In 2024, the Klesch Group — a major energy and refining conglomerate — launched a series of investor–state arbitration claims against the European Union, Germany, and Denmark. The company is challenging the EU’s 2022 “solidarity contribution”, a temporary windfall profits tax on fossil fuel companies introduced in response to the energy price crisis following Russia’s invasion of Ukraine. Klesch argues that the measure violates investor protection under the Energy Charter Treaty (ECT), claiming that it is arbitrary, discriminatory, and punitive.
These cases, now proceeding before the International Centre for Settlement of Investment Disputes (ICSID), are at a critical stage:
- The tribunal in the Germany case has provisionally ordered the government not to collect the tax from Klesch’s refinery.
- The EU and Denmark cases are moving toward full hearings after April 2025 rulings rejecting jurisdictional challenges.
The outcome could set a precedent for how far governments can go in taxing excess fossil fuel profits – and whether climate-aligned fiscal policy can withstand pressure from the investment protection regime that has long protected fossil fuel interests.
Context: Profits, Power, and the Need for Change
Fossil fuels account for nearly 75 % of global greenhouse emission, yet remain enormously profitable. The five biggest oil and gas firms earned $281 billion between 2022–2023. An independent study commissioned by Transport & Environment (T&E) found that European fossil fuel companies’ profits reached over €104 billion in 2022—a 45% increase over 2021—before dipping to still massive levels of €82 billion in 2023.
This profitability creates little incentive for companies to phase out fossil fuels or invest in a fair transition for workers. The failed attempt by the gas sector employers’ organization, Eurogas, to adopt a Just Transition Agreement highlights this resistance.
That is why a permanent excess or windfall profits tax is not just fair – It’s necessary. They could discourage speculative profiteering and redirect funds toward renewable energy, social protection, and climate action. The EU’s 2022 temporary solidarity contribution was a first step towards that direction.
What Are Windfall and Excess Profit Taxes?
Windfall profit taxes target profits that arise from exceptional, external shocks – such as geopolitical crises (as happened after the Russian invasion into Ukraine) or commodity price spikes – rather than from company productivity or innovation.
Excess profit taxes go a step further, capturing profits above a normal return on invested capital (around 10% according to the IMF). This limits excessive gains that signal market distortions and overconcentration – both common in fossil fuel markets.
Both mechanisms aim to reduce extreme corporate profits while generating revenue for society, the environment and climate action.
The EU’s 2022 solidarity contribution taxed profits exceeding 120% of the 2018–2021 average, with a minimum rate of 33%. Some Member States applied much higher rates, such as Ireland 75% or Slovenia 80%. This demonstrates the flexibility of national implementation. Revenue was mostly used for supporting vulnerable households.
Why Permanence Matters
The 2022 EU “solidarity contribution” was introduced as a temporary emergency measure, but the crisis it responded to – fossil fuel profiteering amid a climate emergency – is ongoing.
Fossil fuel companies continue to earn extraordinary profits. A permanent tax would create stability and predictability, giving the government a consistent stream of funding for the energy transition, protecting vulnerable households, and contributing to international climate finance for climate adaptation, mitigation and loss and damage. It would also send a clear message to investors: fossil fuel speculation is no longer a low-risk, high-reward game.
CAN Europe has proposed making this permanent through an EU-coordinated, progressive tax, one that combines common EU principles with flexibility for Member States and that targets both corporate profits and shareholder wealth.
CAN Europe’s proposal: a coordinated, fair tax on fossil profits
CAN Europe proposes an EU-wide framework to tax fossil fuel profits more fairly and consistently across Member States. Building on the 2022 solidarity contribution, this system would set common rules, such as a shared definition of the fossil fuel sector and minimum tax rates, while leaving room for national adaptation. The network calls for expanding the scope beyond extraction and refining to include fossil fuel transport, storage, and sales, and for lowering the turnover threshold from 75% to 51% so more companies are covered.
Three concrete designs are on the table:
- a top-up tax on existing corporate income tax,
- an excess-profits tax on returns above a normal 10% rate of return, or
- a fossil fuel wealth tax, targeting dividends, capital gains, and share buybacks linked to fossil assets.
Conclusion: Turning Crisis Taxes into Climate Tools
Taxing fossil fuel profits must become a pillar of Europe’s climate and fiscal architecture. The Klesch case is more than a legal dispute; it is a test of Europe’s courage to align fiscal policy with its climate goals.
By implementing permanent windfall or excess profit taxation, Europe can:
- Reduce fossil fuel over profitability
- Fund renewable energy expansion and just transition projects
- Protect vulnerable households and workers
- Demonstrate a serious commitment to a just energy transition
EEB members and allies can strengthen this effort by supporting CAN Europe’s call for a coordinated EU fossil profit tax and by advancing complementary wealth taxes to ensure the richest and most polluting pay their fair share.
Europe’s transition won’t be driven by laws alone. It will depend on enforcing them fairly, firmly, and fearlessly. Windfall and wealth taxes could be the levers that finally shift the balance toward justice and sustainability.
