ENERGY POLICY

Oil price plunge may reshape congressional debates around gas tax, crude exports

If oil prices continue their plunge, it could refocus the congressional debate over expanding U.S. energy commodity exports, potentially opening the door for a gasoline tax increase and shaping arguments around biofuels mandates and vehicle efficiency rules, current and former lawmakers, aides and analysts said yesterday.

Oil prices have been trending downward since June and plunged sharply after the Organization of the Petroleum Exporting Countries (OPEC) said Thursday that it would maintain current output. That move was seen as an effort by Saudi Arabia and other large producers to keep market share amid the massive growth in U.S. oil production over the last several years, much of which is being extracted from shale formations where production is more expensive. The dramatic price fluctuation has roiled commodity markets and kindled fears that some U.S. drilling companies may not be able to break even at lower prices, causing them to retreat from some more expensive shale oil plays or otherwise adjust their business plans (EnergyWire, Dec. 1).

The price drop is sure to reverberate on Capitol Hill, too, although it has not yet sparked a dramatic reshaping of priorities as lawmakers this week remain focused on year-end business, including tax incentives and the need to pass a spending bill to avoid a government shutdown next week (see related story).

For drivers paying less than $2.80 per gallon to fill up their gas tanks for last week's holiday travel, the lower prices have been a boon. But the broader policy implications will continue to ripple over the coming months, especially when Republicans take charge of Congress next year.

An early test will come in the spring, when Congress has to address the Highway Trust Fund, which is only solvent through May and relies on the 18.4-cent-per-gallon tax on gasoline as its primary funding source. A Republican proponent of raising the federal gasoline tax, which is too low to fully offset highway infrastructure spending, said low oil prices could provide an opening to increase the tax, because they could allow the tax to rise without completely offsetting lower prices at the pump.

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"Gosh, if we were ever going to do it, now's the time," said Sen. Bob Corker (R-Tenn.), who has called for gradually raising the tax by 12 cents per gallon over the next two years.

Corker, who has urged Congress to address the Highway Trust Fund before adjourning for the year, said in an interview yesterday that he had met earlier in the day with a CEO who was making the same argument tied to low oil prices. But he acknowledged that the issue is unlikely to see attention before the spring.

"We have this huge economic stimulus taking place with oil prices being where they are, and now's the time to do it," Corker said, reiterating his argument that geopolitical actors like OPEC can cause greater gasoline price swings than the tax.

If oil prices stay low, supporters of aggressive action on climate change may carry over the logic behind a gasoline tax increase to comprehensive tax reform discussions and impose a tax on carbon dioxide to reduce government collections elsewhere.

"It potentially could have incredible implications, especially if Congress gets over its 25-year energy tax phobia and embraces either gasoline or a broad-based carbon tax as a way to facilitate tax reform," said Paul Bledsoe, a senior fellow at the German Marshall Fund who was a Senate Finance Committee aide when the gasoline tax was last increased in 1993. "Raising energy taxes could allow a broad-based tax reform deal that would lower income and corporate taxes, which both parties claim to be their ultimate economic objective."

Kevin Book, an analyst at Washington, D.C.-based ClearView Energy Partners, said the discussion becomes more complicated when one considers what share of voters' disposable income goes to gasoline purchases.

A note the firm put out yesterday said voters in Republican-leaning states tend to earn less and drive more than their counterparts in traditionally "blue" states, meaning they spend more of their overall income on gasoline. Of the 15 states, plus the District of Columbia, where residents spent the lowest portion of their income on gasoline, 14 went for President Obama. The opposite was true for the 15 states where residents spent the highest proportion of their income on gasoline; of those, only New Mexico went to Obama.

Those dynamics do not completely foreclose the possibility of a gas tax increase, which supportive Republicans sometimes refer to as a user fee because it funds highway infrastructure. Still, "this is a pretty politically polarized thing you're talking about here," Book said in an interview yesterday.

Exports

Another question likely to occupy Capitol Hill's energy players next year is whether to lift the decades-old ban on exporting crude oil and the parallel question of how much liquefied natural gas (LNG) should be authorized for sale abroad. Though related, the debates are at different points. Congress is widely expected to pass a bill that would expedite LNG exports relatively early next year, while legislation around the crude export ban is not likely to gain traction as quickly.

Supporters of energy exports appear emboldened by the drop in oil prices.

"I think this is just a sign that they recognize that we're entering a new era of energy diplomacy ... whereby the United States with Canada is a significant player, and if we start to export now, you're looking at changing behavior to try to force things into a more open market," said Rep. Charles Boustany (R-La.), an emerging leader among export supporters in the House.

Boustany said he had been told that producers expected to rethink their strategy in some fields but that production would continue overall. The industry is still trying to determine where the price ultimately will settle, but he said continued efforts to develop an "integrated" energy market along with Canada and Mexico, combined with increased exports, would stabilize prices and allow for more competition on the global market.

Sen. Rob Portman (R-Ohio), who plans to resurrect his bipartisan energy efficiency bill next year, said the current drop in oil prices provides economic and energy security benefits to the United States. He said those benefits could be expanded with additional LNG exports.

Lifting the crude export ban in place since the 1970s has been a top priority for Sen. Lisa Murkowski (R-Alaska), who is in line to chair the Energy and Natural Resources Committee next year. She has said the Obama administration has all the authority it needs to act and she does not imminently plan to introduce legislation on the subject, although committee hearings are likely early next year. Committee spokesman Robert Dillon said the drop in prices does not change Murkowski's argument that U.S. oil should be sold wherever it can fetch the most attractive price, meaning only excess crude that couldn't be absorbed domestically would end up being exported.

Domestic oil prices settled around $66 per barrel last Friday, down from a yearly high above $102 reached in late June, but the price yesterday rebounded slightly to close at $69 per barrel. Still, it remains to be seen whether -- or how far -- the price would continue to fall amid growing supply from U.S. oil and gas drillers, steady supply from OPEC and weaker demand from regions like China and Europe, analysts said.

Former Sen. Byron Dorgan (R-N.D.), who now serves as a senior fellow at the Bipartisan Policy Center and a lobbyist at the Washington firm Arent Fox, said the drop illustrates the sway OPEC still has over energy markets, despite its unusual decision to welcome lower prices, and it's too soon to know the full implications of that move.

"I do think that the additional oil plays and particularly the U.S. production is transformational in many ways," said Dorgan, whose clients now include the National Biodiesel Board. "But OPEC as a cartel still has powerful influence over where they want price to go."

EPA

However Congress responds to the drop in oil prices, the broader agenda pursued by the returning Republican majority in the House and newly empowered Senate GOP will certainly continue to focus heavily on criticizing U.S. EPA rules across the energy sector. Last week, EPA announced it was tightening ozone standards, provoking outrage from Republicans and industry groups, which say it will be too costly, and yesterday the comment period closed on its landmark greenhouse gas regulations for power plants. Both will continue to capture attention on the Hill.

"I think the red meat for Congress is always going to be the EPA rules they have been chewing on," Dorgan said in a brief interview yesterday.

EPA also last week announced it was punting until next year a proposed rule that would have reduced the amount of biofuels that refiners would be required to blend under the renewable fuel standard. Support for the RFS breaks more along regional than partisan lines, but efforts to reform the mandate are likely to remain on Congress' agenda next year.

If oil prices stay low, it could make it harder for biofuels producers, which already are "already having a hard enough time," said Chris Miller, a former adviser to outgoing Senate Majority Leader Harry Reid (D-Nev.). Continued low oil prices could give extra life to RFS reform efforts, he said.

Depending on how long prices stay low, the situation could also have implications for EPA's corporate average fuel economy standard, which are set through 2025. Over the next several years, EPA and the National Highway Traffic Safety Administration will be undertaking a midterm review of the out years to determine whether to adjust the requirements.

"Part of that is consumer acceptance," Miller said. "And if oil prices are low, people are going to start buying big trucks again," which could reduce support for the tougher rules.

Twitter: @nickjuliano | Email: njuliano@eenews.net

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