The Case for a Crude Oil Price Stabilization Tax

• Date: 01 March 2010

40 ELR 10328 ENVIRONMENTAL LAW REPORTER 3-2010

The Case for a

Crude Oil Price

Stabilization Tax

by Richard A. Westin

Richard A. Westin is the Laramie Leatherman Professor

of Taxation, University of Kentucky College of Law.



Policymakers should work to place a oor under the

price of crude oil and derivates by imposing a variable

import tax on those products. A variable import tax

would give consumers and the alternative energy indus-

tries a clear price signal in order to improve their deci-

sionmaking, as well as to provide a steady price signal to

domestic energy producers. e tax would also prevent

price collapses. Although economists have debated at

oil import fees vigorously, this proposal has been over-

looked to date.

The United States lacks a coherent energ y policy and

as a result is vulnerable to wild swings in oil prices

and gradually running out of its own crude oil. Our

indierence has a number of expensive results:

• Our automobile a nd truck manu facturers cannot

predict oil prices, and therefore c annot accurately

determine what model li nes to produce. As an exam-

ple, the Toyota Prius routinely sold for thousands of

dollars more than its st icker pric e, with waiting list s

up to a year long. In fact, when oil prices spiked in

October of 2006, there was only a three-hour inven-

tory of Priuses, so Toyota expa nded its manufactur-

ing facilities, but l ater found that thanks to falling

oil pr ices it had to oer incentives to sell enough of

its hybrids.1 is is just one example of short-term

macroeconomic dislocations caused by oil price col-

lapses, which, when ag gregated, resu lt in la rge losses

to the economy.

• Because any oil supply shuto can resu lt in a danger-

ously d isruptive increase in the price and e ven avail-

ability of the fuels that we rely on, our government

considers it has to project our power globa lly, at great

expense. Because the percentage of imported oil is

steadily rising, this disadvantage ous situation is wors-

ening. Costs include those for militar y forces defend-

ing the Middle East and foreign aid to countries in

the Middle East.2 One study put the price at $7.32

per barrel.3 In addition, there is the cost of maintain-

ing t he Strateg ic Petroleum Reserve, as to wh ich the

Externa lity Subgroup and the Strategic Petroleum

Reserve Oce reportedly estimated average annual

carr ying costs between $0.50 to $0.66 per barrel of oil

in the reserve.4 Futures m arkets (which are publicly

traded) and forward markets (private arrangements

to deliver or buy) for petroleum ca n help mediate the

shocks, as can the strategic petroleum reserve (against

price spikes), but they are of limited use. e strategic

reserve is good for only a little over two months a nd

long-term f utures contracts (which can extend as far

as 84 months on the New York Mercantile Exc hange

(NY MEX)) a re expensive. Because f utures contracts

call for actual deliveries, they would be dangerous

1. Micheline Maynard,  , N.Y.

T, Feb. 8, 2007, available at http://www.nytimes.com/2007/02/08/

automobiles/08hy brid.html. Toyota’s vice president for North Am erican

marketing also st ated that need to generate demand “keeps me up at nig ht.”

Id.

2. P N. L  ., O R N’ L., O I: A A

 B  C, at S-10 (1997), available at http://www.esd.ornl.gov/

eess/energy_analysis/les/ORNL6851.pdf.

3. Darwin C. Hall,  , 20 E P’ 1089, 1094

(1992).

4. L  ., supra note 2, at S-12.

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