Editor’s Note: Patrick Gaspard is the president and CEO of the Center for American Progress. The opinions expressed in this commentary are his own.
President Biden has led a successful campaign to cut Russia off from the global economy, with asset freezes, export controls and a ban on Russian oil imports. While this has had a devastating impact on the Russian economy, there’s no denying that Americans are feeling the reverberations as well.
Gas prices rose nearly 70 cents per gallon in a two-week period in the wake of the invasion. Prices at the pump have since plateaued, but they are still more than $4 per gallon. Biden has responded by announcing the release of oil from the nation’s Strategic Petroleum Reserve to increase supply and lower prices. The move, along with efforts from US allies overseas, will add more than one million barrels of oil per day to supply. Still, the president and Congress should go further in combating price increases. One way to do that is by enacting a temporary windfall profits tax on Big Oil and the billions of dollars the industry has been raking in.
Oil giants Shell, BP, ExxonMobil and Chevron reported more than $75 billion in profits last year. ExxonMobil alone made $8.9 billion in the final three months of 2021. This is in the wake of propping up Putin’s fossil fuel economy for years. ExxonMobil’s subsidiary, Exxon Neftegas Limited, has a stake in an oil and gas project that has generated billions in payments to Russia’s federal and regional governments. BP, meanwhile, has owned one-fifth of Rosneft, the Russian state-owned oil company, since 2013, though it has said it would divest its stake. Shell has a stake in an oil and gas project that Russian energy company Gazprom controls, while Chevron owns a stake in a pipeline venture there.
These companies are in a position to profit from Russia’s attack on Ukraine. Pumping oil costs them the same amount, but now they can sell it at prices driven up by the war. They are using the resulting windfall profits to increase payouts to shareholders through buybacks and dividends. When challenged during a congressional hearing last week, oil CEOs made it clear they are not going to rein themselves in.
That’s why Congress must implement a temporary windfall profits tax which, according to a new report from the Center for American Progress (CAP), could bring in tens of billions of dollars to help defray fuel costs for families. The tax would rise or fall as prices fluctuate, until prices return to pre-crisis levels.
Currently, oil companies earn more money when the prices they can charge rise. But if the tax rate of oil companies went up along with the price of oil, the windfall would be recaptured and could then be returned to American consumers via a direct payment, for instance.
This proposal would be a temporary response to an extraordinary international energy crisis. Congress could ensure that the windfall profits tax would go away once oil prices return to normal levels ($75 per barrel of oil, according to the CAP analysis). But this won’t be the last time that the US consumer is buffeted by volatile energy costs, especially if we remain so dependent on petroleum. For the longer term, Congress must also invest in building a clean energy economy.
It’s time to make oil companies pay their fair share and alleviate some of the burden on the American consumer. The most immediate action Congress should take is to enact a temporary windfall profits tax that ensures oil companies don’t siphon away profits for themselves at the expense of American families.