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Calls for windfall tax grow as BP's profits surge BP hits back at calls for windfall tax on bumper profits
(about 3 hours later)
Oil giant BP has reported its highest profit for eight years, prompting calls for a windfall tax on energy companies. Oil giant BP has rejected calls for a windfall tax on energy companies' bumper profits, saying it would reduce investment in UK gas and renewables.
BP posted a profit of $12.8bn (£9.5bn) for 2021, and it made more than $4bn in the final quarter of the year when oil and gas prices surged. BP posted a profit of $12.8bn (£9.5bn) for 2021 after oil and gas prices surged in the second half of the year.
The jump in energy prices means households are facing huge increases in gas and electricity bills from April. That has prompted calls for a one-off tax to help support families struggling to pay their energy bills.
Labour said it was "only fair and right" that energy firms making higher profits should pay more tax.Labour said it was "only fair and right" that energy firms making higher profits should pay more tax.
Last week, rival oil giant Shell also reported bumper profits of $19bn on the same day that the energy regulator announced UK householders would see a 54% rise in their domestic energy bills in April. But BP said: "Generally, a windfall tax on UK oil and gas producers would not encourage investment in producing the UK's gas resources.
Commentators say energy firms are raking in excess profits on the back of fuel poverty and "creeping climate apocalypse". "Very importantly, we also believe the UK should continue its [low carbon] energy transition as fast as possible. BP is committed to playing our part here," a company spokesperson said.
However, firms like BP argue they are facing an unprecedented challenge: while the global economy remains heavily dependent on fossil fuels, they are being urged to shift to lower carbon alternatives, and need big profits to fund that transition. Last week, rival oil giant Shell also reported profits of $19bn on the same day that the energy regulator Ofgem announced UK householders would see a 54% rise in their domestic energy bills in April.
BP's chief executive Bernard Looney told the Financial Times even a one-off windfall tax this year would divert profits away from investing in gas supplies and in low carbon energy. That has prompted criticism that energy firms are raking in excess profits on the back of fuel poverty and "creeping climate apocalypse".
"I don't think a windfall tax is going to incentivise people to invest in the thing that we need right now," he said. But the oil giants argue they are facing an unprecedented challenge: while the global economy remains heavily dependent on fossil fuels, they are being urged to shift to lower carbon alternatives, and need big profits to fund that transition.
BP said over this decade the firm planned to invest more than twice what it made in Britain, the "great majority" in offshore wind, solar, hydrogen, carbon capture and storage and electric vehicle charging.
BP has moved further than many of its rivals, outlining a plan to increase its renewable power capacity 20-fold by 2030 and reduce its oil output by 40%, or more than 1 million barrels per day.
The strong results showed BP was doing what it had promised: "performing while transforming" BP chief executive Bernard Looney said.
What is a windfall tax and how would it work?What is a windfall tax and how would it work?
A windfall tax is a one-off tax imposed by a government on a company or group of companies.A windfall tax is a one-off tax imposed by a government on a company or group of companies.
The idea is to target firms that were lucky enough to benefit from something they were not responsible for - in other words, a windfall.The idea is to target firms that were lucky enough to benefit from something they were not responsible for - in other words, a windfall.
An example of such a windfall would be high energy prices. Companies that get oil and gas out of the ground are getting much more money for it than they were last year, largely because there has been so much more demand as the world emerges from the pandemic.An example of such a windfall would be high energy prices. Companies that get oil and gas out of the ground are getting much more money for it than they were last year, largely because there has been so much more demand as the world emerges from the pandemic.
Read more about windfall taxes hereRead more about windfall taxes here
There is much debate over whether the energy industry can be relied on to pursue a renewables revolution quickly enough, and whether imposing higher taxes would slow down that change or provide the incentives to accelerate it. Last year's profit compares to a $5.7bn loss BP reported in 2020, when economies around the world were shut down due to the Covid pandemic.
Commening on BP's results, Mr Looney said: "2021 shows BP doing what we said we would - performing while transforming." But rising demand for oil last year, as economies reopened, combined with supply chain challenges, pushed energy prices sharply higher by the end of 2021. The surge in revenues prompted Mr Looney to describe BP as "a cash machine", with profits reaching more than $4bn in the final quarter.
He also said BP had made "strong progress" in its transformation towards becoming a low carbon energy business. Those profits come at a particularly sensitive time with UK households facing a cost of living crisis, which has already prompted the government to step in with a council tax rebate and loans to smooth the coming rise in domestic energy prices.
Last year's bumper profits compare to a $5.7bn loss BP reported in 2020, when economies around the world were shut down due to the Covid pandemic. The Treasury said it would not comment on speculation over tax changes but pointed out that oil and gas firms' profits are already taxed at a higher rate than other businesses.
But rising demand for oil last year, as economies reopened, combined with supply chain challenges, pushed energy prices sharply higher by the end of 2021. The surge in revenues prompted Mr Looney to describe BP as "a cash machine". "A windfall tax could deter £14bn worth of opportunities awaiting investment, which would risk both security of our energy supply, as well as almost 200,000 jobs that rely on the industry," a Treasury spokesperson said.
UK households are facing a cost of living crisis, with prices for food and heating rising sharply. Last week's announcement of a huge increase in the energy price cap prompted the government to step in with a council tax rebate and loans to smooth price rises.
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Labour and the Liberal Democrats have both called for a windfall tax on the profits of fossil fuel firms such as BP and Shell to fund more support for households. However Labour and the Liberal Democrats have both called for a windfall tax on the profits of firms such as BP and Shell to fund more support for households.
"The boss of BP described the energy price crisis as a cash machine for his company - and the people supplying the cash are the British people through rocketing energy bills," said Ed Miliband, Labour's shadow secretary of state for climate and net zero."The boss of BP described the energy price crisis as a cash machine for his company - and the people supplying the cash are the British people through rocketing energy bills," said Ed Miliband, Labour's shadow secretary of state for climate and net zero.
"In these circumstances, it is only fair and right for oil and gas producers to contribute to helping the millions of families facing soaring inflation and a cost of living crisis.""In these circumstances, it is only fair and right for oil and gas producers to contribute to helping the millions of families facing soaring inflation and a cost of living crisis."
Under a plan outlined by Labour last month, North Sea energy producers would pay higher corporation tax for a year to fund £1.2bn of help for households.Under a plan outlined by Labour last month, North Sea energy producers would pay higher corporation tax for a year to fund £1.2bn of help for households.
The very same energy prices that have spelt crippling bills for consumers have prompted BP's boss to describe his operation right now as a "cash machine". A combination of resurgent demand and geopolitical tensions means wholesale gas prices are five times higher than before the pandemic - while oil prices have almost doubled.
And analysts think BP and Shell could make almost £40bn in profits this year, enough to cover the energy bills of the majority of UK households. The chancellor is not convinced of the need for a windfall tax, fearing that it could damage investment in lower carbon forms of energy.
BP's plans to invest in renewables are among the most ambitious in the sector, with an aim to increase spending on low carbon technologies 10-fold, to almost a third of its budget in 10 years.
But critics say that they could go further and that there could still be scope, given the scale of these profits, to help foot the bill for struggling customers
Liberal Democrat Leader Ed Davey said: "It simply cannot be right these energy companies are making super profits whilst people are too scared to turn their radiators on and terrified there will be a cold snap.Liberal Democrat Leader Ed Davey said: "It simply cannot be right these energy companies are making super profits whilst people are too scared to turn their radiators on and terrified there will be a cold snap.
"A windfall tax is the best way to get money to the people who need it quickly, but also to make sure there is some sense of trust and proportionality in the system.""A windfall tax is the best way to get money to the people who need it quickly, but also to make sure there is some sense of trust and proportionality in the system."
Critics of a windfall tax argue it would discourage investment in North Sea production at a time when the UK is still heavily dependent on fossil fuels for transport and industry, as well as for heat and electricity generation.
Only a fraction of BP's profits are generated in the North Sea, however, so a windfall tax applied only to those operations would raise limited revenue, while applying an additional tax to the firm's global profits might be more difficult to execute.Only a fraction of BP's profits are generated in the North Sea, however, so a windfall tax applied only to those operations would raise limited revenue, while applying an additional tax to the firm's global profits might be more difficult to execute.
BP did not comment directly on the calls for a windfall tax, but a spokesman said that "for every £1 that we earn in the UK, we are spending £2 out to 2025 and beyond". Former BP executive Nick Butler said what mattered most was not how much money the oil giants were making but how they chose to spend those profits.
Former BP executive Nick Butler said what mattered most was how the oil giants were choosing to use bumper profits.
"What society needs now is both the transition to low carbon and energy security," he told the BBC's Today programme."What society needs now is both the transition to low carbon and energy security," he told the BBC's Today programme.
"We need to invest in oil and gas because 80% of all the energy we use every day is oil and gas, and we need companies like BP and Shell investing in that supply to ensure volatility of the world market is mitigated.""We need to invest in oil and gas because 80% of all the energy we use every day is oil and gas, and we need companies like BP and Shell investing in that supply to ensure volatility of the world market is mitigated."
BP has moved more quickly than many of its rivals to embrace the transition to renewable energy, he added.
Allegra Dawes, senior analyst at Third Bridge, said BP had embarked on an "aggressive strategy" including plans to cut oil and gas production by 40% by 2030, but it remained to be seen whether they could generate returns from low carbon business areas.