Obama $10-Per-Barrel Oil Tax Lands With Thud in Congress

(Bloomberg) — President Barack Obama will propose a $10

per barrel tax on oil in his fiscal 2017 budget plan, an idea

that received a chilly reception in the Republican-controlled

Congress that oversees spending.

With the proceeds targeted to transportation and climate

initiatives, the proposal announced Thursday deepens Obama’s

environmental credentials and signifies his ambitions to

aggressively push action on climate change during his final year

in office.

“By placing a fee on oil, the president’s plan creates a

clear incentive for private-sector innovation to reduce our

reliance on oil and at the same time invests in clean energy

technologies that will power our future,” the White House said

in a statement.

It is unclear who, exactly would pay the tax if it were to

pass, and how it would be structured. White House officials

repeatedly stressed that the fee would fall on oil companies,

but said it wouldn’t be charged at the wellhead and they look

forward to working with Congress on the details.

The fee, which drew swift objections from oil industry

groups and Republicans, is part of a broader administration plan

to shift the nation away from transportation systems reliant on

internal combustion engines and fossil fuels. The proposal

envisions investing $20 billion to reduce traffic and improve

commuting, $10 billion for state and local transportation and

climate programs and $2 billion for research on clean vehicles

and aircraft.

Phased In

The new oil tax, which would be phased in over five years,

is all but certain to be rebuffed by Republicans who control

both chambers of Congress.

“President Obama’s proposed $10 per barrel tax on oil is

dead on arrival in the House,” said House Majority Whip Steve

Scalise, a Louisiana Republican.

Environmentalists applauded the move. “President Obama’s

vision underscores the inevitable transition away from oil, and

investments like this speed us along the way to a 100% clean

energy future,” Sierra Club Executive Director Michael Brune

said in an e-mail.

Inadequate infrastructure raises costs for businesses and

consumers, including motorists stuck in traffic — a “hidden

tax” and a harm to the environment, said Transportation

Secretary Anthony Foxx.

Foxx said the plan increases investment in infrastructure

in a way that combats climate change.

Transportation System

Oklahoma Senator Jim Inhofe, the Republican chairman of the

Environment and Public Works Committee, said he agreed on the

need to improve the nation’s transportation system but would

oppose the oil tax.

“I’m unsure why the president bothers to continue to send a

budget to Congress,” Inhofe said in a statement. “His proposals

are not serious, and this is another one which is dead on

arrival. America is ready for a new president.”

Jeff Zients, director of the National Economic Council,

told reporters that exported oil products wouldn’t be subject to

the fee, even though imported ones would “across the board.”

“We recognize oil companies will likely pass on some of

these costs,” Zients said.

Obama administration officials cast the additional cost as

more than offset by the benefits of building better highways and

transit systems.

“Make no mistake, this is an energy consumer tax disguised

as an oil company fee,” Neal Kirby, a spokesman for the

Independent Petroleum Association of America, said by e-mail.

“At a time when oil companies are going through the largest

financial crisis in over 25 years, it makes little sense to

raise costs on the industry.”

Political Opening

The dip in gasoline prices may have created a political

opening for Obama’s proposal, but it also could create tricky

politics for one of the Democrats running to succeed him in the

White House, Hillary Clinton.

Obama has used his annual budget request to Congress to go

after tax deductions and incentives long enjoyed by oil and gas

companies — proposals that have never advanced on Capitol Hill.

“The president perennially proposes repealing the oil

industry tax credits which Congress annually ignores,” Benjamin

Salisbury, a senior policy analyst at FBR Capital Markets, said

by e-mail. “It seems overwhelmingly likely that this fee meets

the same fate.”

The plan comes with oil prices down 13 percent this year,

thanks to increasing supply and a weakening U.S. dollar. Crude

stockpiles climbed 7.79 million barrels to 502.7 million last

week, the highest since the 1930s, according to weekly and

monthly data from the Energy Information Administration.

‘Climate Activists’

House Speaker Paul Ryan, a Wisconsin Republican, said Obama

“expects hard-working consumers to pay for his out-of-touch

climate agenda.”

“The president should be proposing policies to grow our

economy instead of sacrificing it to appease progressive climate

activists,” he said in an e-mail.

Before the plan was announced, West Texas Intermediate for

March delivery slipped 61 cents, or 1.9 percent, to $31.67 a

barrel at 1:54 p.m. on the New York Mercantile Exchange.

Kevin Book, managing director of ClearView Energy Partners,

a Washington-based research company, said there are “near-zero

odds that the Republican-led Congress will grant the president’s


“A Congress without the political will to enact a $0.12 per

gallon tax on gasoline sales that would have phased in over two

years seems very unlikely to impose a new fee on oil companies

that would amount to the equivalent of $0.238 per gallon phased

in over five years,” he said in a research note for clients.

To contact the reporters on this story:

Justin Sink in Washington at jsink1@bloomberg.net;

Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net

To contact the editors responsible for this story:

Jon Morgan at jmorgan97@bloomberg.net

Justin Blum

About BloombergNEF

BloombergNEF (BNEF) is a strategic research provider covering global commodity markets and the disruptive technologies driving the transition to a low-carbon economy. Our expert coverage assesses pathways for the power, transport, industry, buildings and agriculture sectors to adapt to the energy transition. We help commodity trading, corporate strategy, finance and policy professionals navigate change and generate opportunities.
Sign up for our free monthly newsletter →

Want to learn how we help our clients put it all together? Contact us