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Who Controls the Surplus?

On Big Oil's record profits.
Mathew Lawrence

Shell announced profits of £32.2 billion for 2022 this morning. The extraordinary figure — which reportedly includes the highest profit margin by a UK-domiciled company ever — is just the start of what is likely to be a historic financial results season for the energy sector. Just five companies — Exxon Mobil, Chevron, BP, Shell and TotalEnergies — are expected to report a combined profit of £154 billion for 2022, reflecting a vast transfer of wealth from ordinary households and business to the fossil fuel giants. "Big Oil" is profiting like never before amid the crisis.

The results have rightly prompted outrage. They underscore how our energy system is doubly extractive: extracting, transferring, and concentrating both natural resources and financial wealth in the hands of a small number of immensely powerful companies for the benefit of shareholders. But while public anger has focused on the contrast between the sheer scale of profits even as people struggle to heat their homes this winter, another question urgently requires political attention: what are the companies doing with their profits?

To ask not just how much profit the energy companies make, but who gets to decide how this economic surplus is used and toward what goals, is vital, as what they choose to do critically shapes our collective future. Will corporate earnings be used to fund a transformative increase in renewable investment or double down on fossil fuels? Are these profits going to help lower prices for ordinary consumers or reward external investors? How do these decisions then shape the overlapping emergencies of climate crisis and inequality given the energy giants are central to our economies?

Unfortunately, the evidence suggests their priorities are clear: rewarding shareholders and investing in whatever continues to maximise their profits. Shell, for example, who made almost a thousand pounds of profit a second in the final quarter of last year, announced that two-thirds of their historic profits will be distributed straight to shareholders, eight times as much as their "low-carbon" investment. Meanwhile, the single biggest investment in the final quarter of last year was on marketing. They are far from alone in prioritising shareholder interests over the demands of the energy transition. For example, in the third quarter of last year, BP’s financial statement showed that for every pound it invested in renewables it paid out 47 pounds to shareholders, and invested 26 in fossil fuels, while Exxon Mobil spent more than double in 2020 on executive pay than it did on low carbon capital expenditures in 2021.

Defenders of the status quo often respond by arguing that we all ultimately benefit from corporations distributing income to shareholders through our pensions. In practice, steep inequalities in both direct and indirect share ownership mean that the interests of shareholders are disproportionately those of the very wealthy. Indeed, very often there is significant misalignment between the interests of the owners of financial wealth and those of society. We should not organise our economies on that basis.

Though the energy sector’s decision-making will worsen the climate emergency and exacerbate inequality, it is not a surprise. Indeed, it is the system working exactly as it was designed. The institutional design of the corporation drives it relentlessly toward one mission: the maximisation of shareholder wealth. The pressure to distribute corporate income to shareholders — to “disgorge cash” in the memorable phrase of the economist J.W. Mason — is intense and inescapable. At the same time, the extraction and sale of fossil fuels remains immensely profitable, particularly after the economic disruptions unleashed by Covid and Russia’s war on Ukraine. In combination, under the logic of the status quo, it makes sense for companies to allocate their profit toward rewarding shareholders and investing in profitable fossil fuel projects. It is a systemic imperative, just one at odds with the interests of people and planet.

What political lessons can we draw from this? Clearly, the distributional inequality crystallised in the financial results of the energy sector — of vast profits extracted from ordinary people to reward shareholders amid a grinding cost of living crisis — requires urgent attention. An extension and deepening of the windfall tax is now a clear necessity. But the goal must go beyond this to penetrate the ultimate power of capital: the ability to control the economic surplus and decide on the direction of investment.

The control of investment is so important because it is fundamental to shaping how a society develops. Yet this extraordinary power is privatised in the corporation — the prerogative of an institution itself driven by the legal mandate to maximise shareholder wealth. Given this, one-off taxes cannot address the interlocking challenges of inequality, the energy transition, and mounting climate emergency. Instead, we need a return of conscious economic planning to meet social and environmental needs, not guided by the profit imperative. The resolution of the crisis runs through re-politicising investment, bringing it under democratic control. The tools to do this, including public planning and investment, are not new. But we must revive them if we are to effectively secure a clean energy future in a world of multiplying shocks. With the passage of the US Inflation Reduction Act, the direction of travel —  toward state-led steering of the transition —  will only grow. The questions then become: planning by who and toward what goals?

The American labour leader Tony Mazzocchi, who coined the phrase "just transition", once argued: “[t]he most radical piece of literature in America reaches the home of every American each month... it's called the utility bill.” As the supersized profits of the energy sector roll in this month, a new contender has emerged: the quarterly financial results of the fossil fuel fuel giants. We should use that radicalising impulse as a spur to reclaim control of investment and with it, our futures.