U.N. Secretary General’s Windfall Tax Proposal Is Worse Than Mixed Messages – It’s Magical Thinking

U.N. Secretary General Antonio Guterres wants energy companies to save the day, just before he puts them out of business.

Secretary Guterres added to the chorus of mixed messages during his opening speech at the U.N. General Assembly, and at a time of remarkable political and economic instability – driven primarily by the global energy crisis – Guterres chose to use his platform to criticize the energy industry. In his speech, Guterres made a not-so-subtle threat to energy companies and firms that do business with energy companies:

“It’s high time to put fossil fuel producers, investors, and enablers on notice.”

Guterres followed this up with a call for countries to tax energy companies’ profits and redistribute the money to communities suffering the effects of climate change.

“I’m calling on all developed economies to tax the windfall profits of fossil fuel companies. Those funds should be redirected in two ways: to countries suffering loss and damage caused by the climate crisis; and to people struggling with rising food and energy prices.”

Guterres’s proposal is an example of the kind of magical thinking common among fringe Democrats in the United States – on one hand, energy companies’ profits are evidence of a malicious and anti-consumer plot, while, on the other hand, they are the solution to nearly every economic and humanitarian policy challenge brought on by Russia’s invasion of Ukraine and the ensuing energy crisis.

A windfall profit tax – or, as the E.U. has rebranded it, a “solidarity contribution” – is an extreme emergency measure that is often time-bound and paired with other cost-of-living provisions. The versions of a windfall profit tax that have been proposed by various fringe Democrats in the U.S. have been uniformly rejected by a diverse and bipartisan group of policy experts and economists.

But regardless of how different nations evaluate and implement emergency taxation measures, Guterres’s proposal is a massive overstep that goes beyond the realm of the possible. Guterres appears to be conflating the purpose of the United Nations – “to achieve international cooperation in solving international problems of an economic character” – with the capabilities of sovereign, democratic governments.

Guterres’s proposal also contradicts experts within his organization. Earlier this year, Máximo Torero, a top food and agriculture economist with the U.N., warned against the human rights consequences of shifting away from fossil fuels too quickly:

“If you switch the energy mix too quickly, you will increase the price of energy. … Then you will increase the price of fertilizers, you increase the price of food, more people dying of hunger. So, what do you want?”

Torero warned world leaders of the dangers of transitioning away from fossil fuels without assessing the full scope of tradeoffs:

“We need to understand that actions have consequences. You cannot go just with the goal of climate without assuming that there is not an interlinkage over hunger.”

But in today’s speech, Guterres did not follow the same logic. Guterres said, “we must urgently address the global food fertilizer crunch” in order to prevent mass hunger. He argued that the fertilizer market must be “stabilized,” and that the impacts of high natural gas prices on fertilizer must be “addressed.”

The fertilizer shortage is far from a hypothetical problem. Over the past year, Sri Lanka has experienced severe inflation, food shortages, and political unrest resulting from the government’s decision to ban chemical fertilizers for economic and environmental reasons.

This begs the question – how does Secretary Guterres plan to address the long-term impacts of high natural gas prices on fertilizer supply while simultaneously discouraging production, investment, and use of natural gas?

Instead of facing the facts, Guterres proposes that governments tax fossil fuel profits, use those profits to address the cross-border impacts of climate change and global hunger, and at the same time, rapidly phase out fossil fuel production and use. Energy companies can do a lot to address the current crisis, and companies have been highly responsive to world leaders’ demands for more production, but they can’t be both the ultimate problem and the ultimate solution.

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