Democrats
Press Plan to Channel Billions in Oil Subsidies to Renewable Fuels
Published:
WASHINGTON, June 16 — Senate Democrats are
seeking a major reversal of energy tax policies that would take billions of
dollars in tax breaks and other benefits from the oil industry to underwrite
renewable fuels.
The tax increases would reverse incentives passed
as recently as three years ago to increase domestic exploration and production
of oil and gas. The change reflects a shift from the Republican focus on
expanding oil production to the Democratic concern about reducing global warming.
On Tuesday, the Senate Finance
Committee will take up a bill that would raise about $14 billion from oil
companies over 10 years and would give about the same amount of money on new
incentives for solar power, wind power, cellulosic ethanol and numerous other
renewable energy sources. The bill is one of the signature issues this year for
Democrats, along with immigration and the war in
Iraq, and one in which they hope to clearly distinguish themselves from the Republicans.
But Senate Democrats are
expected to go beyond the $14 billion in tax changes in the draft bill.
Democratic officials said the committee is all but certain to adopt a proposal
by Senator Jeff Bingaman of
“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 Mr. Bingaman, who plans to attach the
entire tax package to the energy bill on the Senate floor next week.
It is unclear how much
President Bush or Republicans in Congress will fight the proposed tax shift.
The ranking Republican on the Senate Finance Committee, Senator Charles Grassley of
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 filibuster 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 intended to prosecute what Democrats call
“unconscionably excessive” gasoline prices.
Senator Charles E. Schumer
of
Because Senate Democrats want
to offset the cost of any new tax breaks with tax increases elsewhere, many
lawmakers are pushing for even more tax raises from oil companies.
Oil executives are protesting
loudly, saying that the proposed changes would take money away from exploring
and drilling in the
“They talk about our companies
as if they’re owned by space aliens,” said John Felmy, chief economist at the American Petroleum
Institute, a trade association. “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 increasing to
more than $3 a gallon and oil profits reaching 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
Democrats in both the House and Senate have called for an increase in the
production of such fuels by 2022. As a practical matter, the vast majority of
“temporary” tax breaks are routinely extended once they are passed for the
first time.
In addition to higher taxes
for oil companies, House and Senate Democrats are hitting at the oil industry
in other ways. The Senate bill would give the federal government more power to
prosecute companies that engage in “price gouging” on gasoline prices, which is
broadly defined in the bill as charging “unconscionably excessive” prices that
reflect “unfair leverage.” A similar measure is moving through the House.
Separately, the House Natural
Resources Committee passed a bill last week that would, among other things,
crack down on companies that cheat on royalties they pay for oil and gas pumped
on publicly owned land.
In effect, the various bills
would transfer billions of dollars from oil companies to producers of renewable
fuels.
The Senate bill would offer
$5.6 billion in tax credits over the next three years for companies that
produce electricity from renewable fuels like wind and geothermal power. It
would offer tax-free bonds for new power plants with renewable or clean energy.
It would offer tax credits totaling about a dollar a gallon to producers of
cellulosic ethanol, and even bigger tax credits for “biodiesel” fuel. It would
extend and expand tax breaks for plug-in electric cars and other vehicles that
use alternative energy sources, and it would provide tax breaks for gas
stations that offer renewable fuels.
In a nod to the politically powerful
coal industry, the bill would also provide $1.5 billion in tax-free “clean coal
bonds” for advanced coal-fired electricity plants and $332 million in tax
credits for plants that make diesel fuel from coal.
Democrats
in the House are moving with similar legislation. The House passed a bill
earlier this year that would raise about $14 billion over 10 years from oil
companies, and the
The Democratic bill contrasts sharply
with the energy bill that the Republican-led Congress passed in 2005. The
Senate bill offers less than $1 billion in incentives for coal, no tax breaks
for nuclear power and tax hikes for oil. But two years ago, Congress approved
$11 billion in additional tax breaks, of which $7 billion went to oil, coal and
nuclear power.
“It is a dramatic change in policy,
targeted at the big oil companies,” said Senator Ron Wyden, Democrat of
Oregon. “It will show the country the kind of things we can do by taking away
subsidies for fossil fuels and putting the money into new sources of energy.”
Privately, some Democrats say it is
payback time: the oil industry’s political contributions have overwhelmingly
gone to Republican lawmakers and President Bush, and many Democrats say they
have little sympathy for the industry now.
It is unclear whether Republicans or Mr.
Bush plan to protect the industry.
In stinging criticism earlier this
month, the White House Office of
Management and Budget said the proposed price-gouging measure amounted
to price regulation that would jeopardize investment in oil production and
ultimately hurt consumers.
In 2005, Mr. Bush threatened to veto a
one-year measure that blocked oil companies from using the “last in, first out”
accounting method for inventories. The Bush administration, echoing charges by
the oil industry, said the measure amounted to a one-year windfall profits tax
that would frighten investors by raising the prospect of further tax raises
whenever oil prices jumped sharply.
Mr. Schumer’s proposal is similar to the
2005 proposal, except that his measure would be permanent.
The oil industry still has persuasive
clout in
They have carefully positioned
themselves, picking their fights on selected issues that attract fairly little
popular interest but affect potentially large amounts of money.
The effort is mostly defensive — fending
off tax increases — but also has offensive elements. Royal Dutch Shell and
other big companies hope to be big players in coal-based liquid fuels. And the
industry in general is still pushing for Congress to open up more areas on the
outer continental shelf for deepwater drilling.
But industry executives hold out little
hope for emerging unscathed.