On December 21, 2020, Massachusetts Governor Charlie Baker, Connecticut Governor Ned Lamont, Rhode Island Governor Gina Raimondo and Washington, D.C. Mayor Muriel Bowser signed a Memorandum of Understanding regarding the Transportation and Climate Initiative (TCI)—a pact that would require substantial cuts to transportation greenhouse gas emissions. TCI’s goal is to reduce tailpipe carbon dioxide emissions by 20 to 25 percent over the next decade. But, due to the increase in gasoline prices since President Biden has taken office, Connecticut and Rhode Island are holding off the implementation of the “tax.” Massachusetts is the only state among the original 14 states still considering this gasoline tax scheme.
The Transportation and Climate Initiative (TCI)
The TCI puts a cap on vehicle carbon dioxide emissions and requires fuel distributors in participating states to buy permits for the carbon dioxide that their products emit. Under the plan, wholesale suppliers of motor fuels would be required to buy pollution allowances through periodic auctions, with the proceeds going back to the states. The fuel distributors will add the cost of the permits to the cost of the petroleum product, gasoline or diesel, which essentially adds an additional tax to the transportation fuel in addition to state, local, and federal taxes. The cap on these emissions will decline over time, which will increase the cost of the permits. The pact mirrors an agreement among the Northeast states aimed at reducing power plant carbon dioxide emissions, the Regional Greenhouse Gas Initiative.
Estimates of the impact of this pact on gas taxes are between 5 and 17 cents per gallon. The tax is expected to raise billions of dollars over the next decade to be used for public transit, encouraging fuel efficiency, subsidizing electric vehicles and charging stations, and other measures that exclude fossil fuels. Along with paying higher prices for gasoline and diesel, drivers will be paying higher prices for goods and services because businesses will pass the increased costs onto customers.
The tax is highly regressive, meaning it will especially hurt rural and low-income residents, who have less money to spend on essentials than more elite Americans, who will be able to garner subsidies from the tax to purchase expensive electric vehicles. Higher prices for gasoline and diesel are generally unpopular with the public.
Gasoline Prices Increase Under Biden’s Presidency
According to AAA, as of July 8, 2021, gasoline prices in the United States average $3.141—40 percent higher than the start of the year when gasoline prices were $2.25. AAA expects gas prices to increase another 10 to 20 cents through the end of August, bringing the national average gas price well over $3.25 this summer. Impacting the gas price increase are a return to robust transportation demand resulting from lifting the lockdowns caused by the coronavirus pandemic and higher oil prices resulting from President Biden’s “war” on domestic production of fossil fuels and the lack of agreement from OPEC+ regarding increased oil production levels for its members.
Beginning on day one of his Presidency, Biden signed executive orders that cancelled the Keystone XL pipeline, placed a temporary moratorium on oil and gas leasing on federal lands, expanded endangered-species protections to limit oil production on private land, and suspended leasing in the Arctic National Wildlife Refuge, which Alaska needs in order to keep the Trans Alaskan Pipeline System operating. These actions signal to oil markets that it will be harder for U.S. oil companies to produce oil under the Biden regime. Instead, Biden is asking OPEC+ to produce more oil in order to lower the price. Allowing more U.S. oil production would lower oil prices, increase jobs, and improve the economy, but it would not help Biden’s goal to reach net zero from man-made carbon dioxide emissions by 2050.
OPEC sees robust oil demand this year, estimating that oil demand in industrialized countries will increase by 2.7 million barrels a day. In early June, OPEC modestly raised production quotas, but demand is still rebounding faster than supply with oil prices averaging around $75 a barrel, about 45 percent higher this year.
OPEC+ was to meet over the July 4 holiday to renegotiate oil production levels, but there was no new decision due to a squabble between Saudi Arabia and the United Arab Emirates on the amount of oil the UAE can produce. Saudi Arabia has a plan for OPEC producers to increase oil output in stages by a total of two million barrels per day from August through December 2021 and extend remaining cuts until the end of 2022 instead of letting them expire as planned next April. The UAE wants its own production quota to be revised upward, so that it could increase its oil output further. UAE believes extending a cut in oil output beyond April would be unfair to the UAE. The meeting has not yet been rescheduled. According to Reuters, ‘Administration officials have been engaged with relevant capitals to urge a compromise solution that will allow proposed production increases to move forward.’
In the meantime, Americans face robust and pent-up gasoline demand and higher gasoline prices and Biden refuses to change his policies domestically so that U.S. producers can increase their oil output.
Conclusion
States participating in the TCI thought that they could sneak in a gas ‘tax’ when gas prices were low, not expecting the increases that have arisen from robust demand and the policies instituted by President Biden regarding domestic oil supplies. Connecticut and Rhode Island have wisely decided not to implement the TCI ‘tax’ on transportation fuels. Biden, however, could affect lower gas prices by reversing his policies against U.S. oil production, but he prefers to ask OPEC+ to raise it members’ quotas in order to achieve lower prices. But, OPEC+ is in a squabble among its members and it is not clear when it will be resolved and when more oil will be put on the market to meet surging demand.
