Oil producers push Democrats to preserve key drilling deduction
Oil producers are ramping up their lobbying efforts to ensure that Democrats don’t repeal a lucrative tax deduction in the $3.5 billion reconciliation bill.
The U.S. tax code allows companies to recover the cost of drilling for oil and gas and preparing oil wells for production, a provision that helps boost U.S. oil production but has drawn criticism from environmental groups and Democratic lawmakers.
Senate Finance Committee Chairman Ron Wyden (D-Ore.), who wields significant influence over tax changes in the reconciliation package, is considering removing the intangible drilling costs deduction in the final bill, according to a committee spokesperson.
Wyden previously proposed repealing the deduction in his bill to overhaul energy tax incentives to boost clean energy development. President Biden also proposed eliminating the tax provision in his budget plan and the American Jobs Plan.
That’s alarmed oil and gas lobbyists, who are rounding up support from moderate Democrats from fracking-heavy states such as Texas, Pennsylvania and Ohio to ensure the deduction survives.
“Democrats, particularly those with oil and gas operations in their districts, understand the importance of this industry, that it provides high-paying jobs and the benefits that come with domestic production,” said Anne Bradbury, president of the American Exploration and Production Council (AXPC), which represents independent oil and gas producers.
The AXPC said that removing the deduction would reduce the number of wells drilled by 25 percent. That would raise gas prices and increase U.S. dependence on oil from Russia and the Middle East, the lobbying group stressed in meetings with lawmakers.
Only a handful of defections among House Democrats — or one defection in the 50-50 Senate — could doom the party-line reconciliation package, which will not receive Republican support.
Lobbyists are eyeing Sen. Joe Manchin (D-W.Va.), an industry ally, and moderate House Democrats who have expressed reservations about the reconciliation package.
Oil and gas groups and business associations sent a flurry of letters to lawmakers this month urging them to keep the deduction intact.
The New Mexico Oil and Gas Association sent a letter to the state’s congressional delegation last week warning that the deduction supports an industry that funds one-third of the state’s budget. Chambers of commerce in 11 oil producing states also voiced support for the tax deduction, along with the U.S. Chamber of Commerce, a powerhouse trade group that regularly tops all lobbying spenders each year.
Environmental advocates have long pushed Congress to end tax breaks for fossil fuel companies, particularly the intangible drilling costs deduction that has remained in the tax code for over a century.
“There’s no justification for promoting oil exploration this way — literally throwing money at it — at a time when we need to do everything in our power to transition to clean energy sources,” Natural Resources Defense Council staffers Sujatha Bergen and Susan Casey-Lefkowitz wrote in a May blog post urging Biden to eliminate the tax provision in his budget proposal.
Progressive lawmakers, the loudest proponents of ending fossil fuel subsidies in Congress, have warned that they will not support a bill that does not invest heavily in climate measures.
House Democrats this week advanced a budget resolution that sets the stage for the $3.5 trillion reconciliation bill, which is expected to include huge tax credits for green energy development.
Senate Majority Leader Charles Schumer (D-N.Y.) on Wednesday said that the bipartisan infrastructure bill and the reconciliation package would together reduce carbon emissions by 45 percent by the end of the decade.
“We are on the precipice of the most significant climate action in our country’s history,” Schumer wrote in a letter to colleagues. “I do not believe we have the luxury of failure if we are to provide a good future for ourselves and our children.”