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Democrats Hope to Take From Oil, Give To Green Energy

By Steven Mufson
Washington Post Staff Writer
Thursday, January 4, 2007

House Democrats are crafting an energy package that would roll back billions of dollars worth of oil drilling incentives, raise billions more by boosting federal royalties paid by oil and gas companies for offshore production, and plow the money into new tax breaks for renewable energy sources, congressional sources said yesterday.

Eager to paint themselves as different from the Bush administration and the past Republican majority, Democratic leaders are targeting a manufacturing tax cut in 2004 that they say gave unneeded incentives to the oil industry, Majority Leader Steny H. Hoyer of Maryland said in a briefing yesterday. Hoyer said Democrats are also planning to force oil companies to pay royalties on deepwater Gulf of Mexico tracts leased in 1998 and 1999; the Interior Department has said that the leases inadvertently failed to include provisions for royalty payments once oil prices rose above certain thresholds.

The repeal of the 2004 tax cuts for the oil and gas industry would generate nearly $5 billion, Democratic lawmakers said, quoting estimates by the Joint Committee on Taxation. The royalty payments would yield between $9 billion and $11 billion, Hoyer said.

But energy industry and congressional sources said that the details of the package remain in flux, in part because of disagreements among Democrats over how the revenue would be used and whether to also roll back oil and gas industry incentives in the Energy Policy Act of 2005, which was supported by many Democrats.

Democratic leaders said House Speaker Nancy Pelosi would introduce the energy package on Jan. 18, toward the end of the "100 hours" of legislative initiatives.

House Ways and Means Committee Chairman Charles B. Rangel and House Energy and Commerce Committee Chairman John D. Dingell want to be able to hold hearings before some of the key details of such a package are set. As a result, Pelosi will probably introduce the revenue-raising components first and set aside the money in a "fund" to be divvied up later.

Renewable energy lobbyists said that would set off a feeding frenzy among boosters of hydropower, nuclear, biofuel, geothermal and solar energy. Solar producers, for example, have a proposal to expand and extend tax credits for residential solar installations for eight years, which would cost $400 million.

"The Democrats are appropriately shifting money from the 20th-century technologies to the 21st-century industries," said Rhone Resch, president of the Solar Energy Industries Association. "If we want to see solar, wind and biofuels, we have to make that investment today."

Figuring out how to distribute incentives for renewable energy could be controversial. Some Democratic House members want to exclude nuclear power. Some renewable-energy advocates fear that Congress will scramble to provide too many incentives for corn-based ethanol production.

Pelosi's staff has asked the Congressional Budget Office to estimate revenue from several proposals, most based on ones introduced last year by Democratic lawmakers, including Reps. Maurice D. Hinchey (N.Y.), Edward J. Markey (Mass.), Jim McDermott (Wash.) and Brian Higgins (N.Y.).

McDermott's would alter the 2004 tax cut, which was adopted as a way to stimulate job growth by effectively trimming tax rates for a broad range of U.S. manufacturers, agriculture and extractive industries. Mark Kibbe, senior tax analyst for the American Petroleum Institute, said that when fully phased in by 2009 the provision would trim the corporate tax rate from 35 percent to 32 percent. McDermott's bill would eliminate the break for the oil and gas industry.

"From the perspective of our industry, it helped make U.S. oil and gas exploration projects or refining projects more cost-competitive with those abroad," Kibbe said.

The most likely change in the Energy Policy Act of 2005 would be the repeal of a clause that allowed oil companies to deduct geological and geophysical exploration costs instead of treating them as capital expenditures to be amortized over a longer period of time, said congressional aides and environmental lobbyists. This change would generate less than $1 billion in revenue over 10 years, they estimated.

A variety of proposals would target the question of royalties on the 1998 and 1999 Gulf of Mexico leases. (The Justice Department is investigating possible relationships between Interior Department officials and oil companies that received the leases, said two sources briefed on the investigations last month.)

Five companies representing about a quarter of the leases in dispute agreed last month to insert price thresholds for future royalty payments, but another four dozen firms have not agreed to change the terms of those leases.

"There are a lot of issues with that, such as the sanctity of contracts," said API's Kibbe. "The API doesn't think it's a bad idea to renegotiate contracts, as long as both parties think it's a good idea. "

But Democratic and many Republican lawmakers are adamant on the issue. Markey and Hinchey would bar companies that refuse to renegotiate those leases from getting any future leases on federal lands or in federal waters. Pelosi's office has even discussed a proposal made last year by then-GOP congressman Richard W. Pombo, who wanted to impose a $9-a-barrel "conservation fee" on oil produced in federal waters by companies that refused to renegotiate the 1998 and '99 leases.

"It deprives the American people of the production they own," Hinchey said. "If they think it's too expensive, we should leave it there."

Many House Democrats also want to prod oil companies into making back payments on the disputed leases. Those back payments could amount to $900 million to $2 billion, according to the General Accounting Office.

Environmental groups were happy. "The oil and gas bill is a clear departure from the previous Congress's infatuation with oil and gas handouts," said Erich Pica of Friends of the Earth.

Staff writer Jonathan Weisman contributed to this article.

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