The US oil and gas industry faces a Congress in a decidedly punitive mood as 2007’s second half begins. Bills that initially aimed at repealing most of the 2005 Energy Policy Act’s (EPACT’s) incentives now contain additional provisions that would cost producers more money. Refiners are the targets of so-called price-gouging bills in both the House and Senate. And it’s increasingly obvious that some federal lawmakers would like to use new oil and gas taxes to finance alternative energy research and development.
Senate Republicans blocked $29 billion in taxes that the Finance Committee tried to attach as an amendment to HR 6 on June 21. It would have repealed the manufacturing tax deduction for oil refiners, revised and reduced the foreign tax credit, extended and increased the oil spill liability tax, placed a 13% excise tax on future Gulf of Mexico production, and taxed finished gasoline at the refinery gate or as it was imported into the US.
“This tax package was a disaster and would have reduced supplies, leading to higher gas prices and more dependence on foreign oil,” said Kay Bailey Hutchison (R-Tex.) following the vote. But Majority Leader Harry M. Reid (D-Nev.) said it would probably get a second look later this year.
The House Ways and Means Committee, meanwhile, approved its own package of oil and gas taxes in HR 2776 to finance alternative and renewable energy research and development by a 24-16 vote on June 20. It would raise more than $15 billion over 10 years by repealing the manufacturers’ tax credit for refiners ($11.427 billion), revise and reduce the foreign tax credit by taxing both upstream and downstream income at the wellhead ($3.562 billion), and extend the geological and geophysical expense amortization period for large, integrated oil companies to 7 from 5 years ($103 million).
Other provisions
The bill also would, over 10 years, raise an estimated $85 million by making diesel fuel made from coprocessing biomass and petroleum ineligible for a $1/gal renewable diesel production credit and $109 million by limiting incentives for biodiesel, renewable diesel, and other fuel alternative production and consumption to the US. And in a move that House Democratic Caucus Chairman Rahm Emanuel of Illinois called “closing the Hummer loophole,” HR 2776 would make large sport-utility vehicles ineligible for tax credits to raise $786 million.
The approximately $16 billion Ways and Means taxation and financing bill is a key element of an energy package Speaker Nancy Pelosi (D-Calif.) was expected to unveil on June 28 for action when the House returns from the week-long Independence Day recess in July. She previously said the package would contain incentives to expand renewable energy and efficiency programs, stronger support for production of domestically produced alternatives by US farmers, and more research and development of “the next generation of high-risk, high-reward energy technologies.”
An energy bill was the last of six that Pelosi and the House passed in mid-January. HR 6 came to the floor on Jan. 18 under a rules suspension that precluded amendments and required a two-thirds majority for passage. The bill repealed $14 billion of oil and gas tax incentives for reinvestment in alternatives and conservation. It also contained a provision aimed at pressuring holders of Gulf of Mexico deepwater leases issued without price thresholds in 1998 and 1999 to renegotiate terms.
Once the bill was passed, Pelosi asked all the House committees with jurisdiction to address energy independence by the Independence Day recess and climate change later in the year. She also formed a select committee on global warming and energy independence and made Edward J. Markey (D-Mass.) its chairman.
Separate actions
As committees and subcommittees held hearings through the winter and spring, two committees sent bills to the House floor that were approved with two-thirds majorities under suspended rules.
The Judiciary Committee’s HR 2264, which aims to make foreign oil cartels subject to US antitrust laws, passed on May 22. The Energy and Natural Resources Committee’s HR 1252, which would make oil and gas price-gouging a federal crime during a national energy emergency declared by the president, passed on May 23. The Senate added versions of both bills as part of its main amendment to HR 6 on June 21. Both would likely be vetoed by President George W. Bush.
The most significant portion of Pelosi’s energy legislation package for oil and gas producers probably will come from HR 2337, which passed the House Natural Resources Committee on June 13. It would repeal EPACT provisions suspending onshore drilling permit processing fees and initiating a process which could lead to federal oil shale leasing and development. Committee members persuaded Chairman Nick J. Rahall to extend an EPACT requirement for the US Bureau of Land Management to meet a deadline for processing onshore drilling permit applications to 90 from 30 days instead of eliminating it.
At a May 23 hearing on the bill, Rahall’s strongest criticism was of the US Minerals Management Service’s crude oil royalty-in-kind program, which the Department of the Interior agency says has improved efficiency and reduced expenses but which the lawmaker says is plagued with scandal. An MMS spokesman later confirmed that the US Department of Justice is investigating two possible ethics violations in the RIK program following a probe by DOI’s inspector general and that the program’s director, Gregory Smith, would retire effective May 26.
HR 2337 would limit royalties-in-kind to oil for the US Strategic Petroleum Reserve. The bill also would impose new requirements for handling produced water and increase rights of surface landholders in split-estate situations involving federal leases. Rahall maintained that it simply tries to correct federal energy policy flaws. Committee Republicans said it does nothing to increase domestic production while imposing more restrictions.
Oil companies’ ‘gluttony’
Rising gasoline prices through the spring obviously affected congressional energy attitudes. When Senate Democrats announced on May 23 that they would bring several of their own proposals to the floor when debate began on HR 6, 3 weeks later, Reid said: “We think anything we do should have some effect on the gluttony of the oil companies. The mere fact that we’re talking about legislation should get their attention.”
But differences beyond oil and gas emerged as the Senate debated the Reid amendments to HR 6 for 2 weeks in June. Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) was stymied in his effort to make a renewable portfolio standard part of the bill, largely because the committee’s chief minority member, Pete V. Domenici (R-NM), and other Republicans wanted to include clean coal technologies.
Domenici was more successful on June 21, when he convinced the Appropriations Committee to drop an amendment it had accepted a day earlier by Interior and Environment Appropriations Subcommittee Chairwoman Dianne Feinstein (D-Calif.) to bar holders of deepwater GOM leases issued in 1998-99 without price thresholds from future lease sales if they did not renegotiate terms.
Relations between Bingaman and Domenici are cordial in comparison to those of Environment and Public Works Committee Chairwoman Barbara Boxer (D-Calif.) and her predecessor under the Republicans, James M. Inhofe (Okla.). When he proposed an amendment to include clean-coal technology in refinery-siting legislation, she called it “a total taxpayer giveaway to the oil industry [that] short-cuts many environmental safeguards which protect our families.”
Rep. Joe Barton (R-Tex.), the House Energy and Commerce Committee’s chief minority member, exemplified congressional Republicans’ frustration over the Democrats’ energy issues approach during 2007’s first half in his June 27 opening statement as the committee met to mark up bills. “Isn’t it ironic that our most abundant domestic energy resource, coal, is not germane; that our cleanest energy resource, nuclear energy, is not germane; that our most used energy resources, oil and gas, are not germane; that the system of refining those products, unless we draft refining amendments in such a way that biofuels are the principal reason for the amendment, are not germane?” he asked.
