Row brews over proposed US fuel tax

A row has kicked off in Washington over whether the revenue that would be raised through a proposed tax on road fuel should be spent on low carbon projects.

The senators working on the draft US climate bill – Democrat John Kerry, Republican Lindsey Graham and Independent Joe Lieberman – have confirmed that their proposals will include plans for a new levy on fuel designed to cut carbon emissions and promote the adoption of more fuel efficient vehicles.

A source who has seen the draft legislation told news agency Reuters yesterday that the bi-partisan group of senators has agreed that the levy will be "assessed at the terminal rack" where refined oil products are stored just ahead of being shipped to customers.

The senators also appear to have agreed that the level of the new tax will be determined by the price of carbon in the accompanying emissions trading scheme that they are proposing for energy firms.

However, the source added that no decision had been made on how the revenue raised from the new levy should be allocated.

Currently, the revenue raised from the 18.4 cent per gallon (12.06p) fuel tax is paid straight into a Highway Trust Fund that is used to fund road and bridge repairs. Many within the oil and auto industries are pushing hard for this arrangement to be extended to cover the proposed raised levy, arguing that the trust fund is already under-resourced.

A group of 27 industry and labour organisations have written to Kerry, Graham and Lieberman to argue that any move that diverts funds from neglected roads and bridges "is not sound policy", although they added that some of the funds could be used to support the development and adoption of hybrid cars and other green vehicles.

However, a group of eight Democrat senators led by Thomas Carper also wrote to the senators working on the bill this week to make the case for extending the ring fence to cover all forms of low carbon transport, noting that the revenue raised could be used to deliver deeper cuts in carbon emissions by funding the development of high speed rail and other forms of public transport.
"Transportation revenue should be reinvested into infrastructure strategies that will reduce transportation emissions and oil consumption," they wrote.

In related news, one of the Obama administration's leading economic advisors yesterday predicted that the president's proposed overhaul of banking regulations could help increase support among businesses for the climate bill's planned cap-and-trade scheme.

According to Bloomberg reports, energy and economic advisor Joseph Aldy told a conference in Washington that, while cap-and-trade has "become a dirty word", new regulations for Wall Street could serve to "address some of the questions and concerns" people have about carbon trading.

In other news, an official at the Environmental Protection Agency (EPA) suggested that the watchdog will finalise which power stations and industrial plants will be covered by new emission reporting rules by the end of the month.

The so-called "tailoring rule" is meant to determine which sites will from next year be required to report on their greenhouse gas emissions and ensure all upgrades use the cleanest technology available.

It had originally been expected that all sites emitting more than 25,000 tonnes of carbon a year would be covered by the new rules, but earlier this year EPA administrator Lisa Jackson signalled that the agency was considering raising the threshold to 75,000 tonnes.