Russia’s invasion of Ukraine has caused oil and natural-gas prices to rocket, which has strengthened politicians’ impulses to levy “windfall taxes”. But imposing them would be a mistake
Save time by listening to our audio articles as you multitask” is particularly strong today because Russia’s invasion of Ukraine has caused oil and natural-gas prices to rocket and then to gyrate wildly, giving the perception that firms are profiting from bloodshed. Governments, having run up enormous debts during the pandemic, must now find more cash to protect poor consumers from soaring energy bills and to boost defence spending.
Imposing windfall taxes is nevertheless a mistake. Start with the fact that energy markets go through cycles of boom and bust. The years Ms Warren has chosen as a benchmark were not good ones: in two of them, 2015 and 2016, the net operating margin of the global listed energy industry was negative. There was an other year of operating losses in 2020, during which the oil price briefly fell below zero owing to the pandemic.
whose boss recently said that high prices had turned the firm into a “cash machine”. But today’s energy crisis shows that the world needs a carefully managed phase-out of carbon emissions, not a sudden halt in fossil-fuel investment, especially if Europe is to wean itself off Russian gas. Renewable energy cannot immediately replace gas for some tasks, such as heating homes with gas boilers.
The European Commission says that renewable producers, which are also benefiting from high prices, should pay up too. This is doubly misguided. If even clean-energy companies have their profits seized during periods of shortages then the incentive to solve renewables’ intermittency problem, for example by making batteries better or by storing energy as hydrogen, will be blunted. And it is not just power shortages that need to be plugged as economies move to net zero.
The thorniest argument is that companies are benefiting from war. Windfall taxes live up to their name when firms have profited not from wise decisions, but from unforeseeable events that are unrelated to their investment choices. Yet geopolitics is a top concern of big energy firms, which must lay pipelines that cross borders and anticipate global energy needs far in advance.
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