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Spanish Energy Taxation Up In The Air

by Ulrika Lomas,, Brussels

28 August 2012

Spain's budget minister Cristobal Montoro has said he would block any plans for further tax rises on renewable energy due to EU legal issues.

During the course of the summer, it has been reported, Spain has been preparing a draft law to implement an energy tax of up to 20% of total turnover. This tax would have impacted especially solar and photovoltaic panels, but would have been also applicable to wind power and nuclear power.

Under the current system, Spanish energy firms are prohibited from charging their full costs to customers, which means the energy firms' costs are structurally higher than the turnover they collect from customers. To compensate for this, the Spanish government has for years paid subsidies to energy firms. This is the so-called “tariff deficit”, estimated to have totalled EUR25bn (USD31bn) over time. The government says it will reach EUR50bn within four years, and Prime Minister Mariano Rajoy had pledged to close the tariff deficit during the election campaign last year.

This highly subsidized system was initially set up to attract a large amount of energy investments in Spain, to modernise the country's infrastructure while ensuring continued cheap electricity supply throughout the country. As a result, Spain has become a European leader in renewable energy. The investments have therefore been paid for by the taxpayer, and not by energy consumers.

Energy firms argue that the proposed tax may prompt some energy firms into bankruptcy and make the recession worse.

Mr Montoro opposes the sharp tax rises initially planned by the government, arguing that they would breach EU law and damage Spain's reputation as a reliable country for energy sector investment. However, he himself has come under fire due to his previous connections with the energy sector, leading to suggestions of a conflict of interest.

The outcome of the situation remains obscure.

TAGS: tax | Malta | interest | energy | law | budget | Cyprus | Spain

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