For the first time, Danish tax minister Jeppe Brose is providing details of the new regulation on how the government will deal with the excessive profits made by energy companies, which in turn have benefited from high electricity prices. The government intervention will provide 1.2 billion Danish kroner that must be returned to the Danes, according to the Finans website.
Accordingly, Danish energy companies are expected to hand over 1.2 billion Danish kroner from their huge profits to the Danish treasury, according to Tax Minister Jeppe Bros. He also promised at the same time to return the money to Danes who have been affected by rising electricity prices since the outbreak of the war in Ukraine: “Overall, in 2023 there will be revenues of 1.2 billion Danish kroner. We will return that money to consumers in connection with the upcoming negotiations on inflation aid.”.
This measure was taken in the European Union in the autumn of 2022 when many energy producers received money due to violent price increases. The regulation was scheduled to be implemented in member states on December 1, but due to the long time it took to form the new Danish government, the tax minister was only able to get the details of the regulation ready for implementation in Denmark.
The regulation contains two different types of government intervention. The first is the so-called solidarity contribution, which imposes a special tax on companies operating in the oil and gas sector. Companies will have to pay 33% as an additional tax on part of their profit for the 2023 fiscal year. Fossil fuel energy companies will send a total of 800 million kroner to the treasury, according to estimates by the Ministry of Taxation.
The following is an explanation of how fossil fuel companies will be affected:
- The solidarity contribution is a temporary special tax for companies operating in the crude oil, natural gas, coal and refinery sectors.
- In Denmark, it mainly includes companies in the Danish part of the North Sea and two oil refineries.
- Denmark provides a solidarity contribution of 33%, calculated from the portion of the profit subject to corporate tax in 2023 that exceeds 20% of the average profit made by companies in the period between 2018 and 2021.
- Hydrocarbon producers are subject to a tax on extraordinary profits as part of the North Sea Agreement, and the solidarity contribution will be offset against the hydrocarbon tax paid.
The second intervention is the imposition of a revenue cap, which is applied to electricity from renewable energy sources primarily. For example, wind turbine power is taxed at a rate of 90% of profits exceeding the price cap of 1.34 Danish kroner per kilowatt-hour. The revenue cap affects electricity producers for a limited period from December 1, 2022 to June 30, 2023, and they are expected to deliver 400 million kroner to consumers.
The following explains how electricity producers were affected:
- The revenue cap means that electricity producers must be taxed at 90% on income earned exceeding 180 euros per megawatt-hour, which corresponds to 1.34 kroner per kilowatt-hour.
- The ceiling also covers the sale of electricity from wind, solar, geothermal, waste, nuclear power and crude oil products, while biomass is subject to a higher revenue ceiling.
- Central heating plants, small renewable energy producers, and hybrid plants (plants that can be fueled by coal and biomass) are exempt, and the same applies to intermediaries in the electricity sector.
The intervention is temporary and applies from December 1, 2022 to June 30, 2023.
When the proposal was adopted in September of last year, the whole of Europe was hit by historically high electricity prices, and in Denmark alone there were expectations that the interventions would bring in billions, which would help Danes through the crisis. It now appears that there is a possibility of getting 1.2 billion kroner into the treasury.
The minister explained that the matter is also related to the fact that security of supply must be taken into account, and therefore many players in the market were exempted from intervention.
The second and more important explanation for the fact that revenues have shrunk is the evolution of electricity prices. In the fall, prices were, on most days, five times higher than they were in January.
On Thursday morning, the government briefed rapporteurs from other parties on how to implement the EU regulation, and the two legislative interventions must be submitted for consultation before they come into effect.
Large business organizations certainly do not like the government's attempt to interfere with corporate profits, with one concerned party warning that government intervention is slowing the expansion of the renewable energy sector, arguing that this intervention risks slowing the green transition, because money that companies were supposed to spend on green investments now ends up in the treasury.
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