‘Mind-boggling’ profits for big oil puts tax hikes back on the agenda – POLITICO

It’s boom time for fossil fuel companies — and that’s spurring a growing clamor for Europe’s governments to boost their tax take. 

In the space of a week, many of Europe’s biggest oil and gas firms announced record profits for last year — the proceeds of soaring energy costs that were driven, above all, by Russia’s war against Ukraine. 

On Wednesday, France’s TotalEnergies announced net profits of $20.5 billion and a generous payout to shareholders — prompting protests outside its Paris headquarters spearheaded by Friends of the Earth France. Campaigners condemned the company’s “superprofits” at a time when the energy crisis has left millions in France — and in Europe — in fuel poverty. 

Across the Channel, BP on Tuesday announced net profits of $27.7 billion for 2022. The country’s Labour opposition called the income surge “the windfalls of war” and demanded that Prime Minister Rishi Sunak expand and strengthen the U.K.’s existing windfall tax on companies’ oil and gas production in U.K. territory. Norway’s Equinor, meanwhile, announced record net profits of $28.7 billion in a year that it replaced Russia as the EU’s largest gas supplier. 

A week earlier, Shell said it earned almost $40 billion — more than double its 2021 profits.

The succession of announcements has refocused attention on how governments might use tax systems to access oil company profits and use the revenues both in alleviating energy costs for consumers and aiding the green transition. In the U.S., President Joe Biden on Tuesday called the profits of Big Oil “outrageous” and proposed a quadrupling of tax on corporate stock buybacks; ExxonMobil posted a record $56 billion profit for 2022.

The EU already has a windfall tax — dubbed a “temporary solidarity contribution” — of 33 percent on profits that exceed a four-year average by 20 percent. It was introduced in September, with the proceeds intended to provide financial support for citizens and businesses struggling with high energy prices. Many countries have their own claw-back schemes.

Shell said it paid $134 million in the U.K. windfall tax and $520 million to the EU.

Here comes the taxman

But the bumper profits are leading to calls for the authorities to grab a little more.

“I think for some politicians it’s popular to call for this. The profits are exceptional and those saying they’re profiting from the invasion have some good arguments — but in practice it might prove difficult,” said an EU diplomat from a West European country. 

ExxonMobil is suing the European Commission over the tax policy — which makes it unlikely there will be any concerted effort to strengthen the EU policy until that case is settled.

However, a senior Commission official said that the string of profit announcements — coupled with the continuing hardships people are experiencing paying their energy bills — demonstrated “the moral case for the solidarity contribution.”

Those calls are already ringing out in the European Parliament.

“These huge profits are particularly unjust as regards society today,” said David Cormand, a French legislator on the Parliament’s budgetary and consumer protection committees. “There’s clearly a dichotomy between these absolutely mind-boggling profits and the resulting environmental impact created in the production of these profits.”

Last week, the Green lawmaker introduced an amendment to a Parliamentary resolution urging the Commission to consider bringing in a windfall tax framework for energy companies and a tax on share buybacks.

“We need to regulate an economic sector that today makes excessive profits and on top of that isn’t taxed in a way that matches these high profits,” Cormand said.

Aurore Lalucq, French MEP with the Socialists & Democrats and a member of the Committee on Economic and Monetary Affairs, said there was “no good reason not to expand the scope of windfall taxation.” 

“New legitimate reasons to implement a broader windfall tax are emerging every day … Total is probably the best example in France of what superprofits are and why they should be taxed,” she added. “It perfectly illustrates the arrogance of those who believe they owe nothing to the rest of the society.”

So far, EU governments are largely staying mum on the fat profits. In France, government spokesperson Olivier Véran acknowledged on Wednesday that the scale of TotalEnergies’ earnings “may shock” but noted that these were profits made globally, not in France, highlighting the problems countries could face finding ways to cream off the profits of vast multinationals whose production activities often take place far from national jurisdictions. 

But Mathew Lawrence, director of the U.K.-based Common Wealth think tank, said the level of public anger over the rising cost of living could encourage politicians.

“People are facing the biggest squeeze on their living standards in generations — and when they open their newspapers and turn on their TVs they get a blitz of record profit announcements,” he said. “These numbers are going to create a political blowback and there will be political gains for the people that say this is not acceptable and that we need to change the functioning and the design of the energy system.”