Why stop at energy companies when it comes to taxing windfall profits?

European Union energy ministers have finally agreed a package of emergency measures to curb the surge in energy prices. The package includes a windfall tax to capture extraordinary or excess profits from energy and fossil fuel companies.

It’s a good start but it needs to go much further.

First, the agreement doesn’t acknowledge the enormity of recent profits made by big business off the back of the Covid-19 pandemic and then the war in Ukraine.

Second, it doesn’t face up to just how exceptional and extreme are the crises we face.

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Oxfam’s research, based on the Forbes Global 2000 list, shows profits increased by 68.5 per cent for 1,000 of the world’s biggest companies in 2020 and 2021. That’s $1.15 trillion (€1.18 trillion) in excess profits made by a cross section of industries in energy, pharma and food. The EU proposals apply only to energy.

Excess profits are profits above and beyond normal profit levels. They are due to exceptional market conditions, often as a result of public policies rather than because of innovation or investment decisions.

Oxfam is calling for more ambition and a sector-wide, automatic windfall tax. Vitally, it should prevent an increase for consumers from companies trying to pass on the costs. Sanctions should be put in place for noncompliance and revenues redistributed to those most affected by the crisis.

We want to see the tax net widened for windfall tax because our research shows excess profits across many sectors and countries. For example, the nine Irish companies on the Forbes 2000 list, which include companies from the agri-food industry and tech sectors, record excess profits of €2 billion. In fact, these Irish company profits in 2021 — before the Ukrainian crisis — were on average 45 per cent higher than in the years from 2017-2020.

Returning our focus to energy: five of the largest international energy companies (BP, Shell, Total Energies, Exxon and Chevron) made together $2,600 in profit every second in 2021. The EU’s proposal this week wouldn’t touch this as they apply only to profits made this year.

The EU’s windfall tax or “temporary solidarity contribution” on fossil fuel companies agreed the EU will recoup a third of excess profits made in 2022.

However, this is a threshold rate and EU countries can apply a higher rate and wider scope if they wish. We think there is a good case for Ireland to implement a much more ambitious windfall tax rate, as the rate agreed at the EU is relatively low. Some European countries are already leading the way, for example, Greece with a rate of 90 per cent; and Spain, which is planning to capture excess profits made by banks. Remember, the rate for the last major windfall tax introduced in Ireland, on windfall gains from rezoning, was set at 80 per cent in 2010.

The International Monetary Fund recently suggested a permanent, co-ordinated windfall tax on excess profits on the globally consolidated profit of multinationals (global profit of the entire group) allocated to countries according to sales. In the long term this is the type of solution that needs to be agreed globally — permanent windfall taxes that capture all excess profits and redistribute the revenues fairly to countries around the globe.

This is the way to fight inflation and inequality.

Energy price caps have been suggested by some, for non-gas energy companies. Our problem with this is who is going to pay for these price caps? The public through our taxes and savings? Or those companies who have hit the business equivalent of a lottery win?

Natural justice would indicate who should pay domestically and even more clearly who should pay globally.

At the start we mentioned the exceptional challenges we face. Here at home and in Europe a large section of the public may shiver through the coming winter. Comparisons are being made to the oil shocks of the 1970s.

But globally we have no frame of reference for the havoc climate change is now wreaking on those who did the least to contribute to it.

Today, 48 million people across 10 climate hotspot countries suffer acute hunger (up from 21 million in 2016) and 18 million of those are on the brink of starvation. Climate change is the exceptional new factor leading to a volume of need that has overwhelmed the humanitarian system. Meanwhile we estimate that one person is dying of hunger every 48 seconds across drought-ravaged east Africa.

Climate-fuelled hunger is a stark demonstration of global inequality. Countries that are least responsible for the climate crisis are suffering most from its impact and are also the least resourced to cope with it. Collectively responsible for just 0.13 per cent of global carbon emissions, the 10 climate hotspots sit in the bottom third of countries least ready for climate change.

Historically, extreme crisis necessitates extreme measures. Windfall taxes in western democracies have been used in times of greatest need, especially after both World Wars, and aimed to tax ‘unearned income’ — and that is how we must consider these exceptional profits earned by large companies now.

Jim Clarken is chief executive of Oxfam Ireland