Newly empowered House Democrats are optimistic they can push through an energy package of $15 billion in fees, taxes and royalties on oil and gas companies to promote renewable fuels.
The House was scheduled to take up the legislation Thursday as part of Speaker Nancy Pelosi’s string of high-priority issues she has vowed to address in the first 100 hours of Democratic control of Congress. She has characterized the energy measures as key to reducing government subsidies for the oil industry.
The White House on Wednesday expressed support for some of the tax and royalty proposals but said other provisions unfairly single out the oil industry or jeopardize domestic oil and gas production.
The legislation would impose a “conservation fee” on oil and gas taken from deep waters of the Gulf of Mexico, scrap nearly $6 billion worth of oil industry tax breaks enacted by Congress in recent years and seek to recoup royalties lost to the government because of an Interior Department error in leases issued in the late 1990s.
Democratic leaders estimate the measure would generate an additional $15 billion in revenue. Almost all of that money would be funneled into a research and development fund for renewable fuels such as solar and wind power, alternative fuels including ethanol and bio-diesel, and conservation incentives.
The legislation was expected to move through the House with broad support from Democrats and moderate Republicans. Its prospects in the Senate were uncertain, given the Democrats’ narrow majority there and sharp opposition from some Republicans as well as the White House.
Sen. Maria Cantwell, D-Wash., said Wednesday she doubts the Senate would accept the package as written. She suggested the Senate might want broader legislation to fix what she characterized as an oil and gas royalty program “riddled with blatant mismanagement.”
While President Bush supports a rollback of some of the royalty breaks for deep-water drilling contained in the House bill, the White House said Wednesday it strongly opposes the new production fees and a provision that would bar oil companies from future lease sales unless they renegotiate and pay royalties under the flawed 1998-99 leases.
Those measures could embroil the government’s offshore oil and gas leasing program in protracted litigation, delay future lease sales and disrupt energy supplies, said the White House.
Because of an apparent oversight, the 1998-99 leases did not include a provision that would trigger royalty payments once market prices reached a certain level far below today’s prices. The mistake has cost the government an estimated $2 billion in lost royalties with billions more expected to be lost from future production, congressional investigators have said.
The House bill also would prohibit the oil and gas industry from taking advantage of a 2004 tax break that was aimed at helping U.S. manufacturers compete against imports. That provision was never intended for highly profitable large oil companies, but it has saved them $700 million a year, maintains Rep. Jim McDermott, D-Wash.
The provision is among those the White House said it strongly opposes, viewing it as an attempt “to single out this industry from others for punitive tax treatment.”
The oil industry has been lobbying hard to try to block the tax and royalty provisions — if not in the House, perhaps in the Senate in the coming months.
Repeal of royalty relief and rollback of the tax breaks “will discourage new domestic oil and gas production and refinery capacity, threaten American jobs and make it less economical to produce domestic energy resources,” Red Cavaney, president of the American Petroleum Institute, wrote members of Congress on Wednesday.
Cavaney said royalty breaks House Democrats want to scrap have “contributed to a nearly 400 percent increase in natural gas production and more than 100 new discoveries.”
Sponsors of the House bill aren’t ready to buy the industry’s argument.
“I hardly think this is going to be a disincentive to drilling when they’re still making record profits,” said Rep. Nick Rahall, D-W.Va., chairman of the Natural Resources Committee and a co-sponsor of the legislation.
“You’re going to hear a lot of squealing from the oil companies about things that aren’t true,” McDermott said.