Great Right Hope Supports Imported Oil Fee?

An oil import fee could raise revenue to reduce foreign oil consumption by investing in oil demand reduction programs, writes Daniel J. Weiss.

Indiana Governor Mitch Daniels has differentiated himself from most national Republican leaders by endorsing a tax on imported oil. (AP/Darron Cummings)
Indiana Governor Mitch Daniels has differentiated himself from most national Republican leaders by endorsing a tax on imported oil. (AP/Darron Cummings)

One of Washington’s favorite parlor games is identifying each political party’s presidential hopefuls long before the campaign begins and handicapping their prospects. One such contender, Indiana Governor Mitch Daniels, is climbing up the charts as a possible 2012 GOP presidential candidate.

This week The Washington Post’s David Broder, the dean of America’s political pundits, penned a fawning column about Daniels. After Daniels gave a speech last week at the Hudson Institute, Broder gushed:

The luxury of having a thoughtful presidential contender was striking for everyone hearing Daniels. The onetime Reagan White House political director and Bush White House budget chief is not your run-of-the-mill intellectual. His style is to be down-home, but his record of accomplishment is dazzling.

Broder might be on to something. In Daniels’s speech honoring Hudson Institute founder Herman Kahn, Daniels differentiated himself from most national Republican leaders by endorsing a tax on imported oil. This idea contradicts two major GOP orthodoxies: opposition to any tax hikes and devotion to big oil. Politico’s report on the speech:

Daniels also suggested support for increasing gasoline taxes. Kahn wrote, in a passage Daniels read from Thursday, “One fully justifiable tax would be on imported oil. Any large importation of oil by the U.S. raises security problems. There are, in effect, external costs associated with importing oil that a tariff would internalize.

“Now, maybe that transgresses some philosophical viewpoint of yours,” Daniels told the well-heeled crowd of 250. “But to me, that’s an interesting point today, just as valid as the day he wrote it.

The need to reduce foreign oil consumption is more imperative now than when Kahn proposed the oil import fee in 1982. The United States imported less than one-third of its oil in 1982. Imports in 2009 totaled nearly two-thirds of oil consumption. And one in five barrels of oil consumed in the United States now comes from nations that the U.S. State Department classifies as “dangerous or unstable.” A fee on imported oil would help internalize some of the economic costs of this dependence, as Daniels noted in citing the Kahn quote from 30 years ago.

An oil import fee could raise revenue to reduce foreign oil consumption by investing in oil demand reduction programs. Such funds could also reduce the budget deficit—a top priority of congressional Republicans. A temporary, extremely modest $5 per barrel fee could raise $22 billion annually. This small levy would raise gasoline prices by just an estimated 5 cents per gallon—less than the gasoline price increase between the week of October 4 and October 10.

This miniscule increase in gasoline prices is too small to create much of an incentive to reduce driving. It would, however, make domestic oil slightly more price competitive with foreign oil. More importantly, the revenue could fund programs to replace some oil with public transportation, natural gas and electric vehicles, and other alternative fuels. These funds could also help reduce the deficit, and/or provide rebates to middle- and low-income families.

The president has broad authority to levy a fee on imported oil under the Omnibus Trade and Competitiveness Act of 1988 if the secretary of commerce and secretary of defense determine that such imports threaten to impair national security. President Gerald Ford invoked similar authority in 1975 to levy a $2 per barrel fee on imported oil (equivalent to $8.10 today).

Daniels’s bold suggestion triggered a predictable and fierce reaction from the right, lest he stray from the Republican canon.

Daniels’s suggestion that he could support increased gasoline taxes also raised eyebrows on the right.

Increasing oil prices would naturally upset energy company executives, who are key GOP donors.

“What you’re really talking about is a massive tax increase on energy,” [Grover] Norquist said.

Norquist, of Americans for Tax Reform, is a leading opponent of federal efforts to raise revenue. Norquist wants to “get [government] down to the size where we can drown it in the bathtub.”

When it comes to energy policy, many Americans disagree with Norquist. The Natural Resources Defense Council Action Fund just released an energy policy poll of voters in “23 close Congressional races.” Voters in these Congressional Districts were asked to set energy policy priorities.

Now I’m going to read you three goals for America on energy issues. Please tell me which you think is the most important goal for U.S. government action on energy issues:

  • reducing the price of gasoline,
  • reducing our dependence on foreign oil, or
  • increasing renewable energy such as wind and solar to reduce pollution.

The poll results in every one of these swing districts were nearly the same. About half of the respondents in each district made reducing foreign oil dependence their top priority. This priority ranged from 44 percent support in Ohio’s 15th district to 57 percent in Florida’s 24th district. Generally, about one-third of poll respondents in the 23 districts supported increasing clean energy production from wind and solar power, and only a sixth felt reducing gasoline prices was most important, even though gasoline prices have recently risen.

Governor Mitch Daniels’s offhanded proposal to levy an oil import fee better reflects the pulse of the nation than most Republican leaders’ steadfast opposition to such efforts. This proposal to reduce oil imports, invest in alternatives, and cut the budget deficit could gain political traction with his active support.

Despite his recent support for an oil import fee Daniels joined Republican leaders in their fervent opponent of legislation to reduce global warming pollution. Will Daniels be willing to challenge his party’s leaders’ reflexive opposition to raising revenue and cutting oil use? His next steps could tell us a lot about his willingness to ignore party orthodoxy while charting a more secure, cleaner energy path for the nation. And this approach on energy could appeal to the independent voters who help elect the next president.

Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy at American Progress, where he leads the Center’s clean energy and climate advocacy campaign.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.


Daniel J. Weiss

Senior Fellow