Senators Pushing Gas Tax Increase

Originally Posted At The LA Times
By Jim Tankersley
April 13, 2010

WASHINGTON - Leading voices in the Senate are considering a new tax on gasoline, as part of an effort to win Republican and oil industry support for the energy and climate bill now idling in Congress.

The tax, which according to early estimates would be in the range of 15 cents a gallon, was conceived with the input of several oil companies, including Shell, BP and Conoco Phillips, and is being championed by Republican Sen. Lindsey Graham of South Carolina.

It is shaping up as a critical but controversial piece in the efforts by Graham, Sen. Joe Lieberman (I-Conn.) and Sen. John Kerry (D-Mass.) to write a climate bill that moderate Republicans could support. Along those lines, the bill will also include an expansion of offshore oil drilling and major new incentives for nuclear power plant construction.

Environmental groups have long advocated gasoline taxes to reduce fossil fuel consumption; the oil industry has spent heavily in recent years to fight taxes that the industry says would harm consumers.

In this case, though, several oil companies are floating the tax plan because it figures to cost them far less than other climate proposals, including a climate bill the House passed last year.

The Senate climate bill's sponsors also appear to want the revenue raised from the tax to fund a variety of programs that would reduce industrial emissions, including helping manufacturers reduce energy use or boost wind and solar power installations by electric utilities.

But the tax has encountered stiff behind-the-scenes resistance from some Democrats, who fear the political specter of increasing gasoline prices as the cost of gasoline crests $3 per-gallon this summer. And no other Republicans have publicly announced support for the framework legislation that Graham and the others are circulating on Capitol Hill. Attracting significant Republican support for a bill featuring a tax increase would run counter to historical political trends and to the anti-tax outrage percolating among the Tea Party activists in the GOP base.

Sources say the resistance extends to some Obama administration officials; in a statement, White House spokesman Ben Labolt said only that Obama is "encouraged by the work of Senators Kerry Lieberman and Graham to move forward bipartisan, comprehensive energy and climate legislation" and that "We look forward to reviewing the details of the legislation when they are finalized."

Some industry analysts and environmentalists question how much a tax will actually reduce emissions from gasoline use, particularly if the extra cost to motorists is measured in cents, not dollars – as appears likely initially.

Proponents call the tax approach under consideration a "linked fee," because it links the extra price on gasoline to the average cost of greenhouse gas emissions permits created through a so-called "cap and trade" system for electric utilities. That system would set a declining limit on emissions from power plants and force utilities to buy permits, on a trading market, to cover the heat-trapping gases they release into the air.

Drafters of the Senate bill say that no matter how they structure emissions limits, opponents will deride them as a tax. They say they're crafting the "linked fee" approach in a manner that will be different than a straight tax and a more effective, transparent way to reduce emissions from gasoline use.

As negotiations build toward a scheduled unveiling of the bill next week, it's still unclear whether major oil companies and their trade group, the American Petroleum Institute, will explicitly endorse the legislation or at least agree not to fund an ad campaign opposing it. Proponents of a climate bill say such backing would be a major coup.

"Getting major oil companies to truly and aggressively support a specific bill mandating greenhouse gas emissions limits and a carbon price would be a significant political accomplishment," said Paul W. Bledsoe, a former Clinton administration official now with the Bipartisan National Commission on Energy Policy.

Other analysts wonder whether increasingly populist Republicans would follow the industry and support the bill. "It's not clear that a linked fee creates a path to 60 votes" to overcome Senate procedural hurdles, said Scott Segal, a lobbyist for Bracewell and Giuliani in Washington who represents utilities and refiners on climate policy.

Unquestionably, Big Oil can be a formidable opponent: API recently spent millions on ads blasting an Obama proposal to end some industry tax breaks. The group is currently neutral on the "linked fee" plan. It needs to see details on the full climate bill and an Energy Information Administration analysis of its effects before taking a position, said Lou Hayden, API's senior director for federal relations.

If oil companies do sign on to the bill, climate activists will find themselves joining forces with an industry they've long demonized. The tax could also put senators who vote for the bill at the mercy of election attacks if gas prices spike before November – even though the tax would likely not kick in for several years.

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