Spain PM unveils tax cuts on electricity as prices soar

14 Sep 2021

Spain’s Prime Minister has announced taxes on electricity would be reduced by €1.4 billion for the remainder of the year, whilst €650 million taken from energy firms’ “extraordinary profits” would be “redirected to consumers”.

“We have made a firm commitment that all citizens will pay the same electricity bill [this year] as in 2018,” Pedro Sánchez said, adding energy companies’ current profits are “not acceptable”. 

With the gradual increase in electricity prices in Spain hitting all-time highs over summer, the pressure has piled on the PM’s minority government. A temporary VAT cut in energy has already been announced.

Toni Roldán, former MP and director of the centre for economic policy at Esade business school in Madrid commented: “At this point he needs to be very lucky to get average prices down to the 2018 level. We will have to start assuming that with climate change the cost of energy will become more costly for a while.”

Retail electricity prices in the country are closely tied to the wholesale electricity market as a large number of consumers pay variable rather than fixed tariffs. Yet the ongoing prices hikes are impacting the whole of Europe, fuelled by higher carbon prices, reduced supply from Russia and Chinese LNG demand, reports Financial Times.

“In Spain people are feeling the pinch in their personal finances but this is not a Spanish problem; it is a European if not a world problem,” according to Angel Talavera, head of European economics at Oxford Economics. “The issue is that, because of the different way the Spanish market works, much of the world has not noticed it yet, but sooner or later a similar trend will happen in other countries.”

Back in July, the European Commission proposed a series of green policies, such as a carbon price on car fuel, which received criticism from Spain and other countries claiming it will affect lower income consumers more who are less able to shift to greener alternatives.