The Government has approved the publication of draft legislation that would introduce a windfall tax on profits made by energy companies as a result of big increases in wholesale gas prices as a result of the war in Ukraine.
The proposals also include a cap on the market revenues of some energy generators in the wind, solar, oil, and electricity sectors.
The Government says that the measures contained in the Energy (Windfall Gains in the Energy Sector) Bill 2023 could raise between €280 million and €600 million.
The legislation is being introduced after an EU regulation on the issue that came into force last year.
Support for customers
Proceeds from the cap on market revenues are expected to be collected in September 2023, and will be used to support electricity customers affected by high electricity prices.
The cap, which varies depending on the type of energy, will be administered by the Commission for Regulation of Utilities.
Funds raised from the windfall tax – known as the ‘temporary solidarity contribution’ – are expected to be collected in September 2023 and September 2024.
The tax will be imposed on companies involved in fossil-fuel production and refining.
Government to decide on proceeds
The EU regulation allows these proceeds to be used in a wider range of areas – including financial support for energy consumers, reducing energy consumption, or promoting investments in renewable energy.
The Department of the Environment, Climate and Communications says that the Government will decide how to allocate proceeds collected from the windfall tax.
The tax, to be administered by Revenue, will be based on 75% of taxable profits that are more than 20% above the baseline of taxable profits for previous years.
If a company sees its profits jump by 40%, then 15% of profits will be collected (75% of the extra 20%). If profits double, the contribution will rise to 60%.