Will Windfall Tax threaten the Green Trade? - 26/08/22

The ‘Green Trade’ is an initiative created by the UK Government that focuses on domesticating production of net-zero alternatives to oil and gas. However, with the introduction of a more prominent windfall tax, some companies want to highlight the dangers of taxing companies and the impact it could have on the green initiative in the coming years.

A windfall tax is a one-off tax imposed by a government on a company who were and are currently lucky enough to benefit from an outside factor. For example, many energy companies, rising from the pandemic and into a supply demand due to Russia’s invasion of Ukraine, have found profits to boom. A windfall tax would capitalise from these profits and it has been estimated that the UK could raise a potential £5bn. The suggested windfall tax would tax energy companies at 25%for the next 12 months.

However, multiple electrical companies have flagged the dangers of this windfall tax, as they believe it could inadvertently lead to the collapse of power suppliers. UK Chancellor, Rishi Sunak, has been advised that taxing profits could jeopradise investments relating to generating capacity- leading start-ups and smaller companies focused on moving with the Green Trade to face a collapse.

An example of this collapse can be seen with BP. The energy company has plans to invest£18bn on the UK’s energy system by the end of 2030 but have commented that this would not go ahead if the tax were incorporated. Unfortunately, this may be mirrored with Shell, who have also planned to spend £20-25bn over the next 10years.

Adam Berman, the trade body’s deputy director has commented, “Energy generation is a long-term industry, with investment horizons that span decades,” continuing to state, “A windfall tax on generators could delay and raise the cost of these investments at the very time that we need to increase spending to meet the government’s own aims.

Overall, the energy sector has planned an estimated £100bn this decade to build more generating capacity-which would include net zero and low carbon alternatives such as offshore windfarms and nuclear power stations. Unfortunately, these plans may come to a halt, which may set back the Green Trade initiative by years.

With the importance of creating a net-zero alternative, Chancellor Sunak is currently deliberating on the impact this may cause.

Thankfully for investors, the positive news is that the country is still focusing on net-zero, low carbon initiatives. Investing in areas where these are prevalent are great ways to future proof investments and lie ahead of the curb for when it may be a necessity to introduce future requirements.

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