The Importance of Obama’s Doomed Oil-Tax Plan

A new White House proposal highlights oil’s persistent dominance in transportation.

AP Photo/Hasan Jamali
Ben Geman
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Ben Geman
Feb. 5, 2016, 4:57 p.m.

Yes, Cap­it­ol Hill Re­pub­lic­ans in­stantly shot down Pres­id­ent Obama’s new pro­pos­al to slap a $10-per-bar­rel tax on oil, which would fund ex­pan­sion of green trans­port­a­tion choices such as rail and elec­tric cars.

But the White House plan un­veiled Thursday is polit­ic­ally and sub­stant­ively in­ter­est­ing for a few reas­ons, even though it stands no chance with Con­gress in GOP hands.

For one thing, it shines a bright light on a tough cli­mate-policy prob­lem: how to wean the na­tion’s trans­port­a­tion sys­tem away from oil. It’s an im­port­ant ques­tion, giv­en that trans­port­a­tion ac­counts for around 30 per­cent of U.S. green­house-gas emis­sions.

But the search for ready, low-car­bon sub­sti­tutes for the oil that powers cars, ships, and planes has proven a very tough nut to crack.

Large-scale de­vel­op­ment of the next gen­er­a­tion of bio­fuels has pro­ceeded far slower than ex­pec­ted, while elec­tric vehicles com­prise only about 1 per­cent of vehicle sales. And driv­ing in the U.S. is on the rise.

It’s a sharp con­trast with the op­tions for cut­ting car­bon from power pro­duc­tion, where use of car­bon-heavy coal has de­clined sharply in re­cent years amid the rise of clean­er-burn­ing nat­ur­al gas and zero-emis­sions re­new­ables.

“The grid doesn’t care where the elec­trons came from,” notes Chris Neld­er, an en­ergy ex­pert with the Rocky Moun­tain In­sti­tute. In con­trast, he notes, “there is no swap­pable sub­sti­tute for pet­ro­leum.”

“We need to do something to make trans­ition hap­pen in trans­port­a­tion, and ob­vi­ously the prob­lem has been fund­ing,” said Neld­er, who notes the im­port­ance of rail in trans­form­ing the trans­it sys­tem away from oil.

The Obama ad­min­is­tra­tion has already im­posed much more strin­gent fuel-mileage rules on cars and light trucks. But the steep drop in oil prices is act­ing as a drag on the ef­fi­ciency of the U.S. fleet on the roads. The stricter rules force auto­makers to sig­ni­fic­antly boost their fleet-wide mileage over time, but con­sumers tend to buy less-ef­fi­cient vehicle types when fuel prices are lower.

The av­er­age fuel eco­nomy of new vehicles sold is around 0.7 miles per gal­lon lower than it was in Au­gust 2014, notes the Uni­versity of Michigan Trans­port­a­tion Re­search In­sti­tute.

While car­bon emis­sions from trans­port­a­tion are be­low where they were a dec­ade ago, they crept up in 2014 as the pet­ro­leum price de­cline took hold, and fed­er­al En­ergy In­form­a­tion Ad­min­is­tra­tion data through the first 10 months of 2015 shows them rising again.

Eth­an Zind­ler, an ana­lyst with Bloomberg New En­ergy Fin­ance, says get­ting a handle on car­bon emis­sions in the sprawl­ing, dif­fuse trans­port­a­tion sec­tor is dif­fi­cult in com­par­is­on to power gen­er­a­tion, which ac­counts for about a third of U.S. cli­mate pol­lu­tion.

“Bend­ing the curve on car­bon emis­sions from trans­port­a­tion is, in some ways, a trick­i­er busi­ness,” he said. “You are talk­ing about a mass mar­ket of mil­lions of vehicles and mil­lions of con­sumers and mil­lions of con­sumer-be­ha­vi­or pat­terns that all have an im­pact on it.”

Enter Obama’s plan, which in ef­fect is a car­bon tax aimed at the trans­port­a­tion sec­tor that would be used to make it green­er through ex­pand­ing mass trans­it, eas­ing con­ges­tion, and try­ing to boost de­ploy­ment of elec­tric and autonom­ous cars.

Obama’s plan is to have oil com­pan­ies pay a $10-per-bar­rel fee, phased in over five years. It would ap­ply to do­mest­ic pro­duc­tion as well as oil im­ports. While it’s not a gas­ol­ine tax, costs are likely to be passed along. The con­sult­ing firm Clear­View En­ergy Part­ners es­tim­ates that it would add about 24 cents per gal­lon.

Zind­ler says that could help sway con­sumer choices to­ward more-ef­fi­cient cars to some de­gree.

But the main pur­pose, ac­cord­ing to the White House, is to greatly boost fed­er­al spend­ing on vari­ous “clean” trans­port­a­tion pro­grams and in­fra­struc­ture with $32 bil­lion per year in new in­vest­ments.

The new plan finds the White House com­ing more or less full circle on cli­mate-change policy.

Con­sider that Obama’s early first-term push to im­pose a price on car­bon through an eco­nomy-wide cap-and-trade pro­gram col­lapsed in the Sen­ate in 2010.

But in the last couple of years, cap-and-trade has re­sur­faced, al­beit in a more lim­ited and dif­fuse way. That’s be­cause the big EPA rules to lim­it car­bon emis­sions from power plants en­cour­age states to use emis­sions trad­ing to meet the stand­ards. States could also, if they chose, use a car­bon tax to meet the power plant stand­ards.

Now, Obama is pro­pos­ing to be­gin pri­cing car­bon in trans­port­a­tion with a new tax (though the White House calls it a “fee”) paid by oil com­pan­ies.

It’s the latest cli­mate pro­pos­al from a pres­id­ent who has made glob­al warm­ing a top pri­or­ity dur­ing his second term. But un­like his many ac­tions us­ing ex­ec­ut­ive power, this one is more about lay­ing down a mark­er, giv­en that it would re­quire Con­gress to sign off.

“This is a new vis­ion. We’re real­ist­ic about the near-term pro­spects in Con­gress, but we think this can change the de­bate,” an ad­min­is­tra­tion of­fi­cial told Politico.

The plan is part of the broad­er fisc­al 2017 budget re­quest that the White House will present to Con­gress next week. Re­pub­lic­ans have already signaled that the oil plan, like most of Obama’s pro­pos­als, is dead on ar­rival.

Wheth­er this or a sim­il­ar plan could ever be re­vived is an open ques­tion. Hil­lary Clin­ton’s cam­paign de­clined a re­quest for com­ment. So did Bernie Sanders’s, though Sanders has pro­posed a more far-reach­ing car­bon tax to battle cli­mate change.

The White House pro­pos­al en­vi­sions bil­lions of dol­lars spent on ex­pand­ing mass-trans­it sys­tems and mak­ing high-speed rail a “vi­able al­tern­at­ive to fly­ing” in ma­jor re­gion­al cor­ridors. It provides more fund­ing for state and loc­al gov­ern­ments to cut car­bon from trans­port­a­tion through steps such as in­vest­ment in elec­tric-vehicle char­ging sta­tions and in­creased pub­lic-trans­it use.

The pro­pos­al would also, among vari­ous oth­er steps, boost re­search and de­vel­op­ment in­to clean trans­port­a­tion and launch “pi­lot de­ploy­ments of safe and cli­mate-smart autonom­ous vehicles,” a White House sum­mary states.

Obama, speak­ing to re­port­ers Fri­day, said today’s low gas­ol­ine prices mean it’s a good time to im­ple­ment the plan.

“Gas prices are ex­pec­ted to be low for a while, for the fore­see­able fu­ture. That, over­all, can be a good thing for the eco­nomy. But what is also im­port­ant is that we use this peri­od where gas prices are low to ac­cel­er­ate a trans­ition to a clean­er-en­ergy eco­nomy be­cause we know that’s not go­ing to last,” he said.

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