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The role of high government taxes on oil has been largely overlooked by those looking to cast blame for rising gas prices.
Financial Times, Thomas Catan writes, "Governments are increasing taxes on oil companies and politicians have turned them [the oil companies] into scapegoats for rising energy costs." In fact, I very much agree with him.

Why are energy costs so high?

In the same year, the Organisation of the Petroleum-Exporting Countries (OPEC) released a factsheet briefly, but sufficiently showing the where all the revenue collected from oil-exporting activities eventually go to. One is shocked to know, in the face of the urban legend of the "rich, oligopolistic oil company", that actually, very little of the money they earn from us consumers eventually go into filling their coffers. In countries such as the United Kingdom, a great 55% of the revenue will end up in state coffers as taxes, leaving actually quite little for the company to profit in terms of percentage, after they use majority of the remaining revenue to pay for their total production costs.

Even in the US, energy costs could be lower - up to 26% of the money goes into taxes. One must question - for what are the governments taxing so heavily on these companies? Is it really for their negative externalities and environmental impacts, or is it just purely for the sake of making up budget deficits? Does the average consumer ultimately benefit in the end?

You see, everyone likes to complain when they face taxes. In this case, the government does not need to worry so much. Without much research and with a lot of resentment, the people would not think much before shooting the messenger - in this case the oil companies themselves, for all that high energy costs, with few going deeper in the issue to blame the government taxes.

It actually is not easy to be ExxonMobil or even Royal Dutch Shell. With Man's ever-increasing need for energy, oil is being depleted as a resource at increasingly rapid volumes. Oil companies, in their quest as the profit-motivated firm, also have the very-incidental duty of making sure energy does not run out. Come think about it, when oil eventually runs out on Earth, people are not going to blame themselves so easily; they are more likely to accuse the oil companies for something.

This means that they must invest a significant amount of their well-earned profits in research and development, looking for new oil resources, building refineries and repairing existing ones, monitoring operations ("It takes about ten years to get a new oil discovery to production" - Catan) and hiring experts from a shrinking talent pool. Ironically, despite energy being a sector where research could really yield benefits to every Man, oil development receives pathetic if not zero funding from many governments, it being a non-renewable resource in today's world of pro-green politics. Oil companies hence must really squeeze the utility in every penny they spend out, being more and more misunderstood with every move, every spending, every minute.

Oil is undeniably non-renewable, and its production methods generally anti-environment. However, in the quest to figure out the truth behind rising energy costs, we must be clear-headed to separate fact from fiction, and give oil companies and OPEC a fair trial too.

Learn more about this author, Ajani Mgo.
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