Project Syndicate, 07.10.2022 | Clemens Fuest & Axel Ockenfels

“[…] If one proceeds this way, the main challenge is to determine which companies should pay the higher tax, and how much they should pay. At first glance, this seems straightforward. But energy companies that produce electricity or trade oil and gas often also pursue other activities as well. It is not easy to distinguish between activities that warrant a higher tax rate and those that do not, and the same issue applies to industrial companies that operate their own power plants – both consuming the electricity themselves and sometimes feeding it into the grid. Additional problems arise if one wants to tax revenues only above a certain profitability threshold. Another set of proposals focuses on the electricity market and envisages skimming off part of the revenue from sales for which the price exceeds a certain level. This kind of levy would be made dependent on the type of electricity generation, with all power plants except gas-fired ones being subject to the tax. The threshold would be set above – but not too far above – the variable costs of the most expensive non-gas-powered plants.”

Link to article: https://www.project-syndicate.org/onpoint/eu-windfall-profit-tax-how-to-do-it-by-clemens-fuest-and-axel-ockenfels-2022-10