ECJ EUROPEAN Cleaning Journal

Why has ‘profit’ become a dirty word? Could it be because the profit motive is all too easily seduced by the lustful influences of ‘greed’ or is that just how we perceive it? Hartley Milner explores our conflicted relationship with monetary gain in the context of the energy crisis.

There is a jolly little game people like to play when they feel the need to point an accusing finger. And it has rarely been pursued with such fervour and feeling than during these months of stratospheric rises in fuel bills.

Playing the ‘blame game’ in relation to who is responsible for escalating energy prices is much the same as trying to ‘pin the tail on the donkey’, in that it is almost impossible with any precision to place the guilt where it actually belongs. There are simply too many other likely suspects. But that has not stopped us from having a go, and in the view of a great many people the energy sector should take the rap: for being at the very least indifferent to the suffering the crisis is causing or at the other extreme callously profiteering.

Countries that held polls during 2022 found significant cross-sections of their population did believe fossil fuel producers were raking in excessive profits at their expense. In the UK, where household budgets are being hit harder than anywhere in western Europe, 34 per cent of people went as far as to accuse energy companies of “blatant” profiteering.

That figure had moderated in a later survey to just under 30 per cent with 47 per cent citing the government as mainly responsible for “failing to prepare for or prevent” the unprecedented price hikes. In the EU 24 per cent of respondents, mostly from Italy, Spain and Portugal, pinned the guilt on energy producers and in America 68 per cent thought they were to blame a “great deal” or a “good amount”.

Many of the world’s largest energy producers have indeed reaped colossal profits, as their second quarter figures for 2022 show. British multinational Shell posted record adjusted net earnings totalling $11.5 billion, up from $9.13 billion during the first three months of the year. BP reported $9.3 billion, its highest second-quarter profit in 14 years and coming despite a loss of $20.4 billion in the first quarter due to having to write off investments in Russia because of sanctions.

French rival TotalEnergies also declared stellar results, with a record profit of $9.8 billion, while American-owned ExxonMobil, the world’s biggest oil and gas corporation, tapped into profits amounting to a stonking $17.6 billion, nearly double what it made in its very profitable first quarter and 273 per cent higher than for the same period a year ago. British Gas owner Centrica’s adjusted operating profit for the first six months of 2022 ballooned five-fold to $1.49 billion, up from $293 million a year earlier.

At a time when households and businesses are struggling with soaring cost-of-living increases, people are seeing energy companies returning billions of dollars to shareholders via share buybacks and dividends, as well as passing on hefty bonuses to employees, further inflaming resentment.

High-profile global figures, too, have expressed disgust. In August Antonio Guterres, secretary general of the United Nation (UN), said: “The truth is we are seeing these excessive, outrageous profits from the oil and gas industries at a time when we are all losing money. It is immoral oil and gas companies are making record profits from this energy crisis on the backs of the poorest people and communities, at massive cost to the climate.

“So I call on all governments to tax these excessive profits and to use these funds to support the most vulnerable in these difficult times. And I urge people everywhere to send a clear message to
the fossil fuel industry and their financiers that this grotesque greed is punishing the poorest and most vulnerable people, while destroying our only common home, the planet.”

The UN chief’s outburst appears to have been heard in the right places. In September, the EU set out plans for windfall taxes, mandatory electricity savings and a cap on the price of Russian gas to limit Kremlin revenues used to finance the war in Ukraine. European Commission president Ursula von der Leyen said the proceeds would help domestic consumers and companies pay “astronomical” bills.

Other major economies, including the US, were considering following suit. In May, the British government announced a 25 per cent windfall levy on oil and gas producers’ profits.

Tax on excessive profits

But shortly after being elected to office in September Britain’s new prime minister, Liz Truss, said a new, higher windfall tax on energy producers would not be part of her plans. She said the tax was about “bashing” businesses and would put companies off investing in the UK “just when we need to be growing the economy”.

On the leadership hustings a few weeks earlier, Truss put up a vigorous defence of the energy sector, saying: “I don’t think profit is a dirty word and the fact it has become a dirty word in our society is a massive problem. Now of course, the energy giants, if they’re in an oligopoly, should be held to account and I would make sure they’re rigorously held to account. But the way we bandy words around ‘profit’ as if it’s something that’s dirty and evil, we shouldn’t be doing that as Conservatives.”

Energy producers have largely keep schtum about accusations of profiteering levelled against them. However, energy executives called to account at a US Congressional hearing into rocketing prices at the pumps earlier in the year denied engaging in price gouging. Gretchen H Watkins, president of Shell USA, told the committee: “Because oil is a global commodity, Shell does not set or control the price of crude oil. Today’s crisis and the pressure on hydrocarbon supplies and prices reveal the urgent need to accelerate the energy transition.” ExxonMobil chief executive Darren Woods said:

“The uncertainty of supply in a tight market with growing demand leads to significant price volatility, which is what we are seeing.”

And, commenting on the company’s website, BP’s chief executive Bernard Looney asserted that the second quarter profit declaration showed the group was continuing to “perform while transforming”. He said: “Our people have continued to work hard throughout the quarter helping to solve the energy trilemma – secure, affordable and lower carbon energy. We do this by providing the oil and gas the world needs today while at the same time investing to accelerate the energy transition.”

In the last issue of ECJ, I reported a UK energy expert saying the surges in fuel prices were rooted in the Coronavirus pandemic. Dr Roman Sidortsov, senior research fellow in energy justice at the University of Sussex Business School, explained that companies “curtailed” energy production during Covid. Then when economies began opening up production had to quickly be reinstated but could not keep pace with the sudden spike in demand and run on reserves. “This was one of the huge reasons for the quick jump in prices,” he said, conceding that the war in Ukraine had “exacerbated the situation”.

Indeed, you will recall that prices were on the up well before Putin invaded in February this year. In Britain at the close of 2021, they were 59 per cent higher than at the start of the year. Also drawing much flak are costly clean energy and climate policies or the failure to switch to renewables fast enough, increasing demand for dwindling natural resources due to overpopulation, the expansion of industrial and agricultural sectors and the misuse of energy.

Finger of blame?

So, should we be levelling the pointy finger of blame at energy producers? Not without closer scrutiny of their profits and reasons for them being so high, according to Akeno Tanaka, associate lecturer in economics at the Open University in the UK. She said: “At times of financial turmoil like these when we see extra large profits being made while we may be struggling to pay our bills, the first thing we do is look for someone to target our resentment at. We quickly make up our minds where the blame lies and this is when words like ‘profiteering’, ‘exploitation’ and ‘greed’ get bandied about. When other potentially blameworthy candidates emerge, we may modify our views or doggedly stick to our original perceptions, or throw our hands up in confusion and simply get very irate.

“The current crisis is complicated and assigning responsibility can be problematic. For example, you rarely hear governments condemning the fossil fuel industry, but then when profits soar so too do tax revenues, which are then fed into financing public services. ‘Greed’ is a perception, a viewpoint and not a number we can quantify. Profit is a quantifiable number. But we can only judge that number to be disproportionately high after diligent analysis and collective agreement identifies it as such. Only then can we perhaps fairly attach the tag ‘greed’ to it.”