Proposing an Overdue Oil and Climate Security Fee

The President just proposed a 21st Century Clean Transportation Initiative loaded with interesting policy, the most attention-grabbing of which is a $10-per-barrel oil fee to be phased in over 5 years. The revenue from it (about $30 billion a year according to the investment list) drives a portfolio of investments in better, cleaner transportation including new rail and transit projects, solutions to urban and suburban transportation challenges and the transition to a more autonomous and electric vehicle fleet.

It was, predictably, met with kneejerk opposition from Members of Congress who have become almost entirely reliant on debt-exacerbating fiscal gimmicks in lieu of new revenue to cover federal investments. Old-school energy plutocrats including T. Boone Pickens derided the idea as well.

But this is a worthy proposal, and it's not a new idea. Our Mobility Choice coalition pushed for this as part of a 10-point plan in a 2010 report (pdf here). We described various options for use of the proceeds including making it revenue-neutral by providing payroll-tax relief to making targeted investments in smart technology for transportation systems, resources for increased telecommuting by federal employees and investment in rail in Amtrak's popular northeast corridor. We found it would save oil, reducing our dependence on this fossil fuel:

Implementing a fee equivalent to an additional 25 cents per gallon of gasoline in 2020 could moderate demand by almost 240 million barrels of oil, and by about 470 million barrels per year by 2030.

Shortly afterwards, as leaders of a Carnegie Endowment for International Peace initiative, three thought leaders from across the political spectrum (Former Senator Bill Bradley, former Governor Tom Ridge, and former Comptroller General David Walker) proposed a similar fee in an op ed, although they made it cyclical so the fee would rise and fall depending on the price of oil:

...[W]e propose establishing a value-added oil-security fee at the refinery or point of importation. This fee would be a fixed percentage based on the price of a barrel of oil. In addition to the levy, there would be a varying retail tax on gas. When oil prices increase, the gas tax is reduced. When they decline, the gas tax would rise, thus offsetting diminished oil-security fees due to lower oil prices.

The revenue would go to shore up national transportation investments, preceded by a thorough audit of the program to reduce waste and ensure that additional investment would be worthwhile (for more details see their Road to Recovery report). Some smart thinkers at RAND corporation also examined the option of an oil tax to fund the transportation program, replacing all existing fuel taxes in order to simplify this area of policy.

There are other written pieces I could cite, but you get the point: This one stone that would kill several birds has been thoroughly explored, for good reasons.

First of all, it would help account for hidden costs of oil dependence, from Defense Department spending to protect oil-rich nations and global transport lanes to heat-trapping pollution that drives dangerous climate change. This is why there's conservative support for such a fee.

And it would remedy underinvestment in transportation infrastructure due to a federal gas tax that hasn't budged since 1993. Solving that problem tends to attract bipartisan support.

Last but not least, the package wouldn't fund just any projects (which would be mere pork). It's targeted at ones that improve the system's performance by further reducing oil use and carbon pollution. And that's perhaps the most exciting if overlooked set of components of the Administration's plan (scroll down to the "Bold Investments" section in the White House fact sheet). Plus the funding source would mean we stop paying for transportation on the nation's credit card, which is profoundly unfair to future generations. So this package is designed for the long haul.

The simple truth is that while the Congressional pro-debt, no-taxes-ever crowd may reflexively oppose it, this policy is overdue. Although it's a shame it wasn't advanced earlier in his term, the Obama Administration deserves credit for proposing it at all. And now that it's on the table in Washington, not just covered in opinion pieces and reports, here's to a real debate about its merits and action on it in the near future.