ExxonMobil launches legal challenge to EU’s windfall tax on energy firms | ExxonMobil
- EU Investment
- December 28, 2022
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ExxonMobil has launched a legal challenge against the EU in an attempt to derail the bloc’s windfall tax on the profits of energy producers.
In a high-stakes political battle as countries across Europe and the wider western world struggle with soaring energy costs and sky-high inflation, the US oil firm said it believed the EU had overreached its powers with the windfall tax.
Agreed in September as part of a package of measures to tackle the surge in oil, gas and electricity prices triggered by Russia’s war in Ukraine, the EU hopes the “solidarity contribution” could raise €25bn (£22bn) in public revenue for governments across the 27-nation bloc, while acting to curtail energy demand and bring down prices.
ExxonMobil, however, said the proposals were misleading and could discourage industry investment in the production of affordable energy.
Filed on Wednesday by its German and Dutch subsidiary companies at the European general court in Luxembourg, the company’s lawsuit challenges Brussels’ legal authority to impose the new tax.
“Our challenge is targeted only at the counter-productive windfall profits tax, and not any other elements of the package to reduce energy prices,” ExxonMobil said in a statement.
“This tax will undermine investor confidence, discourage investment, and increase reliance on imported energy and fuel products. European industries already face a very real competitiveness crisis and governments should be supporting the production of reliable and affordable energy.”
Exxon estimates windfall profit taxes imposed by Europe could cost at least $2bn to the end of 2023, its chief financial officer told analysts earlier this month. The company said it had invested $3bn in the past decade in refinery projects in Europe, helping to reduce European reliance on imports from Russia.
The launching of a legal case by a US oil supermajor against the EU comes as fossil fuel giants come under mounting pressure on both sides of the Atlantic over the vast profits energy companies have reported this year.
The US president, Joe Biden, hit out earlier this month, saying ExxonMobil had “made more money than God this year”, and has since accused oil companies of “war profiteering” and raised the possibility of imposing a windfall tax if they fail to boost domestic production.
ExxonMobil reported a third-quarter profit of nearly $20bn (£17.3bn) in October, nearly triple the previous year and the most in its 152-year history.
Oil companies have raked in record profits in recent months, thanks to the surge in the price of oil and natural gas after Russia’s invasion of Ukraine in late February, causing soaring energy bills for consumers and businesses. Over the last two quarters, BP, Chevron, ConocoPhillips, ExxonMobil, Shell and TotalEnergy earned over $100bn more than they earned all of last year, and more than two-and-a-half times what they earned in the same quarters of 2021.
Labelling the fossil fuel profits boom as “outrageous”, Biden has suggested the firms were more likely to funnel excess profits back to shareholders than boost their investment in new production capacity.
“I have no problem with corporations turning a fair profit or getting the return on their investment and innovation. But this isn’t remotely what’s happening,” he said.
“Oil companies’ record profits today are not because they’re doing something new or innovative. Their profits are a windfall of war.”
Exxon said it would factor in the EU windfall tax as it considers future multibillion euro investments in the continent’s energy supply and transition to renewable energy production.
“Whether we invest here primarily depends on how attractive and globally competitive Europe will be,” said Casey Norton, a spokesperson for the company.
The firm said it recognised that the energy crisis was “weighing heavily on families and businesses”, and that it was working to increase energy supplies to Europe as the continent pushes to reduce its consumption of Russian energy.
Several European countries, including in Germany, Spain and Italy, have introduced local windfall taxes on energy company profits. The UK chancellor, Jeremy Hunt, increased the government’s windfall tax on North Sea oil and gas firms from 25% to 35%, and extended it by two years until March 2028.