Think tank rolls out ‘smart tax’ for oil sector

Source: Amanda Reilly E&E • Posted: Thursday, June 16, 2016

As Congress takes aim at levies on carbon and oil, a think tank will call today for a “smart tax” on refiners to lower the oil sector’s greenhouse gas footprint.

Such a tax would take into account the varied emissions released during the different segments of the oil supply chain, from production to refining to consumption, according to the Carnegie Endowment for International Peace.

It would also take into account differences in the myriad chemical materials that are all usually grouped together as “barrels of oil,” the think tank argues.

Deborah Gordon, Carnegie Endowment’s director of energy and climate, said she hopes the analysis’ release today plays into the policy debate over setting an economywide carbon tax.

“This is probably the first knowledge that goes into this that says if we’re going to have an economywide tax, the best way we probably do this is to be smart,” Gordon said.

The Carnegie Endowment will roll out the proposal with Sen. Sheldon Whitehouse (D-R.I.) and former Rep. Walter Minnick (D-Idaho) at a Washington, D.C., event this morning.

The Carnegie Endowment’s recommendation comes after the House on Friday voted for resolutions rejecting both a carbon tax and President Obama’s proposed $10 fee on barrels of oil (E&ENews PM, June 10).

The Republican co-sponsor of a companion Senate resolution decrying a carbon tax said yesterday he hopes his measure will also pass the upper chamber, but probably as an amendment to other legislation.

The nonbinding resolution by Sen. Roy Blunt (R-Mo.) would express a sense of Congress that a carbon tax would be “detrimental” and “not in the best interest of the United States.”

“We’ll be looking for an opportunity to put that on an amendment on an upcoming bill and would hope to vote on it,” Blunt said yesterday in a brief interview in the Capitol.

Until now, discussions over taxes on carbon and oil barrels have ignored the differences among the chemical materials that are classified as oil and the various parts of the oil supply chain, Gordon said.

Some oils generate higher emissions in their extraction and others during refining, while others go into products that are greenhouse gas-intensive.

“We realized that when you look at the whole value chain together, these oils in terms of their climate impacts were potentially extremely diverse,” Gordon said.

To design a “smart tax,” the Carnegie Endowment recommends using the Oil-Climate Index it developed last year with researchers from Stanford University and the University of Calgary.

The index allows users to calculate different oils’ greenhouse gas emissions throughout the supply chain.

Instead of a flat tax on barrels of oil, the Carnegie experts today will propose levying a carbon tax for the oil sector that varies to take into account the emission contributions of different oils and products.

A “smart tax” would also include border adjustments and a mechanism for returning collected revenue to the economy, they argued.

Gordon said it makes sense to place the tax on refiners because they both possess information on the types of oils that feed into their processes and they can pass their costs on to both producers and consumers.

There are also relatively few refineries compared to wellheads, meaning it’s more feasible to impose the tax where refining occurs rather than where production occurs, the analysis argues.

“Refiners, strangely enough, are this wheelhouse of perfect information,” Gordon said, “and they also have the financial relationships with the producers and the end users. A tax is perfect when you don’t have to create new ways for the money to travel.”

She acknowledged that “some refiners will shrink” from the idea.

“But honestly, if I were a refiner, I would personally buy into it immediately,” Gordon said, “because if you look at where the emissions reside in the value chain, the smallest component is refining it. The bulk of the tax is going to be passed up the chain or down the chain.”

Gordon said she hopes similar research would be done on the coal and gas sectors to widen discussions on an economywide carbon tax.