Is this a carbon tax? A windfall profits tax? Or just a DOA tax?

18 Mar 2013

On Friday, President Obama announced in a speech his plans for an Energy Security Trust  to fund $2 Billion in research into energy technologies to help the United States, among other things: (1) get off oil altogether (particularly foreign oil); (2) develop clean coal technologies; and (3) improve efficiencies in the production of natural gas (thereby reducing greenhouse effects).

This hits at two interesting sweet spots –  1. It finally relates energy to national security; and 2. It focuses on something everyone agrees government should be supporting – basic research (vs that nasty old picking winners and losers). As a concept I really like this and think it’s the sort of future-thinking investment our government should be pursuing (like investing in education, clean water, good roads, etc.).

What I find interesting is the concept that this Trust will be funded by “Revenue from Profitable Oil and Gas Companies” and thereby won’t increase anyone else’s taxes.  Per the President’s speech, he wants to fund the Trust from oil and gas royalties on federal lands.

The government already collects around  $9.5 billion in oil and gas royalties.  Over half of the revenue goes to the U.S. Treasury. About a billion goes to the Land and Water Conservation Fund which is distributed to states and federal agencies to acquire and develop public lands. Finally, distributions are made to states or monies generated on federal lands within those states.

The concept has been used before. Back in a somewhat less contentious era, the federal Superfund was created to clean up “orphaned” waste sites.

It was funded in part by excise taxes on crude oil and refined oil products, on hazardous chemicals, on imported substances that used hazardous chemicals and by an environmental income tax of 0.12% on a corporation’s modified alternative minimum taxable income over $2 million.  Those taxes expired in 1995 and since then the EPA has funded Superfund based on Congressional appropriations of around $1.2 billion annually and whatever EPA recovers from companies liable for sites that EPA had cleaned up.

The President’s speech left out exactly where the $2 Billion would come from – will it be from: (1) an increase in royalties; (2) eliminating royalty waivers; (3) a reduction in payments for public lands; or (4) a reduction in payments made to states?  Based on the commitment not to raise taxes, it appears that the Treasury will continue to get its cut. I suppose another option would be to increase by some 20% the number of wells being drilled.  This appears to be the direction that the group that developed this concept wants to go.

We can see where this fight is going.  The House of Representatives and many in the Senate have taken the “no new taxes” pledge.  Liberals in Congress will fight more arctic and off-shore drilling.  Will the President dangling more drilling rights encourage the politicians to go for this and spur some of the world’s largest companies to agree to help subsidize their own potential extinction?  The odds of this proposal getting enacted seem very long, even if the goals are quite worthwhile.

Leave a Comment to “Is this a carbon tax? A windfall profits tax? Or just a DOA tax?”

  1. stephen holzer 18. Mar, 2013 at 11:07 am #

    Taxing the oil companies is simply making them tax collectors for the government, with no problem for the oil companies–they simply pass the tax onto the consumer. When we “punish” companies, we actually punish the consumer. The government just escapes the blame by going through an intermediary. This idea of a “trust” is simply a higher tax burden in disguise.

  2. Alfred Boggs 19. Mar, 2013 at 9:59 am #

    This is a very good article and analysis.Washington will do a lot of talking and act on nothing to help the US become energy indepentent. The big oil companies help fund too many congressional and senate campains.

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