European energy companies are reaping billions in profits amid geopolitical tensions, but the EU Commission is resisting calls for a windfall tax.
Crisis Profits Estimated in the Billions
Profits stemming from the current crisis are estimated at billions of euros, yet Brussels is reportedly reluctant to tax them.
Several nations and numerous NGOs had hoped the EU package announced Wednesday would include a tax on the extraordinary profits of fuel companies, but the Commission decided against it.
Profit Breakdown: Oil and Refining Sectors
The Brussels-based think tank T&E estimates extraordinary profits in the oil extraction segment at €6.9 billion and €4.5 billion at the refining and distribution level, based on data from less than two months after the start of the US-Israeli intervention in Iran.
If the crisis continues, these benefits could rise to €53 billion and €37 billion respectively by year-end.
Return of the Windfall Tax Debate
The debate over a windfall tax – a tax on extraordinary profits – has resurfaced, with several parties advocating for its implementation.
Price Increases and Corporate Margins
Analysts at T&E note that average diesel prices in the EU rose by 51 euro cents per liter and gasoline by 22 cents between the week before the intervention and mid-April, but not all of these increases were justified by rising oil prices.
For diesel, increased corporate margins accounted for nearly as much of the price increase as the cost of the raw material; for gasoline, margins accounted for around 18% of the price hikes, according to T&E.
Broad Coalition Calls for Tax
T&E is part of a wider coalition advocating for taxing the extraordinary profits of the fuel sector as a remedy for the energy crisis.
Last week, over 30 environmental and progressive organizations, including WWF, Oxfam, and Climate Action Network, sent an open letter to Brussels, pointing out the parallels with the situation that led the Commission to introduce a temporary solidarity contribution in the sector in 2022, which raised approximately €28 billion for public purposes.
They argue a similar solution is desirable now and urged the Commission and member states to consider their recommendations in the current crisis response package.
Five Capitals Demand EU-Level Tax
Earlier this month, five capitals – Berlin, Rome, Madrid, Lisbon, and Vienna – appealed to the European Commission to introduce such a tax at the EU level.
The finance ministers of these five governments argued that taxing extraordinary profits could help governments finance benefits, protective mechanisms, and reduce inflation, while also mitigating the costs of the crisis for state budgets.
They added that the tax would send a “clear signal” that entities profiting from the consequences of the war must “do their part” to alleviate the burden on societies.
EU Leaves Decision to Member States
Ultimately, Brussels decided not to include the extraordinary tax as part of the package presented Wednesday.
The package consists of five pillars.
Focus on Consumer Incentives
The Commission’s communication suggests the tax on extraordinary profits is an option for member states, leaving them free to implement it or not.
EU recommendations focus on relatively less controversial issues such as consumer incentives, including linking support for households to the replacement of heating sources, tax privileges for drivers switching to electric cars, and facilitating energy communities.
The idea of temporary state aid rules is also returning to facilitate state support for vulnerable sectors of the economy in line with EU policy.
Disappointment and Industry Opposition
T&E expressed disappointment with Brussels’ decision, calling the plan a “half-hearted response” to the crisis.
“As oil companies make tens of billions in war profits, taxing these extraordinary profits is key to easing the burden on households,” commented Antony Froggart, T&E’s director for aviation, shipping, and energy.
Poland Considers National Tax
The Polish government is meanwhile considering introducing a tax on extraordinary profits at the national level, with details expected by the end of April.
Fuel Industry Pushback
The fuel industry is defending itself against additional burdens on its profits, with FuelsEurope sending its own letter to the Commission.
The organization, which includes energy giants like BP, ExxonMobil, Shell, TotalEnergies, as well as Poland’s Orlen, Hungary’s MOL, Russia’s Lukoil, Spain’s Repsol, and Italy’s Eni, argues that an arbitrary tax would constitute “double taxation” and send a “very worrying signal” to investors regarding the stability of EU regulatory frameworks.
FuelsEurope contends that refinery margins are inherently cyclical and subject to fluctuations beyond operators’ control, warning that repeated extraordinary tax burdens during periods of high margins, without a symmetrical response during downturns, would weaken the sector’s resilience and potentially lead to the closure of refineries, increasing import dependence.