Spain To Introduce Energy Tax Breaks And Set A Maximum Energy Price

New energy tax breaks will shield the economy, while the planned maximum power price will protect consumers.

Spain unveiled new energy tax breaks this week in an attempt to protect its economy from rising power costs and called for European-wide action, escalating a push across the continent to protect from the fallout of the Ukraine war.

Spanish Prime Minister Pedro Sanchez announced late Monday that a series of energy tax breaks would be approved later this month. The country intends to implement a second round of measures aimed at mitigating the current crisis’ impact on consumers and businesses. Earlier this week, Germany’s finance minister advocated for a price cap on gasoline, while a similar French proposal surfaced last weekend.

“The government will do everything in its power to mitigate the consequences of the war,” Sanchez said on the La Sexta television channel, as he urged Europe to repair its “broken” energy market.

While the Iberian peninsula has few commercial links with Russia and Ukraine, the war’s energy crisis is threatening the region’s economy at a time when it is still recovering from the Covid-19 pandemic.

The newly announced energy tax breaks come on the heels of a temporary reduction in energy duties, which will cost the government up to 12 billion euros in lost revenue per year.  Last week, steelmakers Acerinox SA and ArcelorMittal SA were forced to suspend some operations in Spain, so urgent action was needed to prevent a total business meltdown in the country.

The new energy tax breaks are expected to be approved on March 29, following a summit of European Union leaders on March 24 and 25. They will result in the removal of the volatile and extremely expensive gas from the continent’s price-setting mechanism.

“This link between gas and electricity prices is jeopardising our industries and economy,” the premier said.

Rising energy prices will erode real incomes of households and businesses in the short term, harming euro-zone activity, said Bank of Spain Governor Pablo Hernandez de Cos on Tuesday. De Cos, a policymaker at the European Central Bank, stated that officials must act decisively.

Despite the fact that Spain generates the majority of their electricity from cheaper renewable sources, the final price is frequently set by more expensive natural gas energy in a mechanism designed to boost remuneration and investment in solar and wind energy.

Aside from these tax breaks, Spain is considering reinstitution of a maximum price for power generated from renewable sources such as solar, wind, and water, according to Environmental Transition Minister Teresa Ribera, who is in charge of energy policy. Prices that exceed that limit, such as gas, would be excluded from the wholesale market pricing system, lowering consumer prices.

According to Félix Bolaos, Spain’s Minister for the Presidency, the Spanish government will lower electricity, gas, and fuel prices on March 29. The government is still attempting to reach an agreement with other EU countries, but if an agreement is not reached at the meetings on March 24 and 25, Spain will reduce prices unilaterally. It is still unclear by how much.

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