EU eyes energy tax cuts, subsidies to ease Iran war impact

By Kate Abnett

BRUSSELS, March 20 (Reuters) - European Union leaders called on Thursday for temporary measures to mitigate the impact of a surge in energy prices caused by the Iran war, with electricity tax cuts, lower grid fees and state support put forward as possible short-term fixes.

Europe's heavy reliance on energy imports has left it exposed to spiralling prices since the Strait of Hormuz was effectively closed and Tehran started striking energy infrastructure in the Middle East.

A fifth of global oil and liquefied natural gas supplies normally passes through the narrow strait near Iran.

The price of benchmark Brent crude rose again on Thursday after Iran targeted energy facilities in Qatar and Saudi Arabia, and European gas prices were double their level when the U.S-Israeli war on Iran began on February 28.

In the longer term, Europe is betting on replacing fossil fuels with local low-carbon energy production to end the bloc's exposure to volatile oil and gas prices.

In conclusions released at the end of a summit in Brussels, the EU leaders said the European Commission should work closely with them on temporary and targeted measures to mitigate the impact of imported fuel and electricity price hikes.

Shorter-term fixes will be hard to find. Some EU countries doubt the bloc, whose 27 member states have vastly different energy mixes and taxes on energy, can offset a price spike caused by the disruption of global markets.

TAX CUTS, STATE SUPPORT AND GRIDS

European Commission President Ursula von der Leyen told a news conference that EU members could deploy state aid to cushion energy price rise, adding the EU executive would also propose lower taxes on electricity.

"In some cases, electricity is taxed much more than gas, up to 15 times more. And this cannot be so," she said.

However, tax cuts or state support could deepen divisions between wealthy and poorer countries, many already with squeezed budgets at a time when they also need to spend more on defence.

Von der Leyen also said the Commission would prepare a legal proposal to improve the productivity of grid infrastructure and allow countries to reduce grid charges for energy-intensive industries.

The leaders' conclusions also said the measures should preserve investment incentives into renewables, support their faster deployment and ensure fair competition in the EU's internal market.

To that end, von der Leyen said she had told leaders of Commission plans for an ETS "investment booster' to finance decarbonisation projects with a budget of 30 billion euros ($34.72 billion) financed by ETS allowances.

On Monday, she had laid out options the EU executive is exploring that promise tweaks to the bloc's emissions trading system (ETS), a cornerstone of EU climate policy, which makes power plants and industries buy permits to cover ‌CO2 ⁠emissions.

Von der Leyen said the executive would take into account the concerns of industry. Leaders want the Commission to present its review of ETS by July but they are split on its outcome.

Von der Leyen has said the Commission will adjust a reserve regulating the ETS' supply of emission permits to ⁠curb prices in the short term. Ten EU leaders have demanded deeper changes, including more free CO2 permits for industry.

Other countries, including Spain and the Netherlands, oppose weakening the system, which since its launch in 2005 has cut emissions 50% from sectors in the ETS.

($1 = 0.8641 euros)