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Study Urges $10-a-Barrel Tax on Imported Oil

November 18, 1986|Associated Press

CAMBRIDGE, Mass. — The United States should impose a $10-a-barrel tariff on oil imports to strengthen the domestic oil industry, encourage conservation and cushion the nation against future supply disruptions, Harvard University researchers said Monday.

"View it basically as buying an insurance policy . . . against the cost of some catastrophe or tragedy you're likely to face in the future," said Harry G. Broadman, a researcher at Harvard's Kennedy School of Government.

Broadman, who is also director of the Kennedy School's Energy and Environmental Policy Center, and colleague William W. Hogan recently completed a study of oil imports and published their findings in a report, "Oil Tariff Policy in an Uncertain Market."

Both men said U.S. oil imports now average 5 million barrels a day, the highest level since 1981.

Increased oil consumption is being encouraged by low oil prices, which, in turn, are causing the increase in imported oil because domestic wells can't pump petroleum at the same low prices, they said.

But low oil prices won't last because of the cyclical nature of the oil industry, Hogan said. He warned that the nation faces the threat of another disruption in the oil supply, such as an embargo, which could severely disrupt the U.S. economy.

Broadman and Hogan said current oil prices do not reflect the "social" cost of imported petroleum because they don't take into account the insecure nature of oil imports or the impact of imported oil on the nation's economy and balance of trade.

"The economy is not performing as well as it would otherwise" because of the high level of oil imports, Hogan said at a news conference.

An oil tariff of about $10 a barrel would represent the difference between the market cost of oil and its "real" cost, the researchers argued. It would bring imports down to a level that prevents over-reliance while encouraging domestic production, they said.

"The principal reason is to balance the cost to the nation versus the cost to the individual," Hogan said.

A $10-a-barrel tariff would increase gasoline prices about 24 cents a gallon, Hogan said. It also could lead to a short-term rise in inflation, he said.

But he added that the inflationary rise would soon be negated by the economic benefits of a decrease in imported oil and that these trade-offs would be a small price to pay to avoid future oil shocks like the Organization of Petroleum Exporting Countries' oil embargo of the early 1970s.

The researchers say that if the United States reduces its reliance on imported oil, the price of imported oil eventually would drop.

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