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BP’s windfall problem cannot be solved with windmills

BP’s problem, like that of the other oil majors, is that it has more money than it can justify what to do with.

BP knows what it would like to do with the windfall profits from the Ukraine-induced rise in energy prices: return them to shareholders. It announced A 10% increase in its dividend and another $3.5 billion in buybacks on Tuesday. Shell did it something similar Last Week.

Of course, this speaks volumes about spending on low-carbon technologies and the “energy trilemma”: investing to achieve safer, more affordable and cleaner energy supplies.

These programs are a good protection Against the public’s calls for width taxes.

The problem is that these are long-term projects. The decisions are made over a period of years. The results have been evident for decades. While BP can promote various investment commitments – £18bn to be spent in the UK by the end of 2030 – they have not been implemented in response to this year’s record profits.

BP is already facing considerable criticism from investors over its renewable spending plans. Saying it will mobilize additional cash without being able to specify returns is unlikely to help its share price, which has lagged some other oil companies. Investors took a dividend hit during the pandemic. They don’t want a repeat performance now things are good again.

The problem comes with the diversion of BP’s capital from the wider company. During 2020, these were more aligned: everyone suffered together. It is now very clear that as much as the likes of BP and the like talk about the fact that their dividends and buybacks benefit British pensioners, household energy bills are expected to hit £3,400 in October, and that means the average British person is going to be. Much worse.

BP’s argument is, more or less, that this gap is a political problem for the government to solve. It does not want to be in the business of making decisions about how to redistribute resources, for example by cutting fuel prices. It is the government’s job to decide how much to tax, and then how to spend those investments to help households.

This is, in theory, a fair point. We don’t want it to become the role of the oil and gas companies.

But that doesn’t mean that goodwill gestures are useless. In fact they can be politically and economically astute. The TotalEnergies announcement of lowering prices at the pump in France, preventing an additional local tax on profits, is a good example.

And BP did itself no favors by not detailing how much more it expected to pay from the new North Sea Energy Profits Levy (an excessive tax by any other name), as Centrica did last week. Nor the fact that it paid no tax on its activities in the North Sea for years, a situation that lasted right up until it raised £100 million in 2021.

The other problem is the complete lack of leadership from the UK government of late, as assessments of domestic bills have continued to rise.

In May, when it announced a £400-plus support package for households, the price cap on energy bills is expected to rise to £2,800 in October. Now the forecast is for £3,400 and bills keep climbing. The policy proposals from the two Conservative leadership candidates only cut another £152-167 from expected household spending, Investec analyst Martin Young estimates.

Leadership contender Liz Truss has been clear that she does not want to tax excess profits. But it will be hard to quiet those conversations – or explain the government’s opposition – if politicians can’t clearly spell out what else they are doing to help people.

Clearly, it is better to have a tax structure that effectively deals with progressive energy profits whenever they come. It is also better to have an energy security strategy for both companies and consumers can feel safe b.

As it is, the ghost problem is not going away. High household bills could continue until at least 2024. Oil company earnings next quarter will bring another round of excessive tax calls, as BP implicitly admits in its forecasts. Green investment promises will not prevent them.

Boris Johnson’s government had a habit of delaying tough decisions before bowing to popular pressure. It doesn’t do much to reassure the oil companies that British politicians still won’t go the way the wind is blowing.

cat.rutterpooley@ft.com
@catrutterpooley

BP’s windfall problem cannot be solved with windmills Source link BP’s windfall problem cannot be solved with windmills

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