ExxonMobil, the U.S. oil giant, is suing the European Union over its new tax on oil and gas companies. In late September, EU member states agreed to skim off what they deemed the ‘excess profits’ fossil energy companies are reaping following Russia’s invasion of Ukraine. The new tax, which is planned to take effect December 31st, will be applied to net earnings that exceed average profits from 2018-2021 by 20%.
According to The Financial Times, which was the first to report on the case, ExxonMobil claims that with this 33% windfall tax, the EU Council is exceeding its legal authority, using the guise of emergency powers to force member states into approving the measure.
Through its Dutch and German subsidiaries, the American corporation filed a lawsuit on those grounds at the European General Court in Luxembourg City on Wednesday, December 28th. Through the lawsuit, the oil giant hopes to pressure Brussels to reverse the windfall tax.
Should the oil company’s objections find favor with European judges, the EU risks losing an estimated additional revenue source of €25 billion. These funds were meant to go towards compensating citizens and businesses for the sharp rise in energy costs while spurring investment in energy conservation.
According to ExxonMobil spokesman Casey Norton, the tax on ‘excess profits,’ whatever boon it might be for the EU’s coffers in the short term, is ultimately “counterproductive,” since it would make Europe an increasingly unattractive region for prospective investors [from the oil and gas industries]. In turn, this would make the EU even more dependent on imported oil and gas.
“Whether we [ExxonMobil] invest here primarily depends on how attractive and globally competitive Europe will be,” Norton warned, implying that the windfall tax, if maintained, would backfire.
He said that in the past decade, the company had invested over $3 billion in refinery projects on the continent. These, he argued, have helped to deliver more energy to the continent at a time when Europe struggles to reduce its imports from Russia.
Norton however stressed that the company “will continue to work with EU leaders to address these issues,” as “thoughtful policy is critical.”
Earlier this month, Chief Financial Officer Kathryn Mikkels had said that the additional tax, which the EU labels a ‘solidarity contribution,’ will cost the company at least $2 billion through the end of 2023.
The warning that an additional tax will discourage new investment in the EU is not a new one. Previously, ExxonMobil’s peer competitor Chevron also claimed that the tax could come at the expense of investments. France’s TotalEnergies already cut investments by 25% in the North Sea’s British territories because of a similar tax, the ‘Energy Profits Levy,’ concocted by Westminster. Both BP and Shell have said they were reviewing their own planned investments there. In the latter’s case, a sizable amount of £25 billion is at stake.