A Windfall Tax on Windfall Profits?

Michael Jacobs (University of Sheffield) looks at the five arguments employed by BP and Shell against a mooted 10 % windfall tax on their record profits (https://www.theguardian.com/commentisfree/2022/feb/11/uk-windfall-tax-oil-gas-bp-profits). The oil and gas giants first argument is that, as windfall taxes are retrospective, they are possibly illegal. Jacobs notes that previous UK windfall taxes on banks (1981) and utilities (1997) occurred without any legal challenge. Their second argument is that they already pay twice the tax rate (40%) of other companies. Jacobs maintains that this is a misleading claim. Oil and gas get a wide range of tax reliefs on investment and decommissioning. They are actually treated generously. The average levies per barrel of oil in the UK and Norway are respectively $2 and $21. Argument number 3 is that the tax would prevent 'much-needed' investment in the North Sea, an area 'vital to the UK's energy security'. Jacobs points out that, 80% of North Sea oil and gas are exported and further investment is also incompatible with the UK's net zero commitments. BP and Shell's fourth argument is that, taking away some of their profits, reduces their ability to transition to low carbon technologies. Jacobs notes that, although BP is moving in this direction, it will continue to get at least 50% of its profits from fossil fuels for an extended period. He suggests Shell is making little attempt to 'go green'. The fifth argument against a proposed windfall tax used by BP and Shell, is that it would hit UK pension funds. Jacobs estimates, however, that fewer than 10% of BP and Shell shares are owned by UK funds. Jacobs dismisses the arguments, concluding that the windfall profits of the oil and gas companies were unrelated to anything they actually did. The profits occurred as a consequence of increasing world prices. Jacobs feels that taxing "some of the profits to help low-income energy bill payers is an entirely sensible way of rebalancing the costs and benefits." It seems to be an 'open and shut case', in which a 10% windfall tax seems quite modest.