Leading article: High prices, huge profits and a logical response

Share
Related Topics

Night follows day and, when the price of oil rises, so do the profits of the oil companies. That is the context we should bear in mind when we read about Shell and BP's record profits this year. Shell made £3.9bn in the first three months of 2008 and BP posted a profit of £3.31bn over the same period. But, with a single barrel of oil fetching almost $120, it is little wonder. If your business is selling something that everyone seems to want, your profits will go up.

Prices are so high partly because of the low value of the dollar, which has inflated assets denominated in the US currency. But a bigger factor is that reserves are under pressure. Demand is spiralling because of the rapid economic growth of China and India. And supply is not rising to match it. Opec, the cartel of Middle Eastern oil producers, claims it cannot increase capacity. Its president, Chakib Khelil, warned the world this week to expect oil prices of $200 a barrel.

The immediate question is what, if anything, governments should be doing about these stellar profits. One answer is a "windfall" tax. Whenever the oil majors report vast earnings, they are met with demands for such a levy. This is understandable. It is not as if these companies have increased their productivity or become vastly more efficient in the past year. Indeed, 2007 was a veritable annus horribilis for BP. The company was fined for safety lapses, fraud and environmental crimes and its chief executive resigned after lying to a court in an attempt to block stories about his private life. But all those troubles have been conveniently washed away by a sea of expensive oil.

Many of those suffering from higher commodity prices, in the form of more expensive food and fuel, would see some justice in the beneficiaries of those price movements being forced to pay some back into the communal pot. There was a horrible political dissonance between yesterday's profit results from BP and Shell and npower's announcement that one of its domestic energy tariffs will go up by 20 per cent.

Yet a windfall tax would do more harm than good in the long term. Taxation should be transparent and predictable. If governments run around slapping taxes on industries that benefit from rising commodity prices, investment will eventually suffer. We should remember, too, that it is in the interests of the planet that the price of heavily-polluting fossil fuels remains high so as to encourage conservation and investment in cleaner forms of energy. A windfall levy on the oil companies in the name of helping consumers would open up the Government to charges of hypocrisy. Ministers would look as if they were punishing the oil companies at the same time as benefiting themselves from higher oil prices in the form of greater VAT revenue on fuel.

So, instead of a windfall tax, our political leaders would do better to concentrate on putting a proper price on carbon globally, by co-operating to increase taxation on fuel and speeding up the implementation of mandatory carbon trading schemes to cover industry and transport. That is not to argue that the energy conglomerates should feel no government pressure. They should be prevented from investing in environmentally-damaging projects such as the extraction of fossil fuels from tar sands or searching for oil beneath the Arctic. Instead, they should be cajoled and incentivised to invest these profits in clean energy production.

After all, it is in their interests too. They know oil is running out or, at least, becoming prohibitively difficult to extract. The only rational long-term strategy for the sector is post-petroleum technologies and investment in renewable energy. Their present bumper profits notwithstanding, the future is anything but bright for fossil-fuel extractors.

React Now

Latest stories from i100
iJobs Job Widget
iJobs General

IT Project Manager

Competitive: Clearwater People Solutions Ltd: Our client based in Chelmsford a...

Business Intelligence Specialist - work from home

£40000 per annum: Ashdown Group: An established and growing IT Consultancy fir...

Business Intelligence Specialist - work from home

£40000 per annum: Ashdown Group: An established and growing IT Consultancy fir...

IT Manager

£40000 - £45000 per annum + pension, healthcare,25 days: Ashdown Group: An est...

Day In a Page

Read Next
Nigel Farage has urged supporters to buy Mike Read's Ukip Calypso song and push it up to the No 1 spot  

Mike Read’s Ukip calypso is mesmerisingly atrocious — but it's not racist

Matthew Norman
Shirley Shackleton, wife of late journalist Gregory Shackleton, sits next to the grave of the 'Balibo Five' in Jakarta, in 2010  

Letter from Asia: The battle for the truth behind five journalists’ deaths in Indonesia

Andrew Buncombe
Two super-sized ships have cruised into British waters, but how big can these behemoths get?

Super-sized ships: How big can they get?

Two of the largest vessels in the world cruised into UK waters last week
British doctors on brink of 'cure' for paralysis with spinal cord treatment

British doctors on brink of cure for paralysis

Sufferers can now be offered the possibility of cure thanks to a revolutionary implant of regenerative cells
Let's talk about loss

We need to talk about loss

Secrecy and silence surround stillbirth
Will there be an all-female mission to Mars?

Will there be an all-female mission to Mars?

Women may be better suited to space travel than men are
Oscar Pistorius sentencing: The athlete's wealth and notoriety have provoked a long overdue debate on South African prisons

'They poured water on, then electrified me...'

If Oscar Pistorius is sent to jail, his experience will not be that of other inmates
James Wharton: The former Guard now fighting discrimination against gay soldiers

The former Guard now fighting discrimination against gay soldiers

Life after the Army has brought new battles for the LGBT activist James Wharton
Ebola in the US: Panic over the virus threatens to infect President Obama's midterms

Panic over Ebola threatens to infect the midterms

Just one person has died, yet November's elections may be affected by what Republicans call 'Obama's Katrina', says Rupert Cornwell
Premier League coaches join the RSC to swap the tricks of their trades

Darling, you were fabulous! But offside...

Premier League coaches are joining the RSC to learn acting skills, and in turn they will teach its actors to play football. Nick Clark finds out why
How to dress with authority: Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear

How to dress with authority

Kirsty Wark and Camila Batmanghelidjh discuss the changing role of fashion in women's workwear
New book on Joy Division's Ian Curtis sheds new light on the life of the late singer

New book on Ian Curtis sheds fresh light on the life of the late singer

'Joy Division were making art... Ian was for real' says author Jon Savage
Sean Harris: A rare interview with British acting's secret weapon

Sean Harris: A rare interview with British acting's secret weapon

The Bafta-winner talks Hollywood, being branded a psycho, and how Barbra Streisand is his true inspiration
Tim Minchin, interview: The musician, comedian and world's favourite ginger is on scorching form

Tim Minchin interview

For a no-holds-barred comedian who is scathing about woolly thinking and oppressive religiosity, he is surprisingly gentle in person
Boris Johnson's boozing won't win the puritan vote

Boris's boozing won't win the puritan vote

Many of us Brits still disapprove of conspicuous consumption – it's the way we were raised, says DJ Taylor
Ash frontman Tim Wheeler reveals how he came to terms with his father's dementia

Tim Wheeler: Alzheimer's, memories and my dad

Wheeler's dad suffered from Alzheimer's for three years. When he died, there was only one way the Ash frontman knew how to respond: with a heartfelt solo album