Last week, Europe’s two largest oil companies, TotalEnergies and Shell, announced soaring profits in the third quarter of this year, intensifying the debate about whether to impose windfall profit takes on fossil fuel energy companies. With global energy prices skyrocketing after Russia’s invasion of Ukraine, energy companies have been rolling in cash. ExxonMobil reported a quarterly profit of nearly $20bn, nearly matching the earnings of Apple. Shell reported a net profit of $6.7 billion in the third quarter, while TotalEnergies made $6.6 billion in profit across the same period, increasing by 43% from Q3 of last year.

These huge profits have caused a spike in oil stock prices across the industry. For Shell and BP, share values have jumped by 40%, while Exxon’s worth has increased by 75%, and Chevron’s by 50%.

These gains, however, wallop consumers, who have to suffer price hikes for their gas. To resolve this, European environmentalists and politicians are pushing for a windfall tax on energy companies, which would tax companies’ profits and redistribute them to low-income households struggling to pay for gas.

A version of this tax was implemented in the UK in May, much to energy companies’ chagrin, which taxed the profits of British energy producers like Shell and BP by 25%.  Companies, though, are finding ways to skirt the tax, with many using loopholes to avoid payment. Shell even managed to escape the windfall tax altogether, despite their billions of dollars of profit.

In an interview with the Guardian, Alok Sharma, the outgoing president of COP26 said that more must be done. “These are excessive profits,” said Sharma, “and they have to be treated in the appropriate way when it comes to taxation.” He went on, “We ought to be going further and seeing what more can be done in terms of raising additional finance [from the profits]. So far, at least, the level of money raised is obviously not significant.”

As gas companies’ profits surge, windfall taxes are becoming a more popular option for local, federal, and even global governing bodies. The British government is considering extending its windfall tax, and California, where residents pay more for gas than anywhere else in the US, is considering implementing one. Last month UN Secretary-General António Guterres urged all governments to consider a windfall tax on fossil fuel companies.

Why This Matters

While these companies rake it in, the world suffers. In Q2, oil giants ExxonMobil, Chevron, and Shell posted a combined $46 billion in record earnings. Plus, Big Oil continues to capitalize on coal. A recent study found that this dirty fossil fuel remains on the rise, despite widespread agreement that we must quit coal to prevent climate change.

The continued dependence on oil and gas contributes to the ballooning number of billion-dollar natural disasters across the US, from Hurricane Ian to western wildfires. Fossil fuels are also a major public health issue. Air, water, and chemical pollution killed 9 million people in 2019, which amounts to one in six worldwide.

Windfall Tax For Loss And Damage

Rich countries historically have contributed overwhelmingly to climate change, but will suffer less from its effects than poor countries, who emit substantially less. This issue -- referred to as the “loss and damage” problem -- is set to take center stage at COP27. Many countries are calling for reparations to help their citizens deal with the destruction climate change has wrought. Denmark has already taken action, setting aside $13 million towards helping vulnerable countries recover from natural disasters.

Windfall taxes offer a promising pathway to compensating poor countries for loss and damages, and have earned the support of UN Secretary-General António Guterres, who has insisted that “polluters must pay.” Critics, though, warn that windfall taxes may not be a long term solution, given they typically are in place for only a short period of time.

"We need to ensure fossil fuel companies are taxed effectively and consistently all the time, not just with one-off windfall taxes," Olivia Hanks, climate justice lead at the faith group Quakers in Britain, told the BBC.