Each energy shock bears lessons for the next one. To protect consumers from surging gas bills, Australia and Germany are considering slapping windfall taxes on any Iran war-fuelled super-profits enjoyed by oil and natural gas drillers. TotalEnergies (TTEF.PA), for instance, has already made as much as $1 billion trading Middle Eastern oil, the Financial Times reported on Monday. But previous iterations of the levy often undershot estimates. That makes the case for a more nuanced, realistic approach to the latest crisis.
Canberra and Berlin are considering whether to reprise the fiscal tool that was tried most recently in 2022 after Russia's invasion of Ukraine sent energy prices soaring worldwide. The European Union, the UK and India were among jurisdictions that slapped levies on natural gas producers' supernormal profits.
The levies can be hit-and-miss. EU member states had success collecting roughly 29 billion euros ($33.33 billion) in "solidarity contributions" from oil and gas companies, exceeding a 25 billion euro target.
But a scheme to tax utilities that charged more than 180 euros per megawatt hour looked set to miss an initial 50 billion euro estimate. The UK versions of taxes on excess receipts and profits, which will remain in force until 2028 and 2030, respectively, have so far secured less than a quarter of the government's forecasts. That's because energy prices dropped sharply after an initial spike in 2022.
Which type of tax works for a country is tied to its position in the energy value chain. India, a crude-oil and natural gas-deficient nation grappling with a supply shortage, has little incentive to tax oil producers or refiners whose earnings get redeployed in the local market. To maximise domestic availability, New Delhi last week slapped fresh levies on exports of diesel and aviation turbine fuel.
It may make sense for Australia, one of the world's top-three natural gas producers, to follow suit. Another option is to target a tax at output from its wells, as production does not fluctuate as much as prices do. So far, though, the only measure Prime Minister Anthony Albanese's government has implemented to ease the hit to consumers is halving the fuel excise tax drivers pay at the pump.
Crucial, too, is the use of proceeds. New Delhi pumped its takings of 440 billion rupees ($4.64 billion) between 2022 and 2024 into expanding households' access to liquefied petroleum gas. Those gains are now being reversed as a shortage of LPG cylinders forces Indian kitchens to return to dirtier coal and firewood. Directing some of the largesse into building more renewable power and oil and gas stockpiles would provide more lasting energy security – and better insure economies against the next fossil fuel shock.
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