PUBLIC RADIO'S MARKETPLACE COMMENTARIES:

A Windfall Profits Tax on Oil to Finance Non-Fossil Fuels

Robert B. Reich

Marketplace, February 7, 2007

A blue-ribbon science panel makes it official: Global warming is happening quickly, and human activity is its main cause. What is America doing about it? With five percent of the world’s population, accounting for a quarter of the world’s greenhouse gas emissions, and the most advanced technology in the world, you’d think something big. Think again. The President talked about raising fuel economy standards in his recent State of the Union, but that’s as far as he’s gone. Congressional Democrats are debating lots of relatively small ideas. That’s as far as they’ve got.

What’s needed is a carbon tax – a tax on all fossil-based fuels that reflects their true social, political, and environmental costs. That should remain the goal, but as a practical matter it’s not going to happen any time soon. Republicans won’t enact a tax hike for any purpose. And right now congressional Democrats don’t have the intestinal fortitude, or the votes, to enact it on their own.

That leaves the only plausible political alternative a crash program to develop non-fossil based fuels -- on the scale of America's Apollo moon-landing or the Manhattan Project. The problem is, there’s no money in the public kitty for anything this size. Bush’s new budget allows only a pittance for new research in solar, biomass, wind, and other alternatives. Even if the Democrats wanted to spend more, they’d have to take it from somewhere else in a budget that’s already tight.

So the practical question is where to get the money for alternative energy? Part of the answer is from the revenues we as consumers have been handing the oil companies.

For the last few years, as oil prices shot upward, America’s largest oil companies reaped a bonanza. Essentially, it’s been a gigantic transfer of money from Americans who use oil to oil companies and their shareholders. Exxon Mobil just reported an annual profit of $39.5 billion for 2006, its second consecutive record and the largest profit reported by any American company in history. Other oil companies are also swimming in cash. And it doesn’t look like the bonanza will end any time soon. Oil prices are rebounding now that cold weather has returned to most of the nation.

The Democrats should propose a temporary windfall profits tax on oil companies – temporary, that is, until the oil company’s current oil earnings boom falls back to a normal range. The proceeds would go into a fund to finance R&D in non-fossil based fuels.

Market fundamentalists who holler that oil companies should be allowed to reinvest their profits in new oil exploration aren’t paying attention to the environmental costs. But the windfall tax should be designed so that, to the extent oil companies do wish to invest in non-fossil based fuels, such profits are exempt from the windfall tax.

It’s a no-brainer. Oil companies are in the money. We consumers gave it to them because there are no competitive non-fossil alternatives. So doesn’t it make sense to use those extra profits to create those alternatives?