Major oil and gas companies are making billions of dollars in profits at unprecedented levels. Households around the world are reeling from soaring energy prices, while governments struggle with huge spending and slowing economic growth.
On Thursday, the UK government will close these inequality gaps by announcing a tax surcharge that will capture the windfall profits of energy companies and use the money to defray the staggering cost of the energy bill. Tried – threatened to propose, similar to what governments across Europe and President Biden did.
The logic seems simple. Energy suppliers are benefiting from an unexpected bonanza as Europe suddenly turns away from Russian gas and oil after the invasion of Ukraine, in stark contrast to clever strategies by the companies themselves.
London-based Shell recently reported making $20 billion in just six months. Paris-based TotalEnergies reported a profit of about $29 billion in the same period. american energy Companies are also embracing profit gobs. The net profit of global oil and gas suppliers is $4 trillionaccording to estimates by the International Energy Agency, double last year’s total.
Such staggering figures spurred the UN Secretary-General to Antonio Guterres“We urge all governments to tax these excess profits and use the funds to help the most vulnerable get through these difficult times.”
But there is a heated argument that imposing additional taxes on windfall profits to subsidize energy users will ultimately make the problem worse, not better.
But such warnings have done little to deter European governments from trying to fill cavernous budget holes with Smaug-sized piles of cash amassed by energy companies.
On Thursday, UK Finance Minister Jeremy Hunt said: announced It said it would raise $16.5 billion next year by raising the windfall tax on oil and gas companies from 25% to 35% and introducing a temporary 45% tax on electricity producers. Many of these producers, including those using solar, wind and nuclear power, are enjoying huge profits even though their costs have not increased.
The European Union last month Temporary tax — euphemistically named “solidarity contribution” — about some fossil fuel producers. An additional 33% tax will be applied to ‘surplus’ earnings, which is expected to raise $145 billion. There is also an upper limit on the power profit.
Individual countries go further. last week, Czech language Congress has approved a bill that would impose a 60% tax on the windfall profits of energy companies and banks. Germany We are considering taxing 90% of the profit that utilities make over their production costs.
Mr. Biden, too, has accused major oil and gas companies of making wartime profits, and says he wants a new windfall tax unless the companies increase production, although such a proposal has not been approved by Congress. less likely to receive approval from
Developing any kind of energy policy is particularly difficult at the moment due to conflicting goals.
One is about climate change. Policy makers want to ramp up coal, gas and oil energy production quickly to meet immediate shortages, but in the longer term they want to phase out all fossil fuels.
They want to capture a portion of the huge profits made by solar, wind and nuclear power producers, while also encouraging these companies to invest more in renewable energy sources. I’m here.
And governments must strike a balance between allowing households to bear the very high heating and fuel costs this winter, and encouraging them to significantly reduce their consumption. .
A windfall tax could facilitate some of these goals, but could be very difficult to create due to the sheer amount of technical complexity. How do you define profit?
David Goldwyn, a former State Department energy official under Obama, said he fears the government is siphoning excess profits from renewable energy companies.
“Renewable energy companies are facing cost pressures from inflation and are looking to raise billions of dollars to expand their investments,” Goldwyn said. “It is not clear whether Europe will be able to meet its energy security or energy transition goals by lowering the return on investment of these companies.”
In the UK, authorities didn’t want to stifle investment in oil and gas, so they allowed companies a tax exemption of 91p for every pound invested in new production. However, such government support for new fossil fuel production not only undermines efforts to reduce carbon emissions by 2030, but also significantly reduces the amount of revenues raised.
shellFor example, no tax has been paid on UK gas and oil production since 2017 due to exemptions related to new investments and funds spent on decommissioning old oilfields.
While many energy companies have challenged certain tax proposals, some have admitted that such policies may now be inevitable. “We have to accept it and I think we have to accept it.” Ben Van Burden Shell’s outgoing CEO said after announcing the company’s quarterly earnings in September:
Critics also argue that windfall taxes, which tend to apply only to profits earned within a country’s borders, undermine domestic energy production. tax foundationa research institute that tends to favor low tax rates points out: parliamentary studies The sudden profits tax introduced by the Carter administration in the 1980s reduced domestic production and increased dependence on foreign oil.
But whatever the shortcomings, as some economists have pointed out, if energy companies are making huge profits and families and businesses are facing financial ruin due to staggering energy costs, the windfall will come. profit tax makes the most sense.
With so many oil and gas companies using their new earnings to pay more to shareholders and buy more of their own shares to drive up prices, fears about curtailing investment may also be exaggerated. They pointed out that there is a
“It’s not going to have a big impact on long-term supply,” said Richard Portes, an economics professor at the London Business School. “Redistribute revenues from companies that are buying back shares or increasing dividends to consumers, households and businesses,” he said.
and Investigation Of more than 30 European economists surveyed by the University of Chicago Booth School of Business in June, half said they used a windfall tax on excess oil and gas profits to help households cover high energy costs. We agreed that we should. 17% disagreed and a third were undecided.
Anthony Froggatt“It’s fair,” he added.
John Van LeenenAn economics professor at the London School of Economics also supported such policies. “There is good reason to impose a windfall tax on producers, because the high profits that producers are currently making are due to Russia’s invasion of Ukraine, not as a reward for past investment and risk-taking activities. I think,” he said. “
With consumers facing such “tear-droppingly high” prices, Van Lienen said, this may be one of those coincidental moments when the tax’s economic and political claims just happen to overlap. said no.
