The Hidden, Very Good Reason for the $10 Oil Tax

Going for broke with his final budget, President Obama recently proposed a $10-a-barrel tax on oil to fund a $32 billion annual investment in low-emission vehicles, public transit, and urban planning. It's a bold proposal that could steer the economy toward a low-carbon future and revives the idea of a carbon tax that Obama proposed upon first taking office in 2009.

Back then, the carbon tax withered on the vine even though it could have done double duty to boost the economy while fighting climate change. This time Republicans pronounced the oil tax "dead on arrival." But simply introducing the idea now can help make it a priority should Democrats retain the White House. It also affirms that government is better suited to reducing fossil-fuel usage than the market, which has been profiting off fossil-fuel consumption for hundreds of years.

More importantly, an oil tax is a step toward redefining energy as a public good. Providing public goods is an essential function of government. They can include national defense, emergency services, education, and clean air. The principle is that general welfare trumps private profit. Now, well into the era of catastrophic climate change, energy is clearly a critical public good, and everyone pays the cost of overuse and abuse.

Private goods can only be enjoyed by a finite number of consumers, and some, for lack of funds, will not be able to access them. Cars, for instance, are produced in a limited quantity and can only be purchased by people who can afford them. Consumers cannot be prevented from accessing public goods, and cannot compete each other out of their benefits.

We, as a society, make choices about public goods. For instance, the internet, developed by the Pentagon, is a public good, but nearly all of us pay telecom providers, partly because they have squelched free government wireless. Meanwhile, the internet has transformed the work of musicians, filmmakers, writers, and artists into free public goods, much to their dismay.

Fossil fuels are similarly complicated. Around 85 percent of the total is publicly owned and operated by national companies. Corporations like ExxonMobil and Chevron are the exception. In the United States, gas and diesel are considered private goods that one must pay for, and the price is prohibitive for many because it includes the cost of a vehicle. But major oil-producing countries often treat fuel as a public good, selling it for as little as seven cents a gallon in the case of Venezuela. That can lead to tremendous waste and abuse.

Oil, natural gas, and coal are also intertwined with a resource that is irreplaceable and owned by everyone: the atmosphere. This is a form of global commons, like cultural heritage, which comprises a third category in addition to public and private goods.

Industrialized nations, nearly all in the West, have dumped 2.3 trillion tons of carbon dioxide into the atmosphere since 1750, contributing to a global temperature rise of roughly .87 degrees Celsius. Climate scientists have found that to avoid a climate catastrophe, we'll need to keep the global thermostat below a 2 C increase--and even this is risky--leaving us with 1.2 trillion tons in the carbon dioxide budget, or about 30 years of emissions at the present rate.

That's it. And that's why there is so much pressure on governments to regulate fossil fuels. But the schemes to date have flopped because they treat energy as a private good. Europe has a cap-and-trade system that restricts carbon emissions and distributes pollution permits that are bought and sold in a trading market. A 2009 Dartmouth College study found that system rife with fraud and theft, which had cheated it out of more than $6 billion.

These are not incidental problems. While one can create a cap-and-trade system that firmly limits carbon, strictly polices emissions, and eliminates dodgy technicalities, they often succumb to the political muscle of industry. Market fixes to climate change start with the premise that big energy, power companies, and manufacturers are too powerful to fight, so they need to be part of the solution. But once at the table, polluters riddle environmental laws with weak language, light regulation, and gaping loopholes.

California's new cap-and-trade system, while stronger than Europe's flimsy carbon market, still has free permits, fraud-prone offsets, and exempts "rogue emissions" like the gargantuan methane leak in Los Angeles that poured the equivalent of 8 million metric tons of carbon dioxide into the atmosphere, according to the Environmental Defense Fund.

Markets are hotbeds of corruption, and the private sector is far more opaque than government. A carbon tax like the $10-a-barrel proposal is simple, which is why the oil industry hates it. The chief downside is the cost. About 25 cents a gallon would be passed on to the consumer, more than double the current federal tax, which hasn't been raised since 1993. But that's a bargain compared to the rest of the world. Americans fork over an average of 49 cents per gallon in all taxes. Nearly every other industrialized country slaps on $2.50 to $4.00 per gallon in taxes.

Complaints by Republicans and pin-striped executives, who suddenly discovered the plight of the working poor, conveniently ignore key elements of Obama's plan and the current economic picture. Foremost, the $10 tax would be phased in over five years. This would tack on about $40 a year to the average household budget. Meanwhile, the dizzying plunge in oil prices has saved families nearly $1,100 a year since 2012.

Gas taxes are regressive. Families in the bottom 20 percent pay four more in fuel costs than the highest 20 percent as a share of household budget. So the proposal also mentions assistance to relieve energy cost burdens on households.

More significantly, the point is to raise the cost of gasoline and diesel to make them less economical. The national average of $1.75 per gallon is a boon for consumers and a blow to the environment. U.S. oil consumption dropped nearly 2 million barrels a day since its peak before the Great Recession, but is now rising fast as Americans scoop up SUVs and pickup trucks once more.

Raising oil taxes would nip demand for gas guzzlers and wasteful driving. The money is earmarked for funding mass transit, rail, and aiding cities and suburbs in expanding walking and biking options. As transit options multiply, oil companies would be harder pressed to pass on taxes, making low-carbon options more competitive.

The tax should be seen as a starting point for regulating oil, gas, and coal as a public good. We do this with many essentials: healthcare for children, firefighting, food stamps, and education. Energy is another essential in our society. Many laws already address energy as a public good by regulating coal pollution, deadly diesel soot, mileage standards, phasing out incandescent bulbs, and offering tax credits for wind and solar power.

Treating energy as a public good would complement treasuring the Earth itself--the atmosphere, hydrosphere, and biosphere--as a global commons that everyone has a right to, rather than something for corporations to loot freely.

History is also on the side of a new approach to energy policy. One of the signature achievements of the New Deal was the Tennessee Valley Authority, which built dams to control devastating floods and provided electricity to rural areas where only 10 percent of households had access to power. By 1939, 417 rural electric cooperatives covered 288,000 households and access to power had increased to 25 percent.

The Roosevelt administration also flirted with the idea of trying to nationalize the U.S. oil industry after oil prices in East Texas collapsed to ten cents a barrel due to overproduction. Many oil producers backed government regulation of production, which was implemented under Harold Ickes, the Secretary of the Interior. During World War II, Ickes also floated the not-so-progressive idea of a U.S.-owned national oil company in the Middle East. Needless to say, these proposals did not go over well with oilmen like the Rockefellers.

As we embark on a perilous future, we can learn from the past. The global atmosphere should not be an asset on the balance sheets of energy companies. We will have to transition to a post-fossil-fuel economy eventually, either out of wisdom or chaos. Pushing hard for an oil tax now will bring us a step closer to a better world for all.