Big Oil Does the Math, Proposes a New Tax on Itself

A snowflake may have just fallen in Hell: Several large oil companies, including Shell and BP, have reportedly helped design a new gas tax for the United States that would add a significant cost to fuel for consumers and businesses.

But as with every move from Big Oil, there's a logical reason for the support. They consider the tax as the lesser of two evils: though it might slightly dent demand for fuel, a gas tax would probably be better for business than taking a hit at their refineries.

The Los Angeles Times covers the so-called "linked fee" proposal, which would substitute the gas tax for greenhouse gas emission permits:

The tax, which according to early estimates would be in the range of 15 cents a gallon, was conceived with the input of several oil companies, including Shell, BP and ConocoPhillips, and is being championed by Republican Sen. Lindsey Graham of South Carolina ...

It is shaping up as a critical but controversial piece in the efforts by Graham, Sen. Joe Lieberman (I-Conn.) and Sen. John Kerry (D-Mass.) to write a climate bill that moderate Republicans could support. Along those lines, the bill will also include an expansion of offshore oil drilling and major new incentives for nuclear power plant construction.

Whether any oil company will fully throw its weight behind a gas tax will depend on the reception of the climate bill -- whenever it comes -- in Congress. If support is low, Big Oil may just oppose the entire idea of taxing emissions. But if support is high, they may instead ask for direct taxation.

Either way, they're no longer likely to support cap and trade; as I reported a couple months ago, BP and ConocoPhillips, two of the stronger supporters for cap and trade, turned their backs on the legislation after gauging public sentiment.

And no matter what happens, the end result to consumers will likely be similar. A year ago, I called the climate bill at the time a hidden gas tax because of its high demands on oil refineries. Big Oil now seems resigned to pricier gas, if any version of the climate bill passes; but given a choice, they'll probably opt for a tax that's open, and spreads the pain evenly between themselves and consumers.