WASHINGTON --President Obama’s $10.25-per-barrel fee on oil in his 2016 budget proposal was immediately attacked as “dead on arrival” by Republicans and oil-industry groups. But some say it might also be a “brilliant” first move in a longer game aimed at triggering an oil industry concession and supporting the battle against climate change.
In a recent newsletter, Phil Verleger, petroleum economist and president of PKVerleger LLC, Carbondale, Colo., described the proposed oil tax as a chess move of sorts.
“President Obama has ‘forked’ the oil industry,” said Verleger, referring to a chess move where one player forces the other to give up a piece by attacking multiple pieces simultaneously. In this case, he said the Obama administration is trying to force the oil industry to choose between an oil tax or an import fee.
“The oil industry is now in much the same position as a condemned person who has to choose between the gas chamber and the guillotine,” he wrote. “It can accept a per-barrel tax that can fund infrastructure improvements and promote conservation, a tax that has no impact on market relationships, or accept a crude-oil import fee that benefits domestic crude producers and refiners but harms international oil companies and distorts market price relationships (particularly the Brent/WTI price spread).”
This could divide the oil industry’s loyalty between domestic producers who are desperate to support crude prices, and international producers who would consider the fee detrimental to their livelihood and anti-free-market.
While Republicans have pledged that the proposed oil fee would never make it through Congress, Verleger argued that the president actually has the power to impose an import fee himself. He cited language in the Trade Act that permits the president to limit imports of goods or commodities that endanger “national security.” Low oil and gasoline prices could provide that risk to national security, since they spur consumption. This contributes to climate change, which the Pentagon has described as a national security risk.
With the Supreme Court recently staying implementation of the Clean Power Plan, which is the Obama administration’s key tool in cutting carbon pollution, it seems the validity of such a move may only increase.
And there is precedent: Presidents Nixon, Ford and Carter attempted or enacted various fees on oil to either goad Congress into action on a policy goal, or impact gasoline prices.
Tom Kloza, global head of energy analysis at Oil Price Information Service (OPIS), agreed with Verleger that the $10.25-per-barrel figure could be “a bargaining chip.”
“The President may indeed want to have a low-carbon legacy, and a tax or import fee strategy … might be a way of doing something,” he told CSP Daily News.
“This is gamesmanship, whether it’s played by the leader of the Free World, or others in the realm of business and politics,” said Kloza. “A small graduated fee on imported oil could prop up domestic production in North America, while raising revenue to fight the deficit, or fund clean energy politics.”
Kloza noted that consumers spend just over $600 billion on gasoline each day.
“In July 2008, the daily gasoline bill was over $1.6 billion,” he said. “So ostensibly, there is a lot of money available through higher oil prices (whether via a natural course or extraordinary measures) that could go to various purposes.”
Patrick DeHaan, senior petroleum analyst at GasBuddy, Gaithersburg, Md., told CSP Daily News that should an oil tax similar to the one Obama proposes get passed, it “is highly likely to be passed along to motorists, in bulk, similar to how other taxes on fuel or environmental fees/taxes have been in the past. With oil prices presently under $30 [per barrel] and oil companies struggling, it could drown them if they didn’t pass it along."
If passed along, it could mean a 20-to-25-cent-per-gallon (CPG) increase in the retail price of gasoline, GasBuddy estimates.
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