to finance relief.” That is why the electricity price brake is superior. In concrete terms, the money should be used to “finance network charges and pay for basic consumer needs,” says Lindner.
The idea is not new. As early as March, the European Union campaigned for intervention in company coffers, also known as the “windfall tax” – a random profit tax. The thinking behind it: Energy companies are enjoying billions in profits from the explosive rise in energy prices – simply from the shortage of gas caused by the war. So they benefit from geopolitical coincidences.
In addition, there is the merit order system, according to which the electricity market in the European Union works: First, cheap power plants such as wind, hydroelectric or solar power supply electricity to the market. If the demand increases, more expensive energy sources such as coal or nuclear power plants and finally the expensive gas-fired power plants also switch on. The “catch” from today’s perspective: Everyone gets the highest price. If the demand is particularly high and the price of gas is particularly high, the price for all forms of energy will also increase. The solar provider then receives just as much as the gas power plant. This system should be abolished, emphasizes Lindner again today.
But what is the difference between a random and excess profit tax? Ultimately, both taxes skim off excessively large profits – but the random profit tax can be defined much more specifically. It is only aimed at the windfall profit, i.e. the gain in the market situation. This occurs with monopoly structures on the market and extremely strong demand caused by chance, such as in the current energy crisis.
The excess profit itself is much more general, since it is about all profits that go beyond the “normal profit”. Accordingly, it would be difficult for the government to draft a law on the excess profit tax that only affects the energy market and not other companies that do very well. As early as the 1980s, a random profit tax was used to siphon off revenue from oil companies in the USA.
However, a random profit tax has so far been the subject of controversy. The Scholz government’s “levies” would primarily apply to companies that have already invested in renewable energies – and thus produce electricity cheaply and independently. If these profits were invested in expanding renewable energy, it would be a backlash against gas independence.