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Government Intervention - Should there be a windfall tax on energy companies?

Graham Watson

13th February 2022

A windfall tax is undoubtedly a popular idea: oil companies have got rich and we are footing the bill, ergo they should pay more tax.

And it is undoubtedly helped by the fact that the oil companies receive such large subsidies and pay so little tax in the first place.

However, this alone doesn't make it good economics. You should think about the various downsides of a windfall tax, and note that most of them are longer-term than the seemingly obvious short-term benefits. I wonder what behavioural economics would say about our ability to compare the two?

This Guardian article looks at the distributional implications of oil and gas companies earning such large profits, arguing that there's little evidence that much of it ends up in the Treasury's coffers. Indeed, Channel 4 have reported that BP has paid no tax on its North Sea oil and gas in the last five years.

The flip side of this coin is that the companies themselves argue that the need the profits to fund investment in the move to low carbon energy, although critics are far from convinced.

This article looks at how the continued reliance on gas has adverse implications for the UK's carbon emissions, ability to hit our climate change targets and household bills. However, Jillian Ambrose looks at some of the ways that we might be able to overcome this via a combination of renewable energy, better insulation and smart meters.

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