Windfall taxes on energy companies are a bad idea

WHENEVER OIL and gas are expensive, politicians’ eyes turn greedily to the profits of energy firms. Since energy prices began to surge last year Bulgaria, Italy, Romania and Spain have introduced new taxes on the industry. On March 8th the European Commission recommended that governments try to “capture a part of the returns” made by electricity generators. And in America 12 Democratic senators including Elizabeth Warren, a one-time presidential candidate, have proposed a tax on every barrel of oil big firms produce or import, equal to half the difference between the current oil price and the 2015-19 average.The impulse to levy “” is particularly strong today because Russia’s invasion of Ukraine has caused oil and natural-gas prices to rocket and then to gyrate wildly, giving the perception that firms are profiting from bloodshed. Governments, having run up enormous debts during the pandemic, must now find more cash to protect poor consumers from soaring energy bills and to boost defence spending. And the typical argument against windfall taxes—that even when they are retroactive, they risk deterring future investment—has become less powerful now that most of the world is trying to phase out the burning of fossil fuels.