Humanity is facing a decisive moment, even though vast sectors of the ruling class continue to deny it. It is necessary to move forward with the transition and stop accumulating assets that increase traditional (or transition) financial risk, while at the same time increasing the risk of spillover related to the scarce weight we have in the global energy market.
We certainly do not have enough foreign currency to waste income, nor tax resources to give away rents. The energy transition requires financing and, in this sense, there are different instruments that could be used, that is, tools that are in the sovereign’s power to self-finance the transition. One of them is windfall profits taxes.
In this context, it is worth highlighting a series of different political leaders’ positions that allow us to foresee the future of the transition, beyond the speeches that arise with respect to the climate emergency.
The speech of UN Secretary General António Guterres to the 77th plenary session highlighted the “grotesque greed” of oil companies at the expense of the world’s poorest, “while destroying our only home”. If the war in Ukraine allowed their wealth to swell, the need to deepen the transition calls for the imposition of an extraordinary tax.
The continuation of the war, in short, unleashed an energy and food crisis. As a result of the price increase, the German government of Olaf Scholz decided to impose an extraordinary tax on electricity generators (not gas-fired) to prevent them from accumulating extra profits, dissociated from their production costs. A similar stance was adopted by Pedro Sánchez in Spain, who imposed an extraordinary tax on energy companies.
Another seems to be the attitude adopted by the incoming Prime Minister of Great Britain, Liz Truss, who promises to return to the tax reduction policies advocated by neoliberalism in the 1990s, a challenge with tariff increases that suffocate most British households. Truss presents herself as an agent of change, even if her policy decisions are nothing more than neoliberal dogmatism: more deregulation, less State, and a hope of spillover that has been repeated since the 1980s with no other success than the increase in inequality.
There is no relationship between tax reduction and economic development. In the context of climate emergency, more investment in both mitigation and adaptation is needed. Every government should prioritize this. However, more worrying is its skepticism on climate issues, which would generate a strong setback in the transition. This explains the government’s recent decision to reverse the ban on fracking, even though any clean alternative is more profitable despite the high costs currently affecting the sector.
It is worth noting that in the first four months of the year, the surplus also reached companies operating in Latin America with strong earnings. Extraordinary revenues benefited Ecopetrol, Petrobras, Pemex, and YPF, although only the latter increased its production in that period. In fact, the results are driving new investments and encouraging governments to move forward with new infrastructure.
President Alberto Fernández of Argentina, for example, expressed the Argentine government’s interest in new investments in Vaca Muerta to a group of oil businessmen in Houston. Thus, as has been the case since the 1990s, he promised them special guarantees, protection for their investments, guaranteed free availability of foreign currency, and special tax regimes. But it is not necessary to look back to highlight the problems that the Energy Treaty generates for the sovereign: the excess of guarantees granted by such a legal framework defies any transition policy.
According to Fernández: “We have an abundance not only of oil, which will continue to be used for a few more years, but also of gas, and seeing what is happening through the crisis unleashed between Russia and Ukraine, I feel that Argentina has an enormous opportunity”. To this, he added: “We have to build it together: State and businessmen”. A discourse with a neo-developmentalist tinge that ignores the ephemeral nature of the moment and the risks involved in the transition.
On the other hand, fortunately, other voices are emerging in the region. The government of Gustavo Petro in Colombia aims to discontinue oil production and prohibit all exploration, while the legislature began a new debate on the prohibition of fracking, which has the support of the Minister of Environment, Susana Muhamad. For his part, the Minister of Finance and Public Credit, José Antonio Ocampo, defended the sanction of an extraordinary tax on coal and oil before Congress. In short, a whole set of initiatives aimed to start the transition.
These measures proposed by the new Colombian government are the result of exposing the stale nature of many of the discourses still heard in Latin America.
Translated from Spanish by Janaína Ruviaro da Silva