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Obama Wants a $10-Per-Barrel Tax on Oil

The tax would fund $32 billion in clean transportation initiatives like mass transit and electric vehicles.
February 4, 2016, 9:40pm
Photo par Hasan Jamali/AP

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The oil industry is reeling, and President Barack Obama wants to give it another swift kick in the barrels.

The White House proposed a $32 billion plan to boost cleaner transportation Thursday, paid for with a $10-a-barrel tax on crude. The plan is to fund low-carbon transportation projects like mass transit and electric vehicles, in order to shrink the American carbon footprint.

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With gas prices running less than $2 a gallon across most of the United States, and crude at around $31 a barrel, the White House is betting that the time is right to put an additional price on fossil fuels.

"The president's plan would increase American investments in clean transportation infrastructure by roughly 50 percent while reforming the investments we already make to help reduce carbon pollution, cut oil consumption, and create new jobs," the White House said in announcing the proposal. "The new fee on oil will also encourage American innovation and leadership in clean technologies to help reshape our transportation landscape for the decades ahead."

Just announced: @POTUS's clean transit plan would create jobs and help us #ActOnClimate: https://t.co/Hp7rxnc8Wj pic.twitter.com/aIU4V7m243

— Facts On Climate (@FactsOnClimate) February 4, 2016

Cars, trucks and other vehicles make up about 30 percent US output of carbon dioxide and other planet-warming greenhouse gases — about 1.8 billion tons of those compounds in 2014, according to the US Energy Information Administration. The White House said the proposals announced Thursday will make American transportation cleaner and more sustainable, cutting American reliance on fossil fuels and bolstering the country's ability to adapt to climate change.

But the proposal is certain to face a hostile reception in Congress, where tax-averse Republicans control both the House of Representatives and the Senate — and many of their leaders refuse to admit that human-driven climate change exists, much less that any money needs to be spent to address it.

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It also came in for blistering criticism from the American Petroleum Institute, the oil industry's leading trade association.

"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," API President Jack Gerard said in a written statement Thursday afternoon. "On his way out of office, President Obama has now proposed making the United States less competitive."

Related: Obama Tells Oil and Gas Companies to Get a Grip on Methane Emissions

But it won swift praise from leading environmental groups, some of whom have been critical of the administration's support for new oil exploration. Michael Brune, the head of the Sierra Club, praised Obama for "challenging Big Oil's stranglehold on how America powers its transportation sector."

"Providing clean, convenient, and affordable transportation choices will create American jobs and protect our climate," Brune said in a written statement. "From expanding public transit, to developing the vehicles of tomorrow, the president's plan will put people to work repairing our crumbling transportation system and moving it into the 21st century."

And Rhea Suh, president of the Natural Resources Defense Council, called it "the right move at the right moment."

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"It connects the rising economic, social and environmental costs of burning oil to the vast opportunities for American innovation, enterprise and progress," she said. "And it sends a message to future generations: We're not stuck with oil and all the hazard and harm it brings — and neither are our kids.''

A 25-cent-a-gallon increase in gasoline would barely bring prices back to $2 in much of the country. By comparison, in the summer of 2014 — as oil and gas prices began their current nosedive — gasoline was running about $3.50 a gallon, while oil was over $100 a barrel.

"You'd be able hide this price increase form consumers pretty deftly doing it now, while oil prices are scraping bottom," said Jim Krane, an oil-market expert at the Baker Institute, at Houston's Rice University. "An extra 25 cents on gasoline isn't going to have people jumping off of rooftops."

Related: Are Russia and OPEC Forging an Unholy Alliance to Boost Oil Prices? Not Likely

The current oil glut has been driven by the boom in US shale oil, which has turned the United States into the world's largest petroleum producer again. Now No. 2, Saudi Arabia has tried to reclaim its dominance by refusing to cut back production, forcing a game of chicken in the markets. And the easing of sanctions on Iran in return for its agreement to rein in its nuclear development means still more oil will be available before long.

It's been good for consumers — and bad for oil companies and workers. Two of the world's biggest, BP and Shell, reported steep losses this week, while rigs have been shut down across the United States as lower prices make it too expensive to drill in some plays.

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And as gasoline has gotten cheaper, consumers have been less interested in fuel-sipping compact cars or electric vehicles. The University of Michigan's Transportation Research Institute, which tracks fuel economy and automotive carbon output on a monthly basis, reports that the average mileage of newly-purchased vehicles has dropped about three-quarters of a mile per gallon since August 2014, after climbing by 5 miles per gallon over the previous seven years. And the greenhouse gases of those vehicles have gone up 4 percent since the summer of 2014, the institute reported this week.

"Anything leading to higher gas prices — like a $10/barrel tax on oil — should turn around the recent trend we have seen with new vehicle buyers going back to larger vehicles like pickups and SUVs," said Brandon Schoettle, project manager at the institute. "Whether it's due to oil market prices rebounding or a tax, we do not think that the significant drop in gas prices we have seen lately are likely to last."

Meanwhile, the 18-cent-a-gallon federal gasoline tax hasn't gone up since the Clinton administration, and the transportation network it funds is suffering, Krane said. More efficient vehicles mean less money in the budget for fixing roads and bridges.

"We're traveling a lot more miles and paying a lot less tax," he said. "The roads are still being used, and the tax revenues aren't there to fix them."

Follow Matt Smith on Twitter: @mattsmithatl