Oil Trade Group Drafts Carbon-Tax Proposal That Could Raise Prices at the Pump

Source: By Timothy Puko and Ted Mann, Wall Street Journal • Posted: Sunday, April 24, 2022

Some API members want to delay proposal until after midterm elections, fearing it could alienate Republican lawmakers

A carbon tax would raise gasoline prices and other energy costs for consumers. PHOTO: STEFANI REYNOLDS/AFP/GETTY IMAGES

The draft proposal was approved by the American Petroleum Institute’s climate committee last month, according to a document reviewed by The Wall Street Journal. The measure must still be approved by the group’s executive committee.

A carbon tax would raise gasoline prices and other energy costs for consumers. Some API members want to delay action on the proposal amid near-record prices at the pump, contending it could alienate not only voters but Republican lawmakers friendly to the oil industry ahead of midterm elections, according to people involved in the discussions or who were briefed on them.

“The worst case is not get the policy, and lose the friends,” one of the people said. “Today, that’s probably the most likely possibility.”

The API proposal calls for assessing gasoline wholesalers, power plants and others a tax starting at $35 to $50 a ton for carbon dioxide generated by the fossil fuel they sell or use, with annual adjustments for inflation and other factors, according to the document reviewed by the Journal,

Some Democrats who once supported a carbon tax now oppose it, on grounds that the costs are passed on to consumers, including many who can’t afford it. The API proposal suggests rebating some of the revenue collected by the carbon tax to households and to invest the rest of the money in new technology.

The draft proposal says a carbon tax is “the most impactful and transparent way to achieve meaningful progress on the dual goals of reducing greenhouse gas (“GHG”) emissions while simultaneously ensuring continued economic growth.”

The measure is a follow-up to last year’s decision by API to push Congress for legislation to price carbon emissions across the economy, in what was a policy turnabout a decade after the organization helped to kill a similar plan.

API spokeswoman Megan Bloomgren said the proposal is under a routine review by the organization, which she said was “focused on the most transparent and impactful ways to reduce emissions at the lowest cost for American families.”

Several climate committee members pushed to send the measure to the API’s executive committee for final approval, the people said. Instead the measure was referred to API’s lobbying committee, which has pushed to delay the completion and rollout of the policy until later this year, they said.

Some API members, including representatives of European-based producers Shell PLC and Equinor ASA, want API to take action quickly on the carbon-tax proposal to show that climate change is a top priority, according to the people.

“Shell remains committed to taking actions and convening important conversations, including at API, that could ultimately lead to putting a price on carbon,” a Shell spokesman said.

An Equinor spokesperson declined to comment on the API proposal but said the company “is a long-standing advocate of carbon pricing, which we see as being a key enabler of the energy transition.”

Companies including Hess Corp., Marathon Petroleum Corp. and Phillips 66, along with API’s lobbying team, argued a delay was necessary to help the industry avoid political blowback because a carbon tax has become unpopular among both conservatives and liberals, the people said.

A Hess spokeswoman said the company has supported pricing carbon emissions generally in its securities filings. A Phillips 66 spokesman said the company supported the API carbon pricing framework but didn’t address the carbon tax proposal approved last month.

“An economywide carbon price appears to be one of the more efficient and effective ways to reduce carbon emissions,” a Marathon spokesman said. “However, as with any policy initiative, details will be very important.”

Some within API are concerned that coming out in favor of the tax now could anger Congressional Republicans, who have long been staunch allies of the oil industry. Some of these lawmakers were displeased last year when API publicly pivoted on climate change, calling on Congress to address it with policies such as a price on carbon.

The Biden administration recently said it would tap the U.S. Strategic Petroleum Reserve in an effort to curb the surge in energy prices and tamp down soaring inflation.Photo: Alex Wong/Getty Images

Rep. Garret Graves (R., La.), Republican leader of the House Select Climate Committee, said Thursday the idea of a carbon tax “is just idiotic right now” given Russia’s invasion of Ukraine and high energy prices.

“It is mind-boggling that anyone could look at the current state of affairs and conclude that putting an additional tax on American gasoline and energy is a solution for anything,” he said.

API’s Ms. Bloomgren said any carbon pricing system should address what she called “hidden taxes and overlapping regulations” to mitigate the impact of a carbon tax on U.S. consumers.

Earlier this week, the Business Roundtable, an association of top U.S. executives, announced energy policy recommendations that included “a price on carbon where it is environmentally and economically effective.” The group didn’t specifically call for a carbon tax, however.

The action drew a sharp rebuke from three Republican lawmakers.

“If the Business Roundtable really wanted to promote a forward-thinking energy strategy for America, they would stand up for their members and American workers by advocating for more American energy production to lower costs and carbon emissions,” said a statement from House Minority Whip Steve Scalise (R., La.), Rep. Markwayne Mullin (R., Okla.) and Jeff Duncan (R., S.C.).

Those pushing for delaying action on the carbon tax want to wait until after the midterm elections, when Republicans could retake control of the House and Senate, the people said. Their view is that Republicans would still likely oppose the carbon tax after the election, but would be less likely to get angry at the oil industry if it doesn’t push the issue during an election year, the people said.

Others within API are skeptical, seeing a delay as a potentially deadly blow to the effort. This year may be the only chance to pass such policy with Democrats now crafting a climate and energy bill, which Republicans said they would oppose.

The rift over the carbon-tax proposal is the latest in a series of disputes within API over the industry’s approach to climate change.

TotalEnergies SE of France canceled its API membership last year citing disagreements on climate policy, while Shell and BP PLC—both based in London—have their membership under review.

That puts them at odds with U.S. independents and refiners whose businesses are more closely tied to selling crude and gasoline. They have been slower to support climate policy that may make their products more expensive.

In recent years, much of the industry has come out in favor of carbon pricing as a way to show they are willing to address climate change. That shift took a credibility hit last year when an Exxon Mobil Corp. lobbyist, tricked into being recorded by Greenpeace, said his company’s support for a carbon tax was merely an “easy talking point” because it is a policy unlikely to ever be implemented. Exxon later disavowed those comments.

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The carbon tax would ultimately be paid by consumers. The proposal recommends placing stickers on gasoline pumps to show motorists the carbon tax added to the price of a gallon of gasoline, and says transparency on the cost of the policy would help consumers understand how to limit their own emissions.

In a nod to likely objections to a tax increase that would be felt by consumers, the proposal states “the categorical implementation of a federal carbon tax regime should not be at the expense of economic expansion.”

Other key recommendations in the proposal include rebates for exporters and tariffs on imports that come from countries without a carbon tax, with the proposal calling it necessary for U.S. competitiveness. And it says the U.S. government should put a moratorium for several years on any new regulations to limit carbon emissions while it collects data on whether the tax is effective on its own at reducing emissions.

Write to Timothy Puko at tim.puko@wsj.com and Ted Mann at ted.mann@wsj.com