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Cyprus applies top tax on electricity bills

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Cyprus taxes on household electricity bills are among the highest in Europe – in the top one-third of the range – in company with rich countries such as Germany and Denmark.

According to an article in the Financial Times, about 35% of the electricity bill goes to taxes, in contrast to just over 26% for Greek households.

The EU put forward a toolbox to assist vulnerable households, recommending tax breaks as its central element.

European Energy Commissioner, Kadri Simson, said in a speech to the European Parliament last month, “providing targeted support to consumers, direct payments to those most at risk of energy poverty, cutting energy taxes, shifting charges to general taxation, are all measures that can be taken very swiftly, under EU rules.”

The high cost of purchasing emission allowances (EUAs) on the EU’s carbon market, the Emissions Trading Scheme (ETS), have pushed Electricity Authority of Cyprus costs and prices up by as much as 15% this year.

The European Commission suggests that since most of the ETS revenues go back to national states, these can be used for direct support to households.

Commissioner Simson added: “The immediate priority should be to mitigate social impacts and protect vulnerable households, ensuring that energy poverty is not aggravated.

“Higher than expected ETS revenues provide space for doing so.”

The EC has proposed a ‘Climate Action Social Fund’ to shield European citizens from rising carbon prices in the longer term.

Unlike Europe, where high natural gas prices will come down early next year, electricity prices in Cyprus are expected to remain high in the longer term.

Lower prices by next Spring

The message from FLAME, the world’s foremost natural gas/LNG conference in Amsterdam – in which I participated – is that gas prices will come down to normal levels by Spring next year.

I have proposed in the past, and reiterate, the Cyprus government owes it to local energy consumers to utilise ETS revenues to bring electricity prices down.

It can also reduce electricity prices by about 3% by not applying VAT on the component coming from the purchase of EUAs.

In effect, this constitutes double taxation.

Based on the FT revelations and EC statements, it must also bring taxes on electricity down, preferably to Greece’s level.

Given the intolerable impact of high electricity prices on many households in Cyprus, high taxes are unjustifiable.

The announcement by the government on November 4 that it will cut VAT on electricity for vulnerable households by 14% for six months is a step in the right direction.

I have been calling for this for some time now, and I am happy to see the response.

But as electricity prices are expected to stay high for the longer term, with the cost of emissions expected to possibly triple by 2030, the government must immediately consider measures to maintain help for vulnerable households beyond the six months.

We need long-term policies on how to deal with mounting energy costs.

Dr Charles Ellinas is Senior Fellow at the Global Energy Center, Atlantic Council

Tw: @CharlesEllinas