European Refineries Need Investment, Not Windfall Profit Taxes

The European energy policy has been criticized for disparaging the oil sector in an attempt to accelerate the transition to renewables. The high fuel prices have led some countries, including Italy, to request a European tax on windfall profits from the Commission.

This taxation concept was first introduced in the UK in the early 1980s as part of an oil taxation system that provided rebates for exploration losses. However, there is no reduction in tax rates for years of low profits.

The Italian Robin Hood tax was introduced in 2008 during a period when Brent crude reached $140, equivalent to $180 today, but the Constitutional Court declared it unconstitutional in 2015. The current tax rate on profits for energy companies in Italy is 30 per cent, compared with 28 per cent for other companies.

The author argues that taxing windfall profits is a policy typical of a planned economy rather than a free-market one and diverts attention from the real cause of high prices: the shortage of refining capacity in Europe. They also highlight that investing in the oil sector would require huge sums, estimated at €10 billion for building a new refinery.