The Effects of the Windfall Profits Tax on American Crude Oil Production

Abstract

The windfall profits tax itself is of some value in the fight against wasteful petroleum production, but it must be considered a third-line choice at best. It is of no use in encouraging investment in unrestrained petroleum reservoirs that lack investment. True, the tax will reduce the extraction rate of such reservoirs to a more optimal rate, but it must be pointed out that the smaller future extraction rates may be partly reduced by a lack of pressure maintenance investment resulting from the windfall profits tax. Furthermore, the tax would also lower the production and investment rates for centrally controlled reservoirs below what would be the optimum for both the reservoir operators and society. Hence, the tax can hardly be considered a beneficial part of a national energy strategy, at least not in the traditional sense of such a program. It does nothing to boost energy supplies or to lower the demand for energy. [From Conclusion]