This article was originally published in Emergency Measures, a Substack by Seth Klein.
“No great fortunes can be accumulated out of wartime profits.”
—J.L. Ilsley, Canada’s Second World War finance minister
As in the past, this illegal war appears to be lasting considerably longer than its US protagonists initially claimed. And even if this ostensible “ceasefire” holds, gas prices will remain painfully high for a while yet.
And once again, fossil fuel companies are destined to make a killing.
We’ve seen this movie before and know how it goes. As with the COVID pandemic and Russia’s invasion of Ukraine, a bunch of corporations will seize on the excuse of supply chain disruptions to make out like bandits, first and foremost among them the oil and gas companies. War profiteering is always the way, unless policy puts a stop to it.
As we emerged from the pandemic in 2021-2023, oil and gas companies recorded record profits, resulting in a growing chorus to tax these windfall “earnings.” Ahead of Chrystia Freeland’s last federal budget, there were even rumours the government was considering following some European countries in doing just that. But then, as oil prices came back down, the idea lost currency.
It’s now time to revive the call.
The Financial Times has reported that Canada’s oil producers are in line to land $90 billion in windfall profits due to the Iran war. According to modelling by the research firm Enverus, “Canadian companies will generate an extra $25-$30bn in revenue for every $10 rise in oil prices this year following the market turmoil caused by the conflict.”
”The oil price spike will ripple through the economy and make life even more unaffordable. That’s why these excess profits need to be captured for the public good.”
While the mayhem in global energy markets will no doubt be a boon to Canada’s oil patch (who gouge us with higher prices) and a saving grace for the Alberta budget (whose fortunes follow the price of oil), it’s going to bring great hardship to the rest of us. The oil price spike will ripple through the economy and make life even more unaffordable. That’s why these excess profits need to be captured for the public good.
By not taxing these windfalls, much of the profits are leaving the country. As political economist Gordon Laxer has documented, “Oil corporations in Alberta and Canada are overwhelmingly foreign-owned,” mainly by Americans. As economist Silas Xuereb with Canadians for Tax Fairness has found, “The big four [oil sands companies] paid out over $58 billion of profits to foreign owners through dividends and stock buybacks from 2021-2024. These profits not only failed to benefit workers, they left the country altogether.”
The windfall from spikes in the price of oil also overwhelmingly go to the wealthy, producing a hidden redistribution from lower-income households to the super-rich. A study by University of Massachusetts Amherst economists Isabella Weber and Gregor Semieniuk found that the price shock triggered by Russia’s invasion of Ukraine resulted in 2022 net income of publicly listed oil and gas companies reaching “$916bn globally—a figure more than three times that of the preceding years (even excluding 2020). The US was the single largest beneficiary: US-headquartered companies captured $281bn.” Moreover, within the US, they found, “50% of all fossil fuel profit claims accrued to the wealthiest 1% of individuals. The bottom 50% of the population—66 million households—received 1%.”
Their solution: “a permanent excess profit tax on oil and gas, defined as returns above a specified threshold.”
Why a special excess profits tax beyond the general corporate income tax? Effectively, an excess profits tax functions as an additional tax bracket on corporate income. Under normal circumstances, with the basic corporate income tax, when times are good, corporations pay more; when times are less good, they pay less (and when a firm is small, the much lower small business tax rate applies). But the point of an excess (or windfall) tax – first instituted during the Second World War to prevent the grotesque profiteering that had plagued the First World War – is that when exceptional circumstances (that have nothing to do with the business acumen of an individual company) leads to profits well outside the norm, a special tax should apply. Doing so is vital to sustaining the social solidarity needed in times that test our collective resolve.
Politically, a windfall profits tax is a winner. First, it is hugely popular; polling conducted two years ago found 62 per cent of Canadians support such a tax. Second, the climate movement would be thrilled; failure to institute an oil and gas windfall tax has been an ongoing source of deep disappointment. Third, a windfall profits tax on oil and gas would easily raise over $1 billion a year, dramatically more depending on the rate and the price of oil; for example, economists Hadrian Mertins-Kirkwood and David Macdonald estimate that if current prices persist, a windfall tax on oil and gas could raise between $9-18 billion this year. Fourth, by discouraging gouging and profiteering, a windfall tax would help lower inflation, given the outsized role oil and gas profits have played in rising prices (as economist Jim Stanford has documented). And fifth, a windfall profits tax would bring on a good fight with the oil and gas industry and the Conservatives; let Pierre Poilievre rail and explain why he doesn’t want to impose this excess profits tax on some of the most profitable corporations in human history—it will expose him as the faux populist that he is. What’s not to like here?
“The windfall from spikes in the price of oil also overwhelmingly go to the wealthy, producing a hidden redistribution from lower-income households to the super-rich.”
Another option would be to institute an export tax on oil and gas exports to the US— a 15 percent export tax could raise about $25 billion a year, money that could finance massive new just transition efforts and support workers impacted by the Trump tariffs. Notably, the CEO of Enbridge (the pipeline company) told the Globe and Mail last year that, “Tariffs on Canadian oil would need to be in place for years before significantly altering the amount of crude the US imports from its northern neighbour” (meaning us), an indication of how inelastic US demand for our crude is – especially now, given the war – and that the impact of such an export tax on domestic production and jobs would be inconsequential.
For his part, Poilievre’s response to the oil price shock is to call for a suspension of all federal gas taxes, and now the Carney government has partially concurred. This is a terrible idea that only rewards the gangsters – fueling demand for the oil and gas companies’ excessive prices. If history is any indication, there is a high risk these corporations will just hoover up such tax cuts and consumers will see no impact at the pump (anyone seeing and feeling their carbon tax cut these days?).
In contrast, taxing the oil and gas companies’ profits means we can deploy some of those revenues directly helping lower and modest-income households, while using some of the funds to expedite our transition off these deadly fuels.
The climate advocacy group 350.org currently has a petition urging an oil and gas windfall tax. Many progressive municipal elected leaders, via Climate Caucus, are also pushing back against the fuel tax cut and urging a windfall profits tax instead. Our federal government should urgently heed the call.
