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Obama’s $10/Barrel Tax on Oil Imports Highlights Political Obstacles to Climate Mitigation

On Tuesday February 9th, US President Barack Obama will propose a $10/barrel tax on oil imports. The proposed policy will be phased over five-years and is expected to raise nearly $20 billion a year to fund low-carbon public transportation investments, $10 billion in government grants to lower transportation emissions and $2 billion a year to support R&D of next generation vehicles. Unsurprisingly, the bill has led to notable uproar from some American groups due to concerns regarding higher prices at the pump and the potential for retaliatory US oil export tariffs from other countries. While the policy is unlikely to go through due to heavy opposition, it brings dialogue and attention towards climate mitigation issues.

When examined economically, a $10/barrel tax on oil imports could, in theory, temporarily unite both domestic US oil producers and environmental groups. A tax on imports (also known as a tariff) is a protectionist policy that supports domestic US oil production given the current price war with OPEC countries whilst also encouraging alternative energy sources and fuel conservation. While the American Petroleum Institute has found that a $10/barrel increase in oil costs usually translates to an additional $0.25/gallon at the pump, that increase should hardly hurt consumers considering the fall in retail prices from a high of nearly $4/gallon in 2014 to just under $2/gallon currently. Let’s not also forget the hidden costs of poor US transportation infrastructure with the American Society of Civil Engineers (ASCE) estimating a US GDP loss of nearly $390 billion per year between 2012 and 2020.

Unfortunately, with the oil tax viewed as essentially a ‘carbon tax’ for the energy industry, the proposal has been labeled by some as “dead on arrival” and “Obama’s worst idea yet” even before the specifics have been released. Verdantix research has found that while regulations are the strongest drivers for climate resilience spending, public policy also takes the most time for deliberation. The US congress database reveals that it has taken up to 712 days for a bill to pass into law, with only 561 of the 6,845 bills proposed in 2013 seeing success. Even when passed, lead times can be significant such as France’s Grenelle II Article 225 which rolls out over five years, the EU Non-Financial Directive finalized in 2014 with country-level transposition by 2017 and the COP21 agreement with five-year review cycles from 2020 onwards.

Despite the uphill regulatory climb, private sector firms have acknowledged benefits to tackling climate mitigation and adaptation issues by investing in capabilities and software/services. Roughly one in five EH&S directors surveyed by Verdantix prioritized supply chain stewardship (including associated emissions climate risk management) as ‘very important’. Witness solutions providers such as EcoVadis and EcoDesk specializing in supply chain stewardship as well as service providers offering diverse capabilities such as ICF on climate policy analysis, AECOM on climate adaptation strategies, as well as Deloitte and EY on supply chain risk and resilience consulting.

To stay up-to-date on Verdantix research in energy management innovations and rapidly evolving EH&S information management practices, keep an eye out for our Verdantix Energy Summit currently underway at London, UK and upcoming Verdantix EH&S Summit later this year in Chicago, USA.