Nations should impose windfall taxes on oil profits to fund crisis exit

The recent fossil fuel crisis has inflicted immense losses on European citizens. In 2022, after Russia attacked Ukraine, gas prices soared, driving energy costs to severe highs. According to a report by the Centre for Research on Energy and Clean Air (CREA), each EU citizen paid an additional 150 euros ($175) per year for imported gas and electricity, part of which flowed to the United States.

That pain delivered unprecedented profits for fossil fuel companies. In 2023, the global oil and gas industry generated $2.7 trillion, yet invested only 4% of capital spending in clean energy.

These crises are moments of profound injustice. Not only are people paying for fossil fuel use through direct climate impacts, they are also enduring increasingly frequent price crises that slash meals, destroy jobs, and plunge homes into darkness. The deterioration of public living standards runs parallel to the surge in blood profits for fossil fuel companies.

The least governments can do now is impose windfall taxes on energy companies and use that revenue to ease the burden on households and finance the energy transition.

As in 2022, the revival of fossil fuel super-profits today is a direct consequence of bloody conflict. In late February, the United States and Israel attacked Iran. The conflict quickly spread across the region. So far, more than 3,000 Iranians have been killed, including over 150 schoolgirls and teachers in a school hit by a bomb. More than 2,000 Lebanese, 23 Israelis, and dozens of others across the Gulf have also died.

The closure of the Strait of Hormuz is triggering a global increase in oil and gas prices. First-quarter reports this year, including the first month of the war, have already shown abnormal profits for energy companies.

Last week, BP reported $3.2 billion in profit, far exceeding the forecast of $2.63 billion. The company's shares rose 2.5% on the morning of the announcement. TotalEnergies also reported a 29% increase in first-quarter profit to $5.4 billion. ExxonMobil's first-quarter profit was lower, but some profits from March will be reflected in the second-quarter report.

Analysts predict oil prices will rise even if the Strait of Hormuz reopens soon, and super-profits are expected to continue. According to a recent Oxfam International analysis, fossil fuel companies are projected to earn $3,000 per second by 2026.

This is a natural consequence of a global energy system that depends on extracting and transporting critical fuels through narrow, vulnerable chokepoints. But it is also the result of greed and profit motives.

Fossil fuel companies have acted for decades to trap humanity in this system. This stems from climate denial efforts and attacks on alternatives since the 1980s, as well as lobbying governments to push investment into industries heavily dependent on fossil fuels.

Energy think tank Ember recently noted that past fossil fuel crises failed to wean the world off this vulnerable system. But this time, wind, solar, storage, and electric vehicles have become significantly cheaper, even compared to 2022.

Ember stresses that there is no default fate here, and ‘the temptation will be to resort to the familiar script – drill more, subsidize more, diversify supply.’ But temptation can be resisted.

Short-term fossil fuel tax cuts merely transfer more money from ordinary people to the powerful. These ad-hoc policy responses should be replaced with targeted support for those who need it most.

Fossil fuel companies must at least face a windfall tax, and that revenue should be shared with the most vulnerable through social assistance, as well as directed to countries hardest hit by climate change. Such support would serve as compensation from the biggest polluters.

Windfall tax revenues should also be used to finance the transition away from fossil fuels, making nations more immune to energy shocks. Governments should introduce emergency oil demand reduction programs, focusing on public transport, active mobility, incentives for smaller cars, and new policies supporting disadvantaged people, such as Australia's cheap daytime solar electricity program.

We cannot survive in this system. Making humanity dependent on a fuel that becomes more profitable for companies when there is more bloodshed and conflict is a formula for ever more suffering on every level.