While ExxonMobil takes legal action, European Commission claims oil & gas windfall tax ‘fully compliant with EU law’

While ExxonMobil takes legal action, European Commission claims oil & gas windfall tax ‘fully compliant with EU law’

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Subsidiaries of the U.S.-headquartered energy giant ExxonMobil have filed a lawsuit at the General Court of the European Union against the European Commission’s proposed windfall tax on fossil fuel companies’ surplus profits.

Back in September 2022, Ursula von der Leyen, European Commission President, disclosed a set of five measures, including “a solidarity contribution from fossil fuel companies” in a bid to protect vulnerable consumers and businesses” from the energy market volatility and high prices, as oil and gas companies have also made massive profits.”

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As a result, the EU decided on an emergency intervention to “address high energy prices” with a new regulation, which includes a temporary minimum 33 per cent tax as “a solidarity contribution” on the fossil fuel and refinery companies’ profits from 2022 or 2023 – depending on the country – which exceed a four-year historical average by 20 per cent. 

In response to this measure, ExxonMobil’s subsidiaries in Germany and the Netherlands have decided to challenge and contest the proposed windfall tax in an attempt to put a halt to it. According to Politico, Casey Norton, ExxonMobil’s spokesperson, underscored that ExxonMobil Producing Netherlands and Mobil Erdgas-Erdöl GmbH are “suing the European Council in a bid to annul a new windfall tax on oil and gas companies,” which they deem to be “counter-productive.”

“This litigation is driven by our concern about the unintended long-term effects of this policy on the competitiveness of European industry. This tax will undermine investor confidence, discourage investment, and increase reliance on imported energy and fuel products,” explained Norton.

Norton further added that this windfall tax on fossil fuel companies’ profits would not “remedy any shortage of energy supply and cannot realistically achieve a timely impact, so the European Commission and Council were wrong to use exceptional powers under Article 122(1) TFEU to speed its approval.”

Windfall tax to cushion Europe’s energy crisis woes

To get more information about this case, Offshore Energy contacted the European Commission and ExxonMobil. While no response from ExxonMobil has been received so far, two spokespersons for the EC, Arianna Podestà and Daniel Ferrie, confirmed that the European Commission had taken “note of the application against the Council Regulation. It will be now up to the General Court to rule on this case. The Commission maintains that the measures in question are fully compliant with EU law.”

“The Commission would like to recall that in September this year, it proposed an emergency intervention in Europe’s energy markets to tackle recent dramatic price rises. The proposal was presented in a spirit of solidarity under Article 122 of the Treaty to address the serious energy crisis. On 30 September, the Council agreed on a Council Regulation which introduced common measures to reduce electricity demand and to collect and redistribute the energy sector’s surplus revenues to final customers,” added the spokespersons.

Furthermore, the spokespersons outline that the European Commission put forward “a temporary solidarity contribution on excess profits generated from activities in the oil, gas, coal and refinery sectors, which are not covered by the inframarginal revenue cap” within the overall framework of the package measures proposed to tackle the current energy crisis.

The aim behind this proposal is to maintain investment incentives for the green transition while “redirecting collected revenues to energy consumers, in particular, vulnerable households, hard-hit companies, and energy-intensive industries,” as pointed out by the EC spokespersons. It was also emphasised that the temporary solidarity contribution could generate around €25 billion (over $26.65 billion) of public revenues, to be redistributed by the Member States subject to compliance with EU law. 

Within their statements, Podestà and Ferrie elaborate that this windfall tax is expected to ensure “the whole energy sector pays its fair share in these difficult times for many to address the extraordinary energy crisis resulting from the weaponisation of the energy supply by Russia.”

Moreover, the spokespersons for the EC highlight that this tax, targeting “the extraordinary surplus profits that the fossil fuel industry has made due to the energy crisis,” complements the revenue cap on inframarginal technologies. This is expected to enable the solidarity contributions to be “both fair and proportional,” as underlined by Podestà and Ferrie.

In addition, this windfall tax on fossil fuel companies’ profits – as a European instrument – is anticipated to help in avoiding “negative spillovers within the internal energy market stemming from uncoordinated national measures,” while ensuring “consistency with the objectives of REPowerEU,” concluded the EC spokespersons.

As there are no time limits on the EU court to make a decision regarding this case, years can pass before a judgment is pronounced, thus, the lawsuit does not prevent the legislation from taking effect.

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