Earlier this month, I debated the merits of President Obama’s proposed $10 per barrel oil tax at the 2016 Energy Forward Conference (sponsored by the University of Chicago’s Booth School of Business) with, among others, Ron Minsk, Former Special Assistant to President Obama for Energy and Environment. The new $10 per barrel tax would be paid “by oil companies” on both imports and domestic consumption (but not exported oil). Everyone on the Chicago Energy Policy panel agreed that oil companies would simply pass along the cost of the tax to consumers, effectively making the proposal a gasoline tax in disguise.
Minsk viewed the $10 per barrel oil tax as a half-measure. He called instead for a sweeping carbon tax on all fossil fuels. Another panelist pointed out that current gasoline taxes (18.4 cents per gallon at the federal level plus various amounts levied by each state – Texas adds another 20 cents per gallon) already constitute steep carbon taxes. Electric cars, for example, are effectively incentivized because they avoid gasoline taxes.
But the current taxes are not enough to achieve Obama’s pledges in the U.N. climate agreement. The President’s 2025 target needs a new $45 per ton carbon tax, which the Wall Street Journal today reported would result in a 15% increase in the cost of American electricity and 8% higher gasoline prices. The climate agreement’s later targets require a carbon tax of $425 per ton, which equates to about ~$3.75 per gallon at the pump…