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Charles Kennedy

Charles Kennedy

Charles is a writer for Oilprice.com

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Citi: Soaring Energy Bills Raise Chances Of Windfall Taxes In Europe

  • Gas and electricity bills in Europe could jump to 4.5 percent of household disposable income in 2023.
  • Rising utility bills raise pressure on politicians to implement windfall tax.
  • Rising energy commodity prices weigh most on Eastern European countries.
Citi

The higher the energy bills in Europe become, the higher the chances are for a windfall tax on energy companies and utilities, as governments will be forced to ease the growing pressure on household finances, Citigroup says.

Europe as a whole could see a utility bill rise of over 3 percent of gross domestic product (GDP) through 2024, Citigroup Global Markets analysts Piotr Dzieciolowski, Jenny Ping, and Antonella Bianchessi wrote in a note on Monday carried by Bloomberg.

Gas and electricity bills in Europe could jump to 4.5 percent of household disposable income in 2023, up from 3.5 percent in 2021. The utility bills could further rise to 4.8 percent of household disposable income in 2024, according to Citi analysts.  

In countries in Eastern Europe, where the prices of commodities account for a larger share of bills, the disposable income is likely to shrink the most, the investment bank says.

Per a Citi survey, one-quarter of respondents across Europe aged 18 to 29 say they would not be able to pay their bills on time if bills rose by one-tenth.   

Bills have been surging in Europe since the autumn of 2021 when the natural gas shortage led to higher gas and electricity prices. The Russian invasion of Ukraine further strained household income as utility bills surged with the skyrocketing commodity prices.

Spain and Portugal set a cap on the price of gas used for generating electricity, after the EU allowed them to do so, acknowledging their exceptional energy requirements.

Outside the EU, in the UK, soaring energy prices are hitting households and energy providers in a market that has realized that the cost-of-living crisis in Britain is not going away soon and will get even worse come next winter.

The UK has a so-called Energy Price Cap in place, which protects households from excessively high bills by capping the price that providers can pass on to them, but which additionally burdens energy providers.

But as the price cap was raised significantly in April—because of the high energy prices in the six months prior to the decision for the increase made by energy market regulator Ofgem in February—households are increasingly struggling to pay their energy bills.

The cost of living crisis “is going to get truly horrific” in October, Keith Anderson, chief executive at one of the largest providers, ScottishPower, told a Parliament committee last month.  

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By Charles Kennedy for Oilprice.com

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  • Mamdouh Salameh on May 23 2022 said:
    It is very probable that high energy prices are here to stay well into the future. The higher the energy bills in Europe become, the more intense the pressure on governments to impose a windfall tax on energy companies and utilities to help ease the growing pressure on household finances.

    And whilst a windfall tax is a temporary solution, it is definitely preferable to a global demand destruction that will lead to a very harsh global recession.

    The long term solution is annual investments of at least $600 bn a year for the next ten years to expand production capacity of oil and gas to meet global demand in coming years. Unfortunately, it takes normally up to 5 years before investments reach fruition but there is no alternative.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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