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House to vote on raising the oil tax

By Aaron Smith, CNNMoney.com staff writer

NEW YORK (CNNMoney.com) -- The House is expected to vote this week on whether to quadruple the oil tax to pay for the damages from the massive oil spill in the Gulf of Mexico.

But as dramatic as the increase might seem, analysts say that consumers will barely feel it.

The House "oil spill response" measure, included among others in a larger bill, proposes that the tax be increased from its current rate of 8 cents a barrel to 32 cents. This is projected to raise nearly $10 billion over the next 10 years for the Oil Spill Liability Trust Fund.

"We're not talking a big impact here; we are talking about adding less than a penny to the cost of the fuel," said Tom Kloza, chief oil analyst for the Oil Price Information Service, referring to the impact that the increase would have on the price of gasoline.

According to Kloza's calculations, the 8-cent tax on a barrel of oil works out to 0.19 cents per gallon of gas. He said that an increase to 32 cents on a barrel of oil would equal 0.76 cents per gallon of gas.

As Kloza provided these calculations on Monday, oil was trading at just over $70 per barrel. The nationwide average price for unleaded gasoline was $2.793, according to AAA.

Christine Tezak, an energy and environmental policy analyst at investment banking firm Robert W. Baird & Co., referred to the "pennies per barrel charge" as "negligible" to consumers.

The existing tax rate of 8 cents has already financed a $1.5 billion liability trust fund, which is nowhere near enough to pay for the damages. The cost of the spill, resulting from an offshore oil rig disaster off the coast of Louisiana that killed 11 workers in April, could exceed $14 billion, according to the bill.

"[The Oil Spill Liability Trust Fund] is essentially exhausted, assuming that all the funds are needed for this spill," said Tezak.

The trust fund covers damage costs -- calculated separately from clean-up costs which the responsible companies must pay for. The damages in the Gulf of Mexico are both environmental, including the effects on wildlife, and economic, like the losses suffered by the fishing and tourism industries.

As part of the bill, Tezak said that the per-incident cap on coverage would increase from $1.5 billion (including $500 million for environmental damage) to $7.5 billion (including $2.5 billion for the environment).

The fund operates as an insurance policy. BP and its minority partners blamed for the spill, including Anadarko Petroleum Co. (ADC) and Mitsui, are required to cover $75 million worth of damages in addition to clean-up costs. After that, the fund kicks in.

Earlier this month, Sen. Bill Nelson, D-Fla., introduced a bill raising this liability cap to $10 billion, but the legislation was blocked.

Tezak said that raising the cap on liability would crowd out the smaller oil companies. To top of page

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Data as of 8:01am ET
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Alcoa Inc 10.26 -0.75 -6.81%
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Apple Inc 112.12 2.62 2.39%
EMC Corp 27.86 0.68 2.50%
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Data as of Oct 9


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