The UK government has imposed a one-off windfall tax on oil and gas company profits. This means UK energy firms will now pay an additional 25% tax for the next 12 months, which should raise around £5 billion.
Why is a windfall tax needed? The International Energy Agency (IEA) suggests it could provide a major boost to clean energy investment.
In its analysis, the IEA says that the global net income from oil and gas production in 2022 is anticipated to be nearly $2 trillion (1.6 trillion) higher than in 2021. If the global oil and gas industry were to invest this income in low-carbon fuels, "it would fund all of the investment needed in these fuels for the remainder of this decade in the Net Zero Emissions by 2050 Scenario".
Although tax rates on oil companies' profits are pretty high already - they pay 30% corporation tax on top of a supplementary 10% rate - the actual amount they've paid in the UK has been much lower.
This is because oil companies have spent a lot of money on things like decommissioning North Sea oil platforms, which has cancelled out profits they were making in the UK. As a result, BP and Shell have both received more money back from the UK government than they paid every year from 2015 to 2020, according to the BBC.
Before the tax was implemented, the CEO of BP and the CEO of Shell both claimed a windfall tax would eat into their renewable investments. However, when BP's Chief executive Bernard Looney was asked by The Times which of BP's planned UK investments would not go ahead if there were a windfall tax, he replied: "there are none that we wouldn't do."
