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EU gears up to sue Germany if it doesn’t change divisive gas tax

BRUSSELS — The EU will haul Germany to court unless the country revises a controversial gas law that neighboring countries say is harming their efforts to diversify away from Russian energy, a senior European Commission official told POLITICO.

Germany adopted the law in 2022, slapping a levy on all gas leaving the country to help plug an almost €10 billion black hole in its budget. But Germany’s neighbors say the law could violate EU rules on gas storage and undermine the bloc’s single market — driving up prices and incentivizing them to buy cheaper Russian energy.

The European Commission, the EU’s executive, shares those concerns and has told Germany the measure may not be legal. 

“For us, there are grounds to consider it a clear-cut breach of competition law and the single market rules,” said the senior Commission official, who was granted anonymity to speak freely about the sensitive matter.

“Unless Germany takes action to remedy the breach and eliminate the levy or reduce it to the extent that it doesn’t create a disturbance to the single market,” the official added, legal action would be inevitable “in the next few months.”

Under EU law, the Commission can launch an “infringement procedure” when it believes a country has violated Brussels’ rules. The process can result in financial penalties, although it usually takes months if not years before reaching that point — and starts with several compliance requests from Brussels before the courts get involved.

At the crux of the legal dispute is the EU’s vaunted single market, which enables the frictionless movement of people and goods throughout the bloc. The concept is core to the EU’s identity and economy, allowing businesses and countries to easily compete across borders. 

At the time when Germany adopted the levy, wholesale gas prices were at record highs after Moscow slashed exports to punish Europe over its support for Ukraine. Buying up short-term supplies left Germany with a massive gas bill, pushing Berlin to install its new levy.

In addition to prompting outrage from other EU countries, the measure — which has raised around €1 billion for Germany so far — soon become tangled up in broader EU efforts to ditch a long-running reliance on Russian energy.

The bloc wants to end Moscow’s fossil fuel imports by 2027. So far, the EU has eliminated around two-thirds of its historical Russian gas imports, though several Central European countries remain highly dependent on Moscow for supplies.

Last month, Austria, Hungary, Slovakia and the Czech Republic called on Brussels to address the levy at an EU energy ministers’ meeting, arguing it “poses significant challenges for the European gas market and has broader implications for energy security, economic competitiveness, and regulatory coherence within the EU.”

Still, Berlin insists it’s playing by the rules.

Under EU law, the Commission can launch an “infringement procedure” when it believes a country has violated Brussels’ rules | Carl Court/Getty Images

“The gas storage levy is non-discriminatory and is charged at the same rate” for all countries, a German Economy Ministry spokesperson told POLITICO, while confirming the government was holding informal talks with the Commission over a potential breach of EU law. 

Berlin’s well-filled reserves “have contributed significantly to stabilizing prices and calming the markets … not just [in] Germany, but also other European countries,” the spokesperson said, adding that EU gas trade is “not restricted by the levy, so switching to Russian gas cannot be justified.”

Experts aren’t convinced.

The levy is “hindering diversification,” said Aura Săbăduș, a senior gas market analyst at the ICIS market intelligence firm, since the measure has caused the difference in gas prices between Western and Eastern European markets to grow “considerably” year-on-year, with the potential to increase further.

“If they don’t lift this tax then Central and Eastern European countries will continue to remain dependent on Russian gas,” Săbăduș said, as long as it remains cheaper than other imports.

EU legal action, therefore, “sends the right message” to Germany, Săbăduș argued. “They had constraints and they need to recover this giant gap — but not on the back of destroying the internal market.”

Source: Politico

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