Amid the loud cries of outrage from oil and gas industry, the basic question remained this: What was the president thinking on Feb. 4 when he decided to propose a $10/bbl tax on crude oil?
"We had brief conversations with the administration when they let us know what it was going to roll out," American Petroleum Institute Pres. Jack N. Gerard told reporters during a Feb. 8 teleconference. "But we're not certain they thought about its impacts as well as they should. This is not a well thought-out policy: It's more about political ideology than economics. Why would they penalize the American public when we're trying to help the general economy recover?"
The White House provided a clue in its "21st Century Clean Energy Transportation System" fact sheet where the tax was first announced: "By placing a fee on oil, the president's plan creates a clear incentive for private sector innovation to reduce our reliance on oil, and at the same time invests in clean energy technologies that will power our future."
Calling the tax a fee was no accident. Previous administrations finessed the Constitution's requirement that taxes originate in Congress when they wanted to increase waterway user taxes by renaming them. The 114th Congress isn't buying this.
The fact sheet also mentioned a need to provide a steady funding source for the Highway Trust Fund. It was pretty much drained before Congress-with Republican majorities largely bound by pledges to taxpayer advocate Grover Norquist to oppose all net tax increases-finally passed a highway bill in 2015 that basically raided other federal programs.
"However, last year's bill was merely a first step towards what our economy needs, with only a modest increase in infrastructure funding," the fact sheet said. It also cited progress in developing transportation alternatives to petroleum, but basically said government guarantees are needed to accelerate the transition. Obama included several in his budget request.
A question of timing
Another question was why the president decided now was the time to propose taxing crude oil to help address global climate change. The answer, again, lies in the idea that US motorists don't pay the true costs of the fuel in their vehicles.
This is beyond the obvious expenses to develop, refine, and distribute the gasoline and diesel fuel. It can extend to the costs of maintaining naval fleets in significant tanker shipping lanes or, more recently, climate-threatening carbon produced when the fuel is used.
Conventional Washington wisdom holds that it's best to propose a new fuel tax (or fee) when prices at the pump are low. They are now, which is why Obama made his move.
Nick Snow
NICK SNOW covered oil and gas in Washington for more than 30 years. He worked in several capacities for The Oil Daily and was founding editor of Petroleum Finance Week before joining OGJ as its Washington correspondent in September 2005 and becoming its full-time Washington editor in October 2007. He retired from OGJ in January 2020.
