Maureen Lorenzetti
Washington Editor
WASHINGTON, DC, Apr. 19 --With the Senate expected to vote on final energy legislation on or around Apr. 23, the key question the oil industry is now asking is whether lawmakers can reach consensus on a final bill the White House will accept. On Apr. 18, the differences between a House bill passed last August and the pending Senate measure grew larger.
ANWR leasing unlikely in Senate
In an action that at least one environmental group called "their biggest political win in years", a bipartisan group led by Senate Democratic leaders effectively turned back a proposal to allow leasing in a limited portion of the Arctic National Wildlife Refuge.
"I think it really comes down to this: We are just not going to allow Republicans to destroy the environment," said Senate Majority Leader Tom Daschle (D-SD) on the eve of the vote.
Later that day the Senate voted 54-46 to uphold debate by ANWR drilling opponents Sens. John Kerry (D-Mass.) and Joe Lieberman (D-Conn.), making it difficult, although not impossible, for leasing proponents to secure a vote on the issue.
Five Democrats voted with 41 Republicans to allow ANWR leasing: Sens. Daniel Akaka and Daniel Inouye from Hawaii, John Breaux and Mary Landrieu from Louisiana, and Zell Miller of Georgia. But 8 Republicans broke ranks with the White House and voted with 45 Democrats (along with Independent Sen. Jim Jeffords (Vt.) to block the amendment: Sens. Lincoln Chafee (RI), Maine Sens. Susan Collins and Olympia Snowe, Michael DeWine (Ohio), Peter Fitzgerald (Ill.), John McCain (Ariz.), Bob Smith (NH), and Gordon Smith (Ore.).
On a related procedural vote, the Senate also in effect turned back, by a vote of 64-36, an attempt by Alaska Sen. Ted Stevens (R) to link Arctic drilling revenues to benefits for steel workers.
Sen. Frank Murkowski (R-Alas.) vowed after the votes that the ANWR issue would resurface, saying that for national security reasons, "sooner or later this nation will open up ANWR."
The Alaska senators indicated they would continue offering ANWR-related amendments before the energy bill left the Senate. Their latest effort is expected to be a proposal to allow the Inupiat Eskimos to develop their own lands located in ANWR. Current law forbids the Indian lands from being developed unless Congress opens the congressionally designated "1002" area of the ANWR coastal plain first.
The Republican-led House passed a sweeping energy bill last August that includes a provision to allow the Department of Interior to lease a portion of the ANWR coastal plain.
Iraq oil ban
A few hours after the ANWR-related procedural votes, the Senate by an 88-10 margin gave Murkowski a minor victory by approving amendment to the bill that bans Iraqi oil imports into the US. Iraq sells oil on world markets under a United Nations humanitarian program designed to block President Saddam Hussein from controlling any of the revenue. Under the oil-for-aid program, the US was importing about 1 million b/d until earlier this month, when Saddam decided to stop all oil shipments in protest against US policies toward Israel.
Murkowski said the US should ban oil from Iraq because the UN program has not succeeded in preventing Saddam from using petrodollars to fuel his own war machine.
Oil companies did not publicly lobby against the amendment but are troubled by the Senate's action. They have privately told the White House the measure could exacerbate gasoline price spikes because several refineries are optimized to run on Iraqi crude.
The White House meanwhile has remained silent on the issue, although senior policymakers have signaled they will urge lawmakers to drop the Iraqi amendment when and if an energy bill is negotiated in a House-Senate conference later this spring.
The House bill does not include a ban on Iraqi oil.
International trade sanctions already prevent Iraq from selling oil directly to US companies; and even without the Senate action, President Bush has the authority to ban US companies from participating in the UN oil program. Murkowski's amendment also has a big loophole for the White House to use: It gives the President the authority to waive the ban if an embargo would be "inconsistent with the national security and foreign policy interests of the US."
Under the amendment the ban would be lifted if Iraq allows UN inspectors back in the country to certify the country is complying with UN regulations for the oil-for-aid program and is not stockpiling nuclear or biological weapons.
Senate Energy Committee Chairman Jeff Bingaman (D-NM) opposed the provision, noting the White House has yet to indicate whether a ban would help or exacerbate US efforts to broker a Middle East peace. Bingaman also suggested the ban would have little to no impact on Iraq, because the country could simply sell the oil to European and Asian buyers instead of the US.
Tax deferred
Senate Republicans also succeeded in blocking an effort by Senate Democratic leaders to consider adding tax credits and incentives to the bill, so those provisions will be negotiated at the conference table with House leaders.
Under Senate rules, legislators must find budget offsets to pay for tax provisions.
Last February, the Senate Finance Committee passed a $14 billion energy tax bill that contains about $4 billion in credits and incentives for the oil and gas industry over 10 years (OGJ Online, Feb. 14, 2002). However, that $4 billion figure could go higher if lawmakers decide to give North Slope producers a guaranteed floor price for their gas to encourage the construction of a trans-Alaskan gas pipeline.
The House bill includes about $8 billion in tax measures specifically geared toward the oil industry over the same 10-year period.
For budget reasons, the White House has endorsed hardly any of the tax provisions in either bill, but neither has it signaled what it would take to veto an energy package.
Ethanol deal revisited
Before the Senate passes out its own bill, lawmakers are expected to revisit a controversial clean fuel proposal supported by a powerful coalition of major oil companies and farm interests.
Lobbyists and congressional sources predicted lawmakers will likely be forced to reconsider the issue in light of growing concerns over higher gasoline prices and legal issues surrounding clean fuel additives.
The current Senate plan streamlines reformulated gasoline rules, with the caveat that the fuel oxygenate methyl tertiary butyl ether (MTBE) be banned in 2004 and fuel ethanol be given a specific market share of 2.3 billion gal/year, increasing to 5 billion gal/year by 2012.
The Renewable Fuels Standard (RFS) provision is written broadly, with no requirement that renewables be included in each gallon of gasoline and without restrictions on where renewables can be used.
Those who oppose the Senate plan say the provision as currently written only protects gasoline suppliers from possible legal issues surrounding the expanded use of fuel ethanol; it does not do an adequate job of shielding suppliers from future MTBE lawsuits. Meanwhile, some refiners argue that banning MTBE and creating an ethanol mandate will drive up gasoline prices.
Supporters of the clean fuel proposal argue, however, that the only reason gasoline prices could rise dramatically is if the Senate allows MTBE use to continue. They also say the provision authorizes appropriations of $750,000 ($250,000 for 5 years) for transition assistance for US-located merchant producers of MTBE.
MTBE lawsuit
Adding new urgency to the issue was an Apr. 15 decision by a San Francisco jury to hold three oil companies liable for contaminating Lake Tahoe in California with MTBE.
The South Tahoe Public Utility District says the clean-up costs could be more than $50 million, although with punitive damages the court could force the companies to pay nearly triple that amount.
According to the ethanol trade group Renewable Fuels Association, there are similar suits moving forward in numerous other states; 14 states have acted to ban MTBE as a result of water contamination, and other bans are pending.
"The current Senate energy bill contains a bipartisan agreement that will ban MTBE nationwide in 4 years, but efforts to destroy this agreement by reducing or eliminating the renewable fuels standard will do nothing more than extend the use of MTBE and force higher pump prices onto the backs of consumers, " said Bob Dinneen, RFA President. "There is a rising gas tax on American consumers:the clean-up costs related to MTBE," he said.
"It doesn't matter whether local governments or oil companies pay for clean-up efforts; the ultimate cost is borne by consumers in the form of higher taxes or higher prices at the pump. The longer MTBE remains a part of our gasoline supply, the higher this tax will be."
Earlier attempts to revise the clean fuel compact have so far failed, but the dual issues of liability and gasoline prices may be putting the proposal in danger, some congressional sources suggested.
The House bill does not contain a similar provision, so if it is removed from the Senate version, sponsors would likely try to find a home for the amendment elsewhere, possible as part of a budget bill.
