Obama’s Oil Tax: A Conversation Starter About Climate and Transportation, but a Non-Starter in Congress

The proposal to rev up transportation investment and tap the brakes on emissions won't pass a Republican-led Congress, but it does ignite a discussion.

President Obama addressed questions about his 2017 budget proposals on Friday
President Obama addressed questions about his proposed energy tax on Friday. Credit: Reuters

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President Obama’s proposal to impose a $10 tax on every barrel of oil and spend the money on advances in transportation is one of the most comprehensive attempts yet to address the climate impacts of moving people and freight from place to place.

Linking climate policy and public works programs, however, is attempting to pave the way for a project not yet shovel-ready.

No lame duck president whose party is the minority in both houses of Congress seriously expects dramatic, ideologically laden new policies to pass.

And if there are two things that are hard to imagine Congress including in the budget for the fiscal year 2017, they are a broad new policy to control climate change and a big tax increase, let alone one hitting down-and-out producers of fossil fuels.

Sen. Lisa Murkowski of Alaska, whose Energy Committee has a bipartisan policy bill on the Senate floor, said that because Republicans are in the majority, nobody should “worry about this becoming law.

White House officials, who announced the proposal late Thursday as part of the run-up to the annual budget submission next week, cast it as a futuristic vision of a transportation network that has become decrepit.

“Some things from the 1960s, like the Beatles, are ageless,” said Jeff Zients, director of the president’s National Economic Council. “But our transportation system definitely is not.”

The goal is to lower transport’s contribution to global warming while building its resilience in the face of growing climate impacts.

“Our transportation system is too dependent on oil,” he said. “Transportation is responsible for nearly 30 percent of the U.S. carbon emissions. And the system was not designed to handle the realities of a changing climate.”

The tax, which would be phased in over five years, would provide funds to increase spending on surface transportation by 50 percent.

A White House fact sheet spells out a broad mix of research, public works spending, and other elements combining some new initiatives with extensions of recent programs. It says the proposal “places a priority on reducing greenhouse gases, while working to develop a more integrated, sophisticated, and sustainable transportation sector.”

As Brad Plumer pointed out on Vox, there are similarities between an oil tax and the fuel taxes that have traditionally funded highways, mass transit, and aviation programs—but there are differences too. Still, “the most radical part” of this plan is its link between 21st century transportation and climate policy.

Elana Schor wrote on Politico that however adamant the Republicans are in declaring the proposal dead on arrival, it will reverberate among Democrats and their green allies. She predicts it will help push the debate toward ever more hawkish climate policies in the wake of fights over the Keystone XL pipeline and other thorny issues.

An article on Bloomberg compared the President’s proposal to his perennial suggestions to cut tax subsidies favoring fossil fuel producers. Congress has never gone along. And it would make little sense to tax oil companies with one hand while subsidizing them with the other.

The Washington Post calculated that at current rates of oil consumption, the plan would bring in about $65 billion a year when fully phased in. However, since the whole point is to lower consumption of oil, it’s hard to predict the long term flow of money. Nor was there any estimate available of how much carbon pollution would be prevented in the long run.

The New York Times wrote the proposal could bring in up to $32 billion in new federal revenue annually. It noted that some policymakers have argued that with oil prices low, now is a good time to raise oil taxes, since consumers are paying low prices at the pump these days. However, it would also be kicking oil companies while they are down, and tilt the playing field in favor of natural gas, which is also abundant and cheap these days but would pay no tax.

The easiest argument for opponents in this political season is to decry the tax increase, just as they would condemn any other tax hike.

But administration officials argue that people pay hidden taxes every day because of the costs climate change extracts from society, along with the costs of delays and inefficiency due to crumbling infrastructure. More of those costs, they are saying, should be paid by the industries that impose them on societystarting, in this case, with Big Oil.