U.S. Senate Democrats, pushing to pass a broad energy bill next week, have developed a package that would take about $25 billion in tax breaks and other benefits from the oil industry and use the money for a vast expansion of renewable energy sources.
The plan highlights the abrupt reversal in the political fortunes of oil companies, which would lose billions of dollars in tax breaks that a Republican-controlled Congress passed as recently as two years ago.
On Tuesday, the Senate Finance Committee is scheduled to take up a bill that would raise about $14 billion from oil companies over 10 years and would shower about the same amount of money on new incentives for solar power, wind power, cellulosic ethanol and scores of other renewable fuels.
It is unclear how much President George W. Bush or congressional Republicans would fight the proposed tax shift. The ranking Republican on the Senate Finance Committee, Senator Charles Grassley of Iowa, has already endorsed the $14 billion package.
But the plan could easily founder because of opposition to any one of many hotly disputed provisions in the broader energy bill. Just last week, a threatened parliamentary maneuver by Republicans forced Democrats to postpone a floor vote on requiring electric utilities to produce 15 percent of their power from renewable fuels. The White House, meanwhile, has threatened to veto the bill if lawmakers do not drop a provision aimed at prosecuting “price gouging” by oil companies.
Because Senate Democrats want to offset the cost of any new tax break with tax increases elsewhere, many lawmakers are pushing for other tax increases from oil companies.
Senator Charles Schumer of New York has proposed that oil companies be prohibited from using an accounting method for inventories that saves them as much as $5 billion in taxes a year.
“We are cutting back subsidies for the oil and gas industry and using that money to finance the development of new and cleaner sources of energy,” said Sen. Jeff Bingaman of New Mexico, who plans to attach the entire tax package to the energy bill on the Senate floor next week.
Oil executives are protesting loudly, saying that the proposed changes would take money away from exploring and drilling in the United States and increase the nation’s dependence on imported foreign oil.
“They talk about our companies as if they’re owned by space aliens,” said John Felmy, chief economist at the American Petroleum Institute. “They talk about energy security, but these provisions could have the opposite effect in terms of reducing our production here and increasing our imports.”
The oil industry has ample reason to worry. With consumers seething about gasoline prices well over $3 a gallon and oil profits at record highs, oil companies would be short of friends in Congress regardless of the party in power.
Beyond the immediate jockeying, however, lies a bigger question: Is Congress putting taxpayers at risk by funneling billions of dollars in subsidies into alternative fuels that are still a long way from being profitable?
Indeed, industry experts said the Senate bill greatly understated the true cost of incentives for renewable fuels. Most of the incentives are set to expire at the end of 2009 or 2010, but House and Senate Democrats alike have called for an increase in production of such fuels by the year 2022.
By Edmund L. Andrews
18 June 2007
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