Global energy giants’ release of Q3 profits reveal that the largest oil companies are benefiting from high oil and gas prices. A Financial Times article explains that Shell is ready to “embrace” the likely resulting tax hikes. Companies do not typically “embrace” higher taxes, so I decided to investigate. British politicians view Shell’s Q3 profit of $9.5 billion as evidence that large energy companies are not paying their fair share. Early next year, a 25% profit levy on oil and gas producers in the North Sea will go into effect. Interestingly, the Shell CEO did not seem upset by this act of government regulation. He said: “We should be prepared and accept that also our industry will be looked at for raising taxes in order to fund the transfers to those who need it most in these very difficult times. We have to embrace it.”
Stigler and Peltzman both theorized that legislation that representatives will pass regulation that has concentrated benefits and dispersed costs in order to be reelected. In passing a 25% tax on profits for oil and gas producers in the North Sea, the UK government passed regulation with dispersed benefits and concentrated costs: the largest North Sea oil and gas producers, like Harbour, Shell, and BP, will disperse millions of dollars to UK citizens. Perhaps in times of severe economic distress, representatives ease their vote maximizing behavior to focus on the well being of the consumer. It will be worth paying attention to how British politicians who support the 25% tax perform in terms of votes won and campaign dollars earned in upcoming elections.
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