Calls for Greater Taxes are Fueled by Big Oil's over $200 Billion Record Profit Haul

In 2022, the top five oil producers in the West made combined profits of almost $200 billion, which fueled further calls for governments to enact stricter windfall taxes.

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As fossil fuel prices increased in the wake of Russia's full-scale invasion of Ukraine, French oil giant TotalEnergies on Wednesday announced a full-year profit of $36.2 billion, more than double the amount of the previous year. Following Exxon's 2022 haul of $56 billion, which marked a historic high for the Western oil industry, TotalEnergies has now joined supermajors Exxon Mobil, Chevron, BP, and Shell in achieving a significant increase in annual profits.

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The aggregate revenues of the five Big Oil firms totaled $196.3 billion in 2017, exceeding the gross domestic product of the majority of nations.

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The energy companies, flush with cash, have rewarded shareholders with greater dividends and share buybacks as a result of their record profits.

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“You may have seen that Big Oil just announced record earnings,” U.S. President Joe Biden remarked in his Tuesday State of the Union speech. “In spite of the world energy crisis, they made $200 billion the previous year. It's revolting..”

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Biden claimed that "too little of that wealth" was allocated by American oil giants to increase domestic production and lower gas costs.“However, they repurchased their own stock to compensate their CEOs and stockholders with these unprecedented earnings..”

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In order to encourage long-term investments, Biden suggested tripling the tax on corporate stock buybacks while maintaining that the supermajors would still make a "substantial" profit.

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Amnesty International's secretary general, Agnès Callamard, called Big Oil's enormous profits "patently indefensible" and "an unmitigated calamity."

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Callamard said in a statement that "the billions of dollars in profits being made by these oil corporations must be adequately taxed" in order for governments to effectively address the rising cost of living for the most vulnerable populations and better protect human rights in the face of numerous global crises.

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In response to a barrage of criticism from activists, Big Oil executives have attempted to justify their increasing profits by frequently emphasizing the significance of energy security in the switch to renewable energy sources and claiming that higher taxes could discourage investment.

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"Taxes are ultimately an issue for governments to decide. We participate and offer viewpoints, of course, but the main one we try to offer is the context for the reality that businesses like ours need a safe and stable investment climate in order to invest multiple billions of dollars to support the energy transition," said Shell CEO Wael Sawan on Thursday.

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His remarks followed Shell's announcement of its largest yearly profit ever of nearly $40 billion, easily breaking its previous record of $28.4 billion set in 2008.

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“I am concerned about some of the changes being made because, for instance, windfall taxes or price ceilings merely undermine trust in that investment stability,” Sawan added. "I believe a different strategy is required, one that actually attracts investment money at a time when we need to be able to integrate energy security into the larger energy system here in Europe.". 

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The CEO of Saudi Aramco, the largest energy business in the world, recently underlined the risks of pressuring oil companies through higher taxes.

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Amin Nasser of Saudi Aramco responded when asked by Trade Algo last month if a windfall tax on oil revenues was a terrible idea., “They wouldn't benefit from having more investment, in my opinion. They need to help, they need to invest in the industry, they need to expand their business, and they need to use both conventional and alternative energy sources.”

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According to Nasser, the switch to renewable technology needed significant investment, which is likely to suffer if businesses are subjected to higher taxes.

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Windfall taxes

Former BP CEO John Browne stated that governments have every right to tax Big Oil's unexpected gains, provided the levies are implemented properly.

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"The problem about windfall taxes is that they are jurisdiction-dependant, and when I led BP I was subject to this many, many times, and secondly there is a threshold," Browne said to Trade Algo.

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As per Browne, the issue of windfall taxes requires politicians to strike a balance. The crucial aspect of a windfall profit tax, according to him, is that once it is imposed, it cannot be removed.

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The advocacy group Global Witness has asked for a higher windfall tax, arguing that people have every right to be angered by Big Oil's huge profits.

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Alice Harrison, campaign head for fossil fuels at Worldwide Witness, wrote to Trade Algo through email, saying, "We must all call out profiteering like this given that we're entering a global recession and that most of us know people who are struggling."

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“The era of fossil fuels, which is gravely affecting both people and the environment, would come to an end with a large increase in renewable energy and home insulation,” said Harrison. This would also benefit those who are having financial difficulties.

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‘People can see the injustice’

Sana Yusuf, a climate activist with Friends of the Earth said, "people can perceive the injustice of paying eye-watering energy rates while major oil and gas businesses rake in billions."

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Yusuf stated that "fairly taxing their surplus earnings may help to support a statewide program of insulation and a move toward renewable energy, which would lower bills, make houses warmer, and reduce damaging carbon emissions."

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After reporting record 2022 earnings of $27.7 billion, BP CEO Bernard Looney on Tuesday sought to defend the business against criticism, saying the British energy major was "leaning in" to its strategy to supply the world with the energy it needs.

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BP, one of the first energy conglomerates to declare a goal of reducing emissions to net zero by 2050, promised that emissions will be 35% to 40% lower by then. However, it announced on Tuesday that it was now aiming for a 20% to 30% reduction, citing the necessity to continue investing in oil and gas to fulfill demand.

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“Today, we're leaning into our plan.” BP’s Looney said. “In order to ensure energy security and affordability this decade, we're announcing up to $8 billion more investment in oil and gas as well as up to $8 billion more in the energy transition..”

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Follow This, an activist investment group harshly criticized the decision.

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According to Mark van Baal, the founder of Follow This, "if the majority of your assets remain linked to fossil fuels, and you even plan to increase those investments, you cannot maintain to be Paris-aligned, because you will not achieve significant emissions reductions by 2030."