Spain Extends Windfall Tax on Energy Sector

Spanish Government Extends Windfall Tax on Energy Companies. The Spanish government has decided to extend the temporary windfall tax on energy companies, originally set to expire at the end of 2023. As part of negotiations over a new fiscal plan, the government committed to making this tax a permanent part of Spanish law. This decision secured key votes in Congress.

Political Negotiations Key to the Decision

The approval of the fiscal plan on Thursday followed intense discussions between the ruling Socialists and the Podemos party. Podemos conditioned its support on the introduction of a new law on taxing energy companies by the end of the year or extending the existing tax via decree.

Initially, the tax had been removed from the fiscal plan draft due to pressure from Catalan and Basque parties, who opposed measures that might burden clean energy investments in their regions. However, the government eventually conceded to Podemos’ demands, ensuring the fiscal plan passed with a narrow vote of 178 to 171.

Revised Tax Structure – Adjustments and Exemptions

Podemos leader Ione Belarra announced that a multiparty committee would be formed in the coming days to draft new legislation on taxing energy company profits. The revised measure will likely include incentives for decarbonization investments, though Podemos insists on maintaining minimum revenue levels to prevent the tax from becoming merely symbolic.

Current Windfall Tax Overview

The windfall tax, implemented in 2022, imposes a 1.2% levy on the revenues of energy firms exceeding €1 billion for the years 2022-2024. Exemptions apply to revenues generated abroad and regulated activities in Spain, such as energy transmission, distribution, and the sale of gas and electricity at regulated prices. The tax applies to all firms, regardless of their involvement in renewable energy, fossil fuels, or refining activities.

Controversy in the Energy Sector

Ahead of the vote, major energy companies, including Iberdrola, Endesa, Repsol, Naturgy, and TotalEnergies, issued a joint statement warning that extending the tax could jeopardize over €30 billion in planned energy transition investments over the next three years.

Repsol and Moeve (formerly Cepsa) reacted particularly strongly, threatening to halt investments in green hydrogen projects in Spain if the new tax regulations are implemented without adequate exemptions.

Balancing Climate Goals and Budgetary Needs

The government’s decision reflects the difficulty of balancing ambitious climate targets with the need to boost budget revenues during an energy crisis and amid rising living costs. While plans to offer incentives for decarbonization investments aim to mitigate industry concerns, tensions between the government and the energy sector highlight the risk of delays in green transition projects.

Source: reuters.com