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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