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EU Seeks to Raise $140 Billion Clawing Back Energy Profits

BRUSSELS—The European Union outlined a sweeping plan to direct about $140 billion in profits and revenue from energy companies to consumers in the wake of high prices in a bid to stabilize the bloc’s energy markets in response to Russia’s punishing assault on the continent’s economy.

The plan is among the broadest defensive maneuvers that Brussels has orchestrated so far in response to economic pain Russia has inflicted on Europe in the standoff. Western powers have levied an array of sanctions against Russia to punish and deter Moscow amid its invasion of Ukraine.

Russia, in response, has squeezed European energy supplies, curtailing natural-gas shipments. That has pushed factories to reduce or shut down production, triggered emergency plans by governments to ration gas if necessary this winter and threatened economic recession.

European Union data out Wednesday showed eurozone factory output dropped by 2.3% in July from a month earlier, the first decline since March, partly reflecting cutbacks in energy-intensive sectors.

The EU plan is intended to redistribute some energy companies’ windfall profits and revenue to cushion the blow of high prices for consumers. It marks one of the bloc’s most significant market interventions since the global financial crisis more than a decade ago.

As the West scrambles to move away from Russian energy sources and imposes sanctions on Moscow, China and India have stepped in to fill the gap. WSJ examines how those countries have boosted Russia’s revenue from oil sales, supporting its economy. Photo illustration: Sharon Shi

It comes at a time when momentum on the real battlefield has swung recently in Ukraine’s favor. Kyiv’s forces have won back swaths of the country’s northeast in a withering counteroffensive. Those battlefield gains could provide Brussels officials more leverage in the economic sphere if they bolster support among politicians and voters for the war at a time when the economic pain from the conflict is starting to become more acute.

“In these times it is wrong to receive extraordinary, record revenues and profits benefiting from war and on the back of our consumers,” European Commission President Ursula von der Leyen said Wednesday. She said the money captured from companies’ inflated profits and revenue should be channeled to those who need it most, such as households and small businesses.

The commission wants to impose a cap of €180, the equivalent of $179, per megawatt hour on revenue earned by lower-cost nongas producers of electricity. Those firms have earned exceptionally high revenue because prices for electricity in Europe are determined by the most expensive source of power generation, which is currently natural gas.

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European Commission President Ursula von der Leyen delivers a speech in Strasbourg, eastern France.

Photo: frederick florin/Agence France-Presse/Getty Images

A cap at that level would allow producers to cover their costs and should not be a barrier to investment in new capacity, according to the commission. The commission said it expects national governments to collect €117 billion from the measure, channeling the funds back to consumers.

Companies with big portfolios of wind, solar and hydropower generation in Europe, such as Italy’s Enel SpA, along with nuclear energy producers, are likely to fall under the cap’s provisions. Enel didn’t immediately respond to a request for comment.

WindEurope, which represents the wind power industry, said it supports the goal of cushioning the impact of high electricity prices for families and businesses. But the group said it is concerned that individual member states could be allowed under the plan to set a revenue cap that is lower than the €180 per megawatt hour level proposed by the EU.

National caps at different levels “would create a patchwork that would undermine investments in renewables,” WindEurope said.

The impact on France’s EDF SA, the world’s biggest owner of nuclear power plants, is unclear. The company is already selling a big chunk of its output to competitors at a capped price of €42 per megawatt hour, as part of a settlement it reached with the commission in 2012 to encourage competition on the French electricity market. EDF didn’t immediately respond to a request for comment.

The French government also forced EDF earlier this year to sell more power—around 20 terawatt hours—to competitors at a price of €46.2 per megawatt hour, as part of a plan to cap retail electricity prices. That forced the company to buy electricity on the wholesale market at a much higher price, more than €200 per megawatt hour.

In Germany, the government could take a majority stake in embattled energy supplier Uniper SE, the company said Wednesday. The state has already pledged to take a 30% stake in Uniper and extended credit lines as part of a bailout package agreed in July.

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The commission also wants to skim the profits of fossil fuel companies that aren’t covered by the revenue cap. The plan aims to raise €25 billion by demanding companies involved in oil, gas, coal and refinery activities fork over one-third or more of the money the commission deems excess profit. The proposal defines excess profit as taxable profits that surpass a 20% increase on average profits from the previous three years. Revenue from this part of the plan could be used to help vulnerable households, companies and energy-intensive industries, the commission said.

Oil-and-gas giants that pay taxes in the EU stand to take a hit from the measure, including major producers such as France’s Total SA and Italy’s ENI SpA. Companies that don’t pay taxes in the EU wouldn’t be affected.

Total and ENI didn’t immediately respond to a request for comment. A spokesperson for BP PLC declined to comment.

A Shell PLC spokesman said the company wants to see more details on the commission’s proposal. “We support the need for temporary, emergency policy and other action to alleviate the energy price crisis in Europe and elsewhere to protect households and businesses,” the spokesman said.

The commission also wants to introduce a binding requirement for member countries to reduce electricity consumption by at least 5% during selected hours of peak use, when prices are highest. Governments should also set out plans for lowering overall electricity demand by at least 10% over the winter months, the commission said.

The EU proposals will need to be approved by member countries. Energy ministers previously backed the interventions the commission is proposing at an emergency meeting last week and will meet again on Sept. 30.

Wednesday’s data on factory sales in Europe showed how Moscow’s choking of energy supplies to Europe has driven up production costs, making it harder for some manufacturers to operate economically.

Most economists expect Europe’s main economies to contract in the coming months, with the severity of the recession dependent on average temperatures, progress in storing natural gas from non-Russian suppliers and the impact of government efforts to help households and industry.

“The darkest cloud on the horizon is clearly in the eurozone,” said Marcelo Carvalho, global head of economics at BNP Paribas.

Write to Kim Mackrael at kim.mackrael@wsj.com, Paul Hannon at paul.hannon@wsj.com and Matthew Dalton at Matthew.Dalton@wsj.com

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