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Big oil companies facing prospect of heavy tax hit |
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Posted: 06/19/07 07:43 PM [ET] |
Senate Democrats need big bucks to help pay for a big increase in renewable fuels production, which could spell big trouble this week for Big Oil.
Senate tax writers are considering a package that may offer as much as $25 billion in tax breaks and other financial incentives to encourage production of renewable fuels and additional efforts designed to reduce greenhouse gas emissions.
Other federal incentives would be directed at efforts that include sequestering carbon dioxide before it is released into the atmosphere, encouraging investors to build transmission lines, and researching “clean coal” technologies. Coal could also win with new incentives for converting the mainstay in electricity production into a transportation fuel.
Much of the tab for the new efforts would land in the lap of large, integrated oil companies like ExxonMobil, Conoco Phillips and BP, among the small group of companies referred to as Big Oil.
“It’s springtime, and everyone is feeding at the trough,” said Don Duncan, chief lobbyist for Conoco Phillips, referring to the various proponents of renewable fuels who would stand to benefit on the backs of oil companies.
Huge profits and rising gasoline prices have made the oil industry a frequent target in recent years. But the industry was left largely unscathed by Republicans, who tend to favor pro-Big Oil production policies and receive the bulk of the industry’s campaign contributions for their efforts.
Under Democratic control, however, the House has already passed a bill that would direct around $15 billion in renewable energy development by increasing taxes and royalty payments on large oil companies.
The Senate tax bill is likely to be married with a broader energy policy bill that would mandate the production of 36 billion gallons of renewable fuels by 2022. The current mandate calls for 7.5 billion gallons by 2012. Democrats say the new goal would reduce foreign oil dependence, lower greenhouse gases and revitalize rural economies.
Industry lobbyists said they could still get the 41 votes to block the Senate measure, although the effort to repeal some of the tax breaks that the oil industry now enjoys has some bipartisan support.
Given the priority Democratic leaders have put on passing energy legislation, blocking the tax package could be tough, lobbyists acknowledge.
The Senate Finance Committee energy tax package released last week, to be marked up today, provides $13.7 billion in credits and other incentives designed to promote efforts to reduce greenhouse gases.
It includes extending a production tax credit for two years that the wind energy industry says is critical to its continued growth. Other tax and financial incentives would develop cellulosic ethanol and biodiesel production.
The American Wind Energy Association was lobbying to extend the production tax credit, valued at 2 cents a kilowatt-hour, even longer.
Moving beyond one- and two-year increments has been a long-time goal of the industry. But the price tag, conservatively valued at $2 billion a year, has always been an obstacle, although that problem could be solved by using oil company revenues.
The biggest bite comes out of the pockets of major integrated oil companies, which would no longer be eligible for a manufacturing tax break that is valued at $9.4 billion over 10 years under the Senate tax bill.
Mark Kibbe, senior tax policy analyst at the American Petroleum Institute, said that measure would “disincentivize oil and gas production in this country.”
Tax writers would also alter how foreign oil and gas income is taxed, a change that would raise another $3 billion over the same time frame.
And it could get more expensive for the oil industry.
Sen. Jeff Bingaman (D-N.M.), the primary author of the energy bill, is expected to introduce an amendment that would raise royalty rates on offshore oil production from 12.5 percent to 13 percent. That is in part intended to get more from companies that currently do not pay royalties due to an Interior Department error on contracts signed in 1998 and 1999. The Bingaman
amendment would raise a further $10 billion over the next decade.
Industry lobbyists maintain the Senate measures won’t do anything to reduce oil prices and could further increase imports of foreign oil by worsening the U.S. business environment. One measure to make price-gouging a federal crime could end up exacerbating price pressures in times of crisis, industry lobbyists have argued.
But supporters say Democrats are trying to level the playing field by taxing more heavily an industry that has long enjoyed incentives and subsidies to meet America’s thirst for oil.
Speaking to reporters last week, Bingaman said that energy security and environmental concerns have led to the “consensus” view among Americans on the need to reduce dependence on fossil fuels.
Sen. Amy Klobuchar (D-Minn.) said the measure would “revitalize” rural America by promoting the production of biofuels.
Beyond the tax debate, senators also face a fight over fuel efficiency standards for cars and trucks. Michigan Democrats oppose the language as written by Bingaman’s committee.
Another big fight will come on the renewable portfolio standard, a priority for Bingaman. The measure would require utilities to get 15 percent of their energy from renewable sources like wind and solar power. But supporters were short of the 60 votes last week to advance the standard.
If the immigration bill does not bog down the Senate, debate on the energy bill is likely to be interrupted by a vote on the Employee Free Choice Act, a measure that would make it easier to form a union. This effort, too, may fall victim to the filibuster.
Labor groups were planning a rally in support of the bill today featuring AFL-CIO President John Sweeney, Teamsters General President James Hoffa and Senate Majority Leader Harry Reid (D-Nev.).
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