Call for taxation of windfall oil revenues
-01/11/06
By Mark Porthouse
Amidst the ongo
Call for taxation of windfall oil revenues
-01/11/06
By Mark Porthouse
Amidst the ongoing news about the UK’s energy (in)efficiency, and calls for attention to be given to the likelihood of climate change refugees, and warnings that the conclusions of the Stern report would still expose millions of poor people to an unacceptably high risk of disease, drought and famine, the New Economics Foundation (NEF)and the World Wildlife Fund (WWF), have published research pointing out the dependence of the UK Treasury on oil and gas extraction royalties.
NEF points out that the vested interest that government has in the continued extraction of fossil fuels in the UK, due to the income from it, works against the recognised need to reduce carbon emissions from fossil fuel sources. The government is struggling to reconcile its commitment to reduce carbon dioxide emissions with demand for higher airport capacity. The research briefing goes on to suggest that the ‘unearned income’ from the exploitation of nature should be invested for the benefit of future generations instead of the immediate benefit of today’s citizens.
The NEF and WWF point out that the extraction companies, in particular BP and Shell, are currently making windfall profits due to high energy prices in the world’s markets. They suggest that new forms of taxation should be implemented to ensure that the wealth of our fossil fuel resources is not squandered.
However, critics of windfall taxes, including the boss of oil company Chevron, argue that unexpected taxes will discourage oil companies from investing where they cannot be sure of the returns.
The research compares the UK with another fossil fuel rich nation, Norway. NEF points out that Norway has invested a significant proportion of income from fossil fuels into a fund to provide for future generations of Norwegians, who will not have the benefit of such great supplies of fossil fuels. NEF recommends that the UK set up an Oil Legacy Fund which would invest in alternative energy sources, energy use awareness and planning.
Income from fossil fuel taxes would be redirected away from their current use within general government expenditure which tends toward short term investment because of the pressure of the election cycle. The briefing paper pointed out that this needs to be initiated before it is too late. The UK has become a net importer of energy as North Sea oil and gas supplies have run down.
The research argues that the costs to the environment are not factored into oil and gas taxation and that a levy should be placed on fossil fuels to compensate society for the damage that their use incurs. However, they suggest that the levy should be imposed on extraction of oil and gas, even when the oil is destined for uses that are not as environmentally damaging as energy provision. The briefing also implies that the oil companies are responsible not only for their own carbon emissions, but also of the emissions of people who use their energy products, and that the oil companies should be taxed on the assumed behaviour of their customers.
Crucially the research recognises the existence of existing contracts and suggests that future contracts enable the recovery of a greater amount of the wealth extracted. This would enable extraction companies to continue to make educated decisions about the level of investment that they are willing to make according to the contracts that they enter into.
The New Economics Foundation is an independent ‘think-and-do’ tank concerning itself with ‘real economic well being’. It has roots in the Jubilee 2000 debt cancellation movement.
Call for taxation of windfall oil revenues
-01/11/06
By Mark Porthouse
Amidst the ongoing news about the UK’s energy (in)efficiency, and calls for attention to be given to the likelihood of climate change refugees, and warnings that the conclusions of the Stern report would still expose millions of poor people to an unacceptably high risk of disease, drought and famine, the New Economics Foundation (NEF)and the World Wildlife Fund (WWF), have published research pointing out the dependence of the UK Treasury on oil and gas extraction royalties.
NEF points out that the vested interest that government has in the continued extraction of fossil fuels in the UK, due to the income from it, works against the recognised need to reduce carbon emissions from fossil fuel sources. The government is struggling to reconcile its commitment to reduce carbon dioxide emissions with demand for higher airport capacity. The research briefing goes on to suggest that the ‘unearned income’ from the exploitation of nature should be invested for the benefit of future generations instead of the immediate benefit of today’s citizens.
The NEF and WWF point out that the extraction companies, in particular BP and Shell, are currently making windfall profits due to high energy prices in the world’s markets. They suggest that new forms of taxation should be implemented to ensure that the wealth of our fossil fuel resources is not squandered.
However, critics of windfall taxes, including the boss of oil company Chevron, argue that unexpected taxes will discourage oil companies from investing where they cannot be sure of the returns.
The research compares the UK with another fossil fuel rich nation, Norway. NEF points out that Norway has invested a significant proportion of income from fossil fuels into a fund to provide for future generations of Norwegians, who will not have the benefit of such great supplies of fossil fuels. NEF recommends that the UK set up an Oil Legacy Fund which would invest in alternative energy sources, energy use awareness and planning.
Income from fossil fuel taxes would be redirected away from their current use within general government expenditure which tends toward short term investment because of the pressure of the election cycle. The briefing paper pointed out that this needs to be initiated before it is too late. The UK has become a net importer of energy as North Sea oil and gas supplies have run down.
The research argues that the costs to the environment are not factored into oil and gas taxation and that a levy should be placed on fossil fuels to compensate society for the damage that their use incurs. However, they suggest that the levy should be imposed on extraction of oil and gas, even when the oil is destined for uses that are not as environmentally damaging as energy provision. The briefing also implies that the oil companies are responsible not only for their own carbon emissions, but also of the emissions of people who use their energy products, and that the oil companies should be taxed on the assumed behaviour of their customers.
Crucially the research recognises the existence of existing contracts and suggests that future contracts enable the recovery of a greater amount of the wealth extracted. This would enable extraction companies to continue to make educated decisions about the level of investment that they are willing to make according to the contracts that they enter into.
The New Economics Foundation is an independent ‘think-and-do’ tank concerning itself with ‘real economic well being’. It has roots in the Jubilee 2000 debt cancellation movement.