While an Obama administration proposal yesterday to levy a tax on oil drew jeers from the Republican-controlled Congress, observers say the plan is a sign of the president’s intention to squeeze more climate-changing emissions out of the oil and gas industry.
The "21st Century Clean Transportation System" would place a $10-per-barrel fee on oil in the form of a charge on domestic and imported fuel products, phasing the payment in over five years.
That money would go to financing climate-friendly priorities like transit systems, high-speed rail, carbon-cutting state and local infrastructure, and autonomous and other advanced vehicles, in addition to shoring up a perennial shortfall in federal highway funding, the White House said in a fact sheet and press call yesterday (E&ENews PM, Feb. 4).
"The fee is paid for by the oil companies [and] is designed to support investment in innovation," officials said, describing the plan as a comprehensive approach that would ensure fossil fuels help pay for the transition to a low-carbon economy.
They said certain details would be included in the president’s fiscal 2017 budget proposal, to be released Tuesday, while others remain to be worked out with congressional leaders.
Officials declined to specify which segment of the oil industry would pay the surcharge or how much revenue they expect it to yield, but they said it would cover domestic and imported oil in the form of "fuel products" and apply to "all fuels made with oil that are burned." It would not apply to exports.
"This avoids putting U.S. production at a competitive disadvantage," White House economic adviser Jeffrey Zients said. "Our domestic players would continue to operate on a level playing field."
Republicans across Washington, D.C., immediately slammed the proposal, describing it as a new tax on business and consumers that is "dead on arrival" (E&E Daily, Feb. 5).
"Good grief. The president’s proposed new tax will hurt those most vulnerable. Jump starting the economy by raising taxes is not a solution that will fly in the Republican Congress," House Energy and Commerce Chairman Fred Upton (R-Mich.) said in a statement.
Others noted that the charge amounts to a 30 percent tax on crude, with prices currently hovering around $30 per barrel.
Stephen Kretzmann, executive director of Oil Change International, an advocacy group seeking to highlight the full costs of fossil fuels and facilitate a transition to clean energy, underscored the seemingly insurmountable obstacles such a proposal faces in Congress.
"Charging the oil industry more is absolutely a good idea. However, the Obama administration has asked Congress to end key subsidies to the oil industry in every budget they have prepared," Kretzmann said. "Congress — awash in fossil fuel campaign finance — has not been able to agree to end the more than $17 billion in federal subsidies that we currently provide the fossil fuel industry each year. … Let’s hope the eighth time is the charm."
While deflecting questions around how much the federal government might collect in fees from the proposal, White House officials said its revenues would cover more than $32 billion in new annual spending.
Jack Gerard, president and CEO of the American Petroleum Institute, put a number on what the charge might cost consumers.
"The White House thinks Americans are not paying enough for gasoline, so they have proposed a new tax that could raise the cost of gasoline by 25 cents a gallon, harm consumers that are enjoying low energy prices, destroy American jobs and reverse America’s emergence as a global energy leader," Gerard said in a statement. "On his way out of office, President Obama has now proposed making the United States less competitive."
Closing the gap
While the vehement opposition of industry groups and Republican leaders indicates how unlikely the administration’s proposal is to advance, its very presentation by the White House during Obama’s last year in office underscores the emphasis he is putting on climate change as a legacy issue.
Kevin Book, managing director at ClearView Energy Partners in Washington, D.C., said he sees the proposal as an indication that the White House is prepared to take steps "to close a significant gap between the U.S. climate pledge in Paris last December and the current trajectory of emissions reductions."
"The administration is not worried, at today’s price, about imposing new costs on end-users," Book said in an interview. "Whether or not you want to call it a refinery tax or end-user tax, anywhere in the value chain you put in $10, you’re going to drive up the cost somewhere else."
Book said he sees several places where the administration might more realistically target climate emissions: an expansion of proposed "new source performance standards" to cover methane emissions from new oil and gas wells, a tightening of light-duty-vehicle emission standards that are not on track to meet their stated targets and higher royalty rates for oil and gas production on federal lands.
Book said two measures that would face more opposition from industry but that should not be ruled out based on the administration’s tough tone are addressing methane emission standards for existing oil and gas wells and imposing greenhouse gas standards for refinery emissions.
Efficiency and alternative fuels advocates have long called for a federal tax on oil, arguing that guiding consumers away from fossil fuels and channeling more dollars to research can both help ease the grip that crude holds on the U.S. economy. But as critics of the proposed tax yesterday expressed confident opposition to the plan, few raised their voices to defend it.
"We’re not going to obsess about the finer points of a proposal with little chance of realization," Book wrote in a note to clients last night. "That said, further details regarding the architecture of the proposed fee could indicate where the Administration might be targeting its next gap-closing, greening or tightening effort."