A recent report by ActionAid has disclosed that thirty-six prominent companies in the fossil fuel industry, along with their backers, accumulated excess profits exceeding US$420 billion in the 24 months leading up to July 2023.
The report highlights the potential for generating additional funds for public spending, particularly in crucial sectors like education and climate action, by levying taxes on these extraordinary profits, termed as windfall profits.
Such windfall profits are typically associated with external contextual changes, representing a surplus beyond the anticipated and regular profits.
As world leaders convene at Davos for the World Economic Forum, the report suggests that imposing a 90% tax on the windfall profits of these 36 firms has the potential to generate a staggering US$382 billion in revenue.
This amount is almost 20 times more than the US$21 billion provided by donors for climate adaptation in 2021.
“The scale of profits that fossil fuel companies and their bankers are making in the wake of global crises is truly astounding, especially when compared to the hardships that these crises have brought upon regular people around the world,” says ActionAid Secretary-General Arthur Larok. “Windfall profits taxes make sense. They can bring in significant revenue for climate action and social services, while taxing only the extraordinary corporate profits.”
ActionAid’s research is an analysis of the profits of the top 14 fossil fuel companies and top 22 financial corporations by value on the stock market. In the 24 months to July 2023, these firms made
US$1,218 billion in profits. Windfall profits from this amount comes to US$425 billion. Fossil fuel company profits in the 12 months before July 2023 were up by an astounding 278% compared to the average in the period between 2017/8 and 2020/1.
Both the fossil fuel and the financial industries have been making extraordinary profits in recent years, widely attributed to the impact of Russia’s full-scale invasion of Ukraine, and high interest rates adopted by many countries in response to growing inflation.
ActionAid’s research in 2023 found that banks alone have poured over US$3.2 trillion into fossil fuels in the Global South since the Paris Agreement was adopted in 2015, making them complicit in climate damage.
At COP27, United Nations Secretary-General Antonio Guterres asked governments to tax the windfall profits of fossil fuel companies and redirect that money to those impacted by climate change. Over one year later, only some EU Member States, the UK, and a few Latin American countries, have introduced some forms of temporary and often limited windfall taxes on fossil fuel companies.