The potential impact of the Obama administration’s efforts to regulate vehicle emissions

When S. 940 was proposed by Democratic senators in May 2011, it was under the banner of deficit reduction. The intention of the legislation is to divert $2 billion from the revenues of oil producers through more stringent taxation of their output. One may begin to debate within themselves about the rationality of this, and may do a little research on whether this has been proposed before, and in the course of this they might encounter a circumstance in 1980, during the energy crisis, when bill P.L. 96-223, known as the Windfall Profits Tax, was enacted by the 96th Congress, imposing a tax on the profits of domestically sourced oil.

The immediate effect was a reduction in domestic oil production of 4.8%, as producers attempted to maintain the balance between revenue and cost of goods sold by sourcing internationally. As the market adjusted to the imposed criteria, a shift occurred from the profitability of upstream operations to downstream, from extraction to refining. The combined turbulent effect of the legislation on the economy and national security interests resulted in its repeal in 1988. Considering our predecessors’ unsuccessful flirtation with carbon regulation policy, and the historically deleterious repercussions to economic activity and flaccid impact on deficit reduction of this legislation, it’s curious that it continues to be introduced some 25 years after it was decided to be counter-intuitive to combat economic decline by tinkering with the natural supply and demand equilibrium.

The newly elected administration’s commitment to a cap and trade agenda is rooted in its firm belief in the exigency of a climate crisis, but the real economic effect of cap and trade is a reduction in GDP by as much as $400 billion, and yet it has been proposed as an effective tool for incentivizing emissions reduction time and again. In the face of fervent governmental support for an aggressive regulatory environment, the transportation industry must prepare for the imminent introduction of new and old carbon regulations. As the industry is responsible for 60% of oil consumption in OECD countries and 13% of global emissions, the investment necessary to adjust to the new laws will be worth a pretty penny, taken ultimately from the consumer’s pocket. In this event where history seems bound to repeat itself, lower income families stand to be affected most significantly, as increasing energy prices gouge a larger percentage of their total income and force them ever closer to, or below, the poverty line.


Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s