Obama's $10-a-barrel oil tax to pay for green transport

US President Barak Obama is reportedly preparing to levy a tax on oil; $10-per-barrel, to fund a $300bn investment in mass transit, autonomous cars, and other green transportation. The measure is expected to be announced in Obama's budget request next week. This surcharge of $10 will be paid by the oil companies but will presumably be passed along to consumers. The proposal comes amid a brutal time for the US oil industry with falling crude prices pressurising profits in the sector. The White House says the new tax would encourage clean energy innovation and reduce the country's reliance on oil. While it may struggle to clear through a Republican-controlled Congress, this once again raises the spectre of new fossil fuel taxes.

President Barack Obama is about to unveil an ambitious plan for a “21st century clean transportation system.” And he hopes to fund it with a tax on oil.

Obama aides told POLITICO that when he releases his final budget request next week, the president will propose more than $300 billion worth of investments over the next decade in mass transit, high-speed rail, self-driving cars, and other transportation approaches designed to reduce carbon emissions and congestion. To pay for it all, Obama will call for a $10 “fee” on every barrel of oil, a surcharge that would be paid by oil companies but would presumably be passed along to consumers.

There is no real chance that the Republican-controlled Congress will embrace Obama’s grand vision of climate-friendly mobility in an election year—especially after passing a long-stalled bipartisan highway bill just last year—and his aides acknowledge it’s mostly an effort to jump-start a conversation about the future of transportation. But by raising the specter of new taxes on fossil fuels, it could create a political quandary for Democrats. The fee could add as much as 25 cents a gallon to the cost of gasoline, and even with petroleum prices at historic lows, the proposal could be particularly awkward for Hillary Clinton, who has embraced most of Obama’s policies but has also vowed to oppose any tax hikes on families earning less than $250,000 a year.

During Obama’s first year in office, he was so concerned about the politics of taxes that he scuttled a Democratic transportation bill just to avoid a debate over a gasoline-tax hike. Now in his last year in office, he seems to be actively courting a similar debate. A White House memo outlining his plan suggested that its $10-a-barrel fee would not only be necessary to pay for his sustainable transportation dreams, but would do some good on its own by increasing fossil-fuel prices and creating “a clear incentive for private-sector innovation to reduce our reliance on oil and invest in clean-energy technologies that will power our future.”

Two senior administration officials authorized to discuss the plan described it as a sharp departure from unsustainable asphalt-driven Washington policies that date back to President Eisenhower’s creation of the interstate highway system, as well as an aspirational next step for a climate-conscious president who has already ratcheted up fuel-efficiency standards for cars and trucks, doled out unprecedented green energy subsidies, cracked down on carbon pollution from power plants, and pushed through a global climate deal in Paris. They said that transportation accounts for 30 percent of U.S. emissions, and that Obama’s plan would boost spending on green transportation infrastructure by about 50 percent. They also argued that the U.S. transportation system, long the envy of the world, has become an economic drag that imposes $160 billion in hidden taxes on businesses and commuters while stranding Americans in traffic for 7 billion hours every year.

Former Pennsylvania governor Ed Rendell, who was briefed about the plan in his role as co-chair of the pro-infrastructure group Building America’s Future, called it the boldest transportation blueprint since Eisenhower envisioned the interstates.

“Since then we’ve just been bumping along, doing short-term fixes, and I give them a lot of credit for laying out this kind of long-term investment,” said Rendell, a Democrat who has been a frequent Obama critic. “I also give them credit for having the guts to say how they would pay for it all. That’s very unusual in this area.”

The biggest chunk of Obama’s proposed new spending, about $20 billion a year—roughly equivalent to the EPA and Interior Department budgets combined—would go to “enhanced transportation options,” especially alternatives to driving and flying. That would include subways, buses, light rail, freight rail modernization projects, and a major expansion of the high-speed rail initiative that Obama launched in his 2009 stimulus bill. It would also include a 150 percent increase for a more popular stimulus program known as TIGER, which provides competitive grants for multi-modal transportation projects with measurable economic and environmental benefits.

Obama’s plan will also include about $10 billion a year to encourage local, regional and state governments to plan and build smarter infrastructure projects, including incentives to reduce carbon emissions through land-use planning, public transit, electric-vehicle charging, and other strategies. There would be a Climate Smart Fund to reward states that make greener choices with existing federal dollars, as well as competitive grant programs to promote region-wide planning, more livable cities, and infrastructure projects with greater resilience to climate impacts.

Finally, Obama will call for more than $2 billion in annual investments in clean transportation research and development, including efforts to deploy self-driving cars, charging stations for electric vehicles, greener airplanes, and other climate-friendly technologies. The thinking is that traditional transportation bills—including the five-year, $305 billion FAST Act that Obama signed in December after 36 consecutive short-term patches—basically pour federal dollars into band-aids for a decrepit system. The White House memo envisions a new approach that would develop a “more integrated, sophisticated and sustainable transportation sector,” financing forward-looking projects like rapid bus lines under development in Indianapolis and Richmond, or a massive transit expansion in Denver.

“We’re still living in a vision that was great for its time, but not for this time,” one senior administration official said. “This is a new vision. We’re realistic about the near-term prospects in Congress, but we think this can change the debate.”

Those near-term prospects are basically nil; Obama’s entire budget request is expected to be dead on arrival on GOP-controlled Capitol Hill. And Obama’s call for a barrel fee reminiscent of the gasoline taxes and carbon taxes that are anathema to so many Republicans would be especially dead on arrival, even though it would be phased in over five years, and would include relief for low-income families and Northeastern households that transition away from heating oil. Most politicians love infrastructure spending, but most politicians, especially Republican politicians, do not love raising taxes to pay for that spending. The FAST Act, for example, was mostly paid for with budgetary gimmicks, to the extent it was paid for at all. The Obama plan also floats the notion of using revenues from corporate tax reform to help pay the tab, but the headline proposal is the $10-a-barrel fee.

Even Rendell, a strong supporter of Hillary Clinton, declined to speculate whether she would embrace Obama’s plan. But he noted that Ronald Reagan—“a very wise man”—supported gas tax hikes. Eventually, he said, America will have to decide whether it wants to drag its transportation system into the 21st century.

“Obviously, it’s tough sledding this year,” he said. “But this is a great blueprint to hand the next administration, no matter whose administration it is.”

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