Pumping Up Prices
Posted 06:48 PM ET
Energy: Senate Democrats want a 400% tax hike on offshore oil production. Is this their way of punishing an entire industry for an isolated accident? If it is, they missed their mark.
The Senate proposal — increasing the duty that subsidizes an oil spill liability fund — would move the tax from 8 cents to 41 cents a barrel on oil produced offshore. A less-punitive plan, hiking it to 34 cents a barrel, was passed last month in the House.
Democrats might think a punitive tax on oil companies will score them points with the voters. And no doubt some will be pleased with the get-tough policy on an industry that has been endlessly demonized for providing products that fueled economies and boosted wealth and living standards worldwide.
But a lot of Americans know that it is they who will end up paying the extra tax. It will be passed on to them at the retail level, as will the costs of the inevitable stricter regulations, which could boost the price of each barrel of deep-water crude by 10% to 15%, according to an analyst at Credit Suisse.
Should the higher tax discourage domestic offshore production, which, according to the U.S. Energy Information Administration, is about 2 million barrels a day in the lower 48, consumers will still pay for it as prices at the pump move higher in response to a crimp in the supply.
The only way to offset production loss caused by a tax hike and avoid rising prices would be to increase domestic output elsewhere or import more oil from adversarial countries or places where the drilling process is much dirtier than it is here.
The tax hike aims to raise $15 billion for the oil spill fund over 10 years. That sounds like a lot for cleaning up even the biggest of messes, but there's good reason for that. The fund would also be used for extended jobless benefits and for tax cuts.
But that's typical of Washington, a political swamp where fuel taxes paid by motorists and supposedly set aside for roads are spent on bike paths, walkways, transportation museums and other projects unrelated to highways.
Deep-water oil production has become a key contributor to energy needs. It meets about 9% of global demand, providing about twice as much crude as it did in 2000. Intentionally stunting the growth of this rich and important source with a vendetta tax is shortsighted. There are no economies ready to run on wind and solar power. There are just economies in need of fossil fuels. |
