Exxon Sues Over EU Windfall Tax

In September, 2022 the European Union (EU) decided that it would tax excess profits from fossil fuel companies in response to the energy crisis. 

One of those companies, however, is not taking kindly to the so-called “solidarity levy.” Exxonmobil announced on December 28 that it was suing the bloc over the windfall tax. 

“This tax will undermine investor confidence, discourage investment, and increase reliance on imported energy and fuel products,” ExxonMobil spokesperson  Erin McGrath said in a statement reported by The Hill. 

The idea of a windfall tax on fossil fuel profits has gained popularity in the wake of the spike in energy prices prompted by Russia’s invasion of Ukraine. Fossil fuel companies like ExxonMobil and Shell reported record profits in the aftermath of the invasion, even as extreme weather events worsened by the climate crisis mounted throughout the year. The European Council, therefore, decided it would impose its “solidarity contribution” on taxable fossil fuel profits from 2022 and 2023 that are more than 20 percent higher than the average taxable profits since 2018. That tax comes to 33 percent, according to The Hill. 

Beyond the EU, the UK has also imposed a windfall tax on oil and gas profits, according to Reuters. It raised that tax from 25 to 35 percent in November of last year, and the tax will last from January 1 to March of 2028. President Joe Biden has also threatened to follow suit if oil and gas companies don’t work to reduce energy prices.

The EU’s tax was part of a broader legislative package designed at controlling energy prices, which included additional taxes on electricity generators and financial aid for some customers, according to POLITICO. However, Exxon’s suit only targets the fossil fuel windfall tax. 

The suit was filed with the EU’s General Court through the company’s German and Dutch subsidiaries. 

“Our affiliates, ExxonMobil Producing Netherlands BV and Mobil Erdgas-Erdöl GmbH, are suing the European Council in a bid to annul a new windfall tax on oil and gas companies,” ExxonMobil spokesman Casey Norton in Texas said, as POLITICO reported. 

The suit argues that only national governments may approve a tax. However, the measure was passed via the EU Treaty’s Article 122, which enables the European Commission to suggest measures that the European Council then adapts via a vote from member states. 

“The Commission maintains that the measures in question are fully compliant with EU law,” Commission spokesperson Arianna Podestà said, as POLITICO reported. 

The European Commission has said that the levy would raise €25 billion “to help bring down energy bills,” as the Financial Times reported. Exxon, which reported record profits of nearly $20 billion in the third quarter of 2022, says the windfall tax could cost it $2 billion by the end of 2023. 

The European Court now has to decide whether to take the case, and any decision could be appealed to the European Court of Justice. The levy went into effect on the last day of 2022, and the lawsuit did not have the power to stop it, POLITICO noted. The ensuing legal battle could take years.