Despite announcing reduced plans to decrease oil and gas production by 2030, energy giant BP has claimed record yearly earnings.
As energy prices skyrocketed following Russia’s invasion of Ukraine, the company’s income more than doubled in 2022 to $27.7bn (£23bn).
Shell, one of the largest energy companies, reported record earnings of about $40 billion just last week.
Because of this, there have been calls for the energy industry as a whole to pay more taxes.
Leader of the British oil giant BP Bernard Looney has stated that the business is “helping deliver the energy the world needs” by investing in the shift to renewable sources.
However, this development coincided with the company’s decision to reduce its oil and gas output in an effort to reduce its carbon footprint.
In the past, the firm had stated that emissions would be reduced by 35%–40% by the end of this decade. It was one of the first major oil and gas companies to make such a pledge.
But on Tuesday, it announced that it was aiming for a 20-30% reduction, citing the necessity to maintain investments in oil and gas to satisfy existing demand.
Greenpeace, whose opinion the BBC sought out due to the environmental damage caused by the oil and gas industry, claimed that BP’s new approach “seems to have been substantially undermined by pressure from investors and governments to generate even more dirty money out of oil and gas.”
Energy prices have been on the rise since the end of Covid lockdowns, but they spiked in March of last year when Russia attacked Ukraine and disrupted global supply chains.
As of late, a barrel of Brent crude oil costs around $80, down from its recent high of nearly $128. The price of gasoline likewise rose sharply before gradually settling back down.
It has caused energy companies to reap record profits, but it has also contributed to steadily increasing energy costs for consumers.
A windfall tax, dubbed the Energy Profits Levy, was implemented by the government last year to tax the “exceptional” profits produced by energy businesses.
The rate, which only applies to money made in the UK from oil and gas extraction, went up from 25% to 35%. Profits made by oil and gas companies are taxed at a rate of 30% plus an additional 10%, for a total of 75%.
But by counting losses or spending on things like dismantling North Sea oil platforms, companies can lower the amount of tax they pay.
BP’s UK division, which contributes less than 10% of its global revenues, will pay $2.2bn in tax in 2022, $700m of which will go toward the Energy Profits Levy.
Wars’ unforeseen consequences
The BBC interviewed Economic Secretary to the Treasury Andrew Griffith in order to get the government’s perspective, and Griffith indicated that the windfall tax found the “correct balance” between helping households with the cost of living and safeguarding the UK’s energy supplies. He explained that the plan’s goal was to have businesses reinvest their earnings in the economy.
Oil and gas prices will not remain “exceptionally high” forever, according to Nick Butler, a former senior executive at BP and now a visiting lecturer at Kings College, who the BBC spoke to because of his industry knowledge.
“Keep in mind that this is only a temporary setback. The oil and gas industry is enjoying a bonanza, but it won’t endure as long as prices continue to plummet.“
We’ve included Labour and the Liberal Democrats to show the opposing opinion that they think the earnings are excessive and want the government to raise the windfall tax.
The average annual energy expenditure for a home is now £2,500 due to government intervention, down from £5,000 a year ago but still more than double the rate of inflation.
With the recent decline in gas prices, researchers predict that households will pay less than the new £3,000 limit that goes into effect in April.
BP has upped its dividend to shareholders by 10% in addition to reporting record profits.
Last week, competitors Shell, Exxon Mobil, and Chevron also reported record earnings, setting the stage for BP’s announcement.