Both Eyes on Legacy
Obama Moves to Secure Green Legacy with $10 Oil Tax

President Obama unveiled a plan this week to levy a $10 tax on every barrel of crude oil produced here in the United States, with the funds raised by the tax earmarked for infrastructure investments. Reuters reports:

Set to be officially announced in Obama’s fiscal 2017 budget plan on Tuesday, the fee would provide nearly $20 billion a year to help expand transit systems across the country and more than $2 billion a year to support the research and development of self-driving vehicles and other low-carbon technologies.

What stands out most about this new proposed policy is its timing, for two reasons. First, this new tax would be coming online during a time of sustained low oil prices. Over the past 19 months, crude prices have fallen from more than $110 per barrel to down below $35 today, and while that may be good for consumers, the bearish market is making life very difficult for the companies producing that oil. Here in the United States, most of those producers are plumbing shale reserves, a relatively expensive process, and have been busy innovating new techniques and finding new places to cut costs in order to continue profitably producing. Taxing these companies an extra $10 per barrel produced would put many, many companies already on the brink of insolvency out of business, and in so doing would hurt American energy security.

Second, this idea comes during the final year of the President’s time in office, which should tell you something about how serious a strategy it is. Obama knows that this sort of thing has no chance getting through the Republican-controlled Congress (and indeed GOP lawmakers have been falling over themselves to heap scorn on the idea), which is why he’s floating it on his way out the door. It’s not going to happen, but President Obama hopes proposing it will assuage concerns amongst his green base and help protect his environmental legacy.

With this $10 tax, the Obama administration is attempting ham-handedly to correct a market failure, namely that oil companies aren’t paying for the long-term environmental damages they produce. But this isn’t the right way to address that externality. If the President were interested in actually making progress on this issue, rather than carefully crafting how history will remember his time in office, he’d be better served looking at ways to implement a revenue-neutral carbon tax.

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