Monday, February 08, 2016

An oil tax that would draw Republican support and re-energize Houston

First, a quick announcement: my Center for Opportunity Urbanism is having a free luncheon event near Uptown Friday Feb 19th on America's Housing Crisis.  Details and RSVP here - hope to see you there!

You may have read about President Obama's "dead on arrival" budget proposal of a $10/barrel oil tax.  How could it be modified for bipartisan support? Change it to an import tariff, just as the Chronicle recently proposed:
"Ed Hirs, a University of Houston energy economist, has pointed to an oil import tariff or quota as a way for the United States to stabilize prices and avoid the economic hit that comes with global price swings. A healthy price floor for domestic oil, or even a price agreement with Canada and Mexico, would ensure steady business for oil producers without hurting downstream refiners or your routine gas station fill-up. 
"It is protectionist," Hirs told the Houston Chronicle editorial board. "But it is a net gain for us." 
Politicians who have a gut instinct for free markets need to check that feeling when it comes to oil. Global prices are literally controlled by a cartel, and right now it looks like OPEC nations are dumping their product below cost in a fight for market share. That's not a free market, that's a trade war. 
Thanks to the fracking revolution, the United States is producing oil at rates not seen since the 1970s. Changing facts led Congress to change the law about oil exports at the end of last year. The next step logical step would reinstate oil import regulations. After all, import restrictions successfully bolstered the domestic oil industry from 1959 until 1974 and the Arab Oil Crisis.
It is clearly true that Saudi Arabia is dumping oil to destroy the U.S. oil industry, just as China did with steel at one time.  Why are we ok with this?!  An import tariff would support a higher oil price for increased domestic production.

Here's what the Democrats get:
  • Increased cost of oil which reduces usage and carbon emissions to meet the new Paris climate treaty goals
  • A funding source for alternative clean-energy research (btw, here's one that would save Houston's oil industry too: a new technology to pull the carbon off of fossil fuels)
  • Domestic jobs
  • Stick it to OPEC
Here's what the Republicans get:
  • Domestic jobs in red states (Texas, North Dakota, and others)
  • A revitalized domestic oil and gas industry (major funders of the Republican party)
  • Domestic energy security and self-sufficiency (which is also a military priority)
  • Stick it to OPEC in general and the Middle East in particular
Oh, and if there are WTO or other restrictions that limit tariffs, then call it an oil unloading fee or whatever creative designation it needs (hat tip to Cary).  Or make it a general oil tax with offsetting credits for domestic production.  As far as branding, call it an OPEC Tax - that will be popular!

It's hard to imagine there's an issue that both the left and the right might agree on in these days of polarized politics, but this definitely seems like one of them.  Maybe a few congressmen from both parties in Houston could get together to sponsor a bill through Congress?  As always, please forward this post along if you know the right people (or even just to your congressman).

UPDATE 2/21/16: The Chronicle calls for an OPEC Tax!

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4 Comments:

At 9:37 PM, February 08, 2016, Anonymous Mike said...

This is a pretty interesting idea. I'm worried though that we're not being cynical enough about Obama and the Democrats. He doesn't just want to make driving more expensive and fund alternative transport. He also wants to cripple the major industry that pours money into Republican coffers and makes Texas the swaggering empire that it is. If he puts a tariff on foreign oil, he makes the domestic oil industry more powerful - Texas increases while the Middle East decreases. Doesn't sound like Obama's cup of tea.

I wonder if anyone ever proposed a tariff on Japanese auto imports to save the U.S. auto industry back in the 80's. I imagine Reagan would have put the kibosh on that, but it would be interesting to know how it played out.

 
At 9:49 PM, February 08, 2016, Blogger Tory Gattis said...

Oh, there was definitely buzz about that back then. But there's a pretty big difference between tariffs on commodities vs. sophisticated finished products that are differentiated and compete with each other based on that differentiation. There's also the special case here of carbon reduction, and carbon taxes have been promoted by Economists as the best way to do that. This would essentially be a carbon tax, but one that might be politically viable.

 
At 12:22 PM, February 11, 2016, Anonymous awp said...

"Ed Hirs, a University of Houston energy economist, has pointed to an oil import tariff or quota as a way for the United States to stabilize prices and avoid the economic hit that comes with global price swings."

Only in as much as it increases the price of a major input when prices swing low.

"A healthy price floor for domestic oil, or even a price agreement with Canada and Mexico, would ensure steady business for oil producers without hurting downstream refiners or your routine gas station fill-up."

It will increase prices for end users.

"It is protectionist," Hirs told the Houston Chronicle editorial board. "But it is a net gain for us."

No it is not for all of the standard reasons protectionist policies are a net loss.

"Global prices are literally controlled by a cartel, and right now it looks like OPEC nations are dumping their product below cost in a fight for market share."

No they aren't. Price collapsed because the cartel no longer controls marginal production in the relevant range of prices. North America rapidly increased production and collapsed the market. If the Saudis tried to cut to support prices our shale producers would just go right back to producing. Rinse, wash, repeat until the Saudis are importing oil to support prices.

"After all, import restrictions successfully bolstered the domestic oil industry from 1959 until 1974 and the Arab Oil Crisis."

Oil is a major input into everything, seeing as how we should care about the material well-being of everyone and not just the oil business that was a horrible policy.

 
At 2:22 PM, February 19, 2016, Blogger Gary said...

It is not just the oil industry that profits from the price stability that comes from import tariffs -- particularly if these are on a sliding scale based on prices of the incoming oil. Any number of people profit from being able to make rational long term planning decisions. If oil prices remain at a certain plateau even when OPEC gluts the market, people will be less likely to make foolish decisions on where to purchase housing or how to assess the long term costs of a gas guzzling vehicle that may or may not meet real needs, as well as how much to spend on making homes energy efficient. Auto companies may use the info in planning whether to invest in pickups, SUVs and Hummers vs. energy efficient cars. Alternative energy producers can make decisions about entering the market without worrying about being washed away every time Saudi Arabia decides to feed an itch -- it is safe to say that if we had put such policies in place in the 1980s (rather than sabotaging the fledgling alternative energy producing companies of the time), we would be many decades ahead in solving climate change related problems by now. Our foreign policy, which since the 1980s has been increasingly driven by our need to maintain a steady supply of petroleum from politically turbulent Middle Eastern could safely allow these places to evolve without the disruptive nature of that industry and wealth. Finally, the revenues raised by a tariff could be used in part to ease the suffering of those who genuinely depend on low oil prices to survive.

 

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