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Though neither Mr. Trump nor congressional leaders have proposed such an oil-import levy, Mr. Verleger said they will reach a point in their budget-making process when they will have to find money to pay for other priorities or run a massive deficit.CARLOS BARRIA/Reuters

The Republicans in Washington are desperate for new ways to raise revenue to pay for promised tax cuts, and may turn to a tax on foreign oil as prospects for a broader import levy fade, a prominent U.S. energy economist said on Wednesday.

Philip Verleger has been tracking the prospect of a border-adjustment tax since it was first raised by Republican leaders in the U.S. House of Representatives last summer as a means to raise revenue needed to cut corporate and personal income-tax rates. At the request of the Canadian Association of Petroleum Producers (CAPP), he was in Ottawa on Wednesday to brief federal officials on the potential impact a U.S. tax on foreign crude would have on the Canadian industry.

In an interview, Mr. Verleger said it now appears there is not enough support in the U.S. Congress for a broad-based border-adjustment tax, which would essentially impose a 20-per-cent levy on all imports. But Republicans still want to reduce corporate taxes and U.S. President Donald Trump has proposed a massive program to rebuild the United States' crumbling infrastructure. "The Republicans want money to cut personal income tax and corporate tax rates and the cutting is not hard; it's the raising [of revenue] to balance it that is hard," he said. "I think they are going to look to simple measures and one of the simplest measures is a tax on imported oil or an oil-import fee."

The economist acknowledged that neither Mr. Trump nor congressional leaders have proposed such an oil-import levy, but he said they will reach a point in their budget-making process when they will have to find money to pay for other priorities or run a massive deficit.

Canada would be particularly hard hit by such a measure. Despite growing production at home, the United States imported eight million barrels a day of crude on average last year, with 3.3 million barrels a day – or 40 per cent – originating in Canada. Virtually all Canadian crude exports go to the United States.

Mr. Verleger said either a border-adjustment tax or a crude-import tax would hit the Canadian industry hard, forcing producers to discount their prices to remain competitive in the U.S. market, and would further underscore the need to access markets in Asia and elsewhere.

CAPP manager for fiscal policy Jon Stringham said producers are concerned about the potential for import levies in their top market, particularly at a time when prices remain relatively weak and market access issues remain a concern.

Federal cabinet ministers have been aggressively lobbying to block the border-adjustment tax proposed by U.S. House Speaker Paul Ryan, and a number of prominent Republican senators and representatives have spoken out against it.

Earlier this month, the Canadian Electricity Association led a delegation of senior utility executives to Washington for a series of meetings with members of Congress as well as congressional and White House staff. "The overwhelming number of U.S. officials and commentators we met with in Washington thought that the [border-adjustment tax] would not, in the end, see the light of day," association chief executive Sergio Marchi said. "They viewed it as a harmful policy to our trading relationship and that both countries would be hurt by it."

However, a border levy could be a "seductive solution" to the need for revenue, Mr. Marchi said, adding the uncertainty over its fate could put a chill on business investment in Canada as companies await clarity.

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