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Windfall threats won’t solve the energy crisis

If Rishi Sunak has indeed converted to windfall taxes on energy companies, his position doesn’t seem very logical. In an interview with the Mumsnet website, the Chancellor said he would look into the policy if companies didn’t increase their investments. But windfall taxes — sometimes mistakenly referred to by leftists as taxes on “excess” profits — tend to discourage investment in productive capacity. In fact, this was exactly what ministers had been arguing for until Mr Sunak launched his intervention.

The Chancellor appears frustrated that after the government’s release of the government’s somewhat fragmentary energy strategy, companies have not been quick to take advantage of licenses to explore and exploit the oil and gas fields in the North Sea. Ministers are right to want to make Britain less dependent on imported supplies, and that will require more domestic fossil fuel production for at least the next few years.

The problem is that the government only seems interested in oil and gas for reasons of short-term political expediency. In the long term, it remains committed to the net-zero ideology and gradually shifts the country away from hydrocarbons.

But that hardly creates a stable environment for investments in the fossil fuels that are now needed. Energy companies will want reassurance that the money they are spending now will return their investors over a period of time long enough to justify the upfront costs. The entire industry is also mired in more and more bureaucracy, much of it unfairly.

Britain’s broader energy strategy has long been plagued by short-term political thinking combined with unrealistic environmental ambitions. This has led to the decline of the UK nuclear sector, massive and potentially uneconomical subsidies for renewable energy and rising bills for households and businesses. It’s a house of cards that the Russian invasion of Ukraine – and the resulting turmoil in global energy markets – threatens to topple.

If the energy sector were to function as a free market, higher prices should be enough of an incentive for companies to expand their activities to meet demand. But it doesn’t. A Tory chancellor should know better than to castigate the industry and threaten to blackmail it with tax policy stolen from Labor. It would be better if the government just got out of the way.

https://www.telegraph.co.uk/opinion/2022/04/28/windfall-threats-wont-solve-energy-crisis/ Windfall threats won’t solve the energy crisis

Linh

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