Europe’s ailing industries have several challenges, but one is outstanding: high energy taxes. According to Leonhard Birnbaum, President of Eurelectric, these taxes are significantly eroding the competitiveness of Europe’s energy-intensive sectors, according to Reuters. Birnbaum is also the CEO of German utility E.ON, which has a significant presence in the European energy market. He said that addressing energy prices, especially the tax burden on electricity, is crucial for the future of European industries.
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The Need for Tax Reform in Europe’s Energy Market
Birnbaum further proposes that policymakers pay attention to high energy taxes that weigh heavily on businesses as the European Union comes up with new measures to help the ailing industries. The taxes make up an average of 23% of the retail electricity price. They fall among the key contributors to higher energy costs in Europe. European industries have power prices 2-3 times higher than those in the US, according to the think tank Bruegel.
Birnbaum pointed out that the European energy market is much more fragmented than that of China. Access to credit is another challenge for industries that would like to invest in cleaner, electrified processes. He said that if Europe is serious about electrification and decarbonization, policymakers need to address the tax disparities between electricity and gas, which put electricity at a disadvantage.
Efforts to Overcome Energy Costs
The European Union is aware of the challenges posed by high energy prices and is expected to release a plan for affordable energy early next year. However, changes to tax rules have been stalled for years. Many of the levies impacting energy prices are set by national governments, which complicates EU-wide efforts to make energy more affordable.
Birnbaum emphasized that if governments want to boost competitiveness and attract investment, they must rethink energy taxes. Without changes, industries across Europe, from automakers to steelmakers, may face closures and job losses. Despite this, some diplomats believe that cutting taxes alone will not solve the problem. Broader measures, such as ensuring public procurement favors local, greener products, may also be necessary.
The Road Ahead for European Industry
While tax reforms remain an important first step, they alone are unlikely to strengthen the European industry. In light of the comments by Birnbaum to Reuters, the current urgency to act upon the grounds of energy cost reductions remains a need to make European industries competitive.
With these ambitions of a green transition, the EU has the challenge of balancing this transition with keeping its industries competitive within the world.
The EU’s challenge remains to integrate affordable energy solutions while fostering sustainable growth and job creation. As Birnbaum stated, if Europe is serious about becoming a leader in clean energy, it must act decisively on energy tax reforms.