OIL AND GAS:

Enviro groups' memo outlines corporate welfare attack on oil industry

Environmental groups and others who support climate legislation want to steal the dirty word "tax" from opponents and paint the oil industry as the beneficiary of a $4 billion consumer-funded "Big Oil Welfare Tax."

A memo circulating from Clean Energy Works, an alliance of about 60 groups, outlines a strategy of framing tax benefits the industry receives as corporate welfare. The memo calls the messaging plan a "line of attack" to counteract the description of climate legislation as a national energy tax.

"The coming weeks will be very important for supporters of comprehensive clean energy and climate legislation," the memo states. "The opposition, in the form of [the American Petroleum Institute] and Big Oil lobbyists in Washington, are spending millions on smear campaigns and calling on their cronies in the Senate to do everything they can to continue America's dependence on oil and prevent a new policy that moves us away from oil and toward a clean energy economy."

"What they don't want anyone to know is that the American people already have a national energy tax -- The Big Oil Welfare Tax -- in the form of billions of dollars in subsidies to the wildly profitable big oil companies," the memo adds.

The coalition of environmental groups and others said it wants a counterpoint to the oil industry's charge that comprehensive climate legislation would amount to a $1,200 annual energy tax on every household.

"Until now, Big Oil has been successful keeping the existing Big Oil welfare tax a secret," said David DiMartino, spokesman for Clean Energy Works. "When people hear we are subsidizing Big Oil's profits, it'll make them think about our existing failed energy policy."

The strategy follows a New York Times report last week that the oil industry receives $4 billion annually in tax benefits, some of them stemming from decades-old laws to promote oil exploration. Capital investments such as oil-field leases and drilling equipment see a levy of 9 percent, the article said, while other industries see an overall tax of 25 percent.

API, the trade group for the oil and natural gas industry, rejected that it receives corporate welfare.

"Baseless charges that America's oil and natural gas companies don't pay their fair share and enjoy too many incentives are not supported by the facts," said API spokeswoman Cathy Landry. "According to the Energy Information Administration, the industry's effective federal income tax rate is more than two-thirds higher than the average for all manufacturing industries. Another EIA study shows renewable energy industries enjoy double the incentives of those for oil and natural gas."

Landry said API has not been among those calling climate legislation a national energy tax. API has not come out in opposition to any of the Senate climate bills, saying that it is "neutral."

The Clean Energy Works memo details a number of tax benefits that the oil and natural gas industry receives, and the value of each. Transocean Ltd., the company that owned the drilling rig that exploded and sank in the Gulf of Mexico, saved $1.8 billion in taxes by moving overseas in 1999, the memo said, citing the same New York Times article.

API said many of the tax benefits called into question are enjoyed by other industries, as well.

"For example, Section 199 of the tax code allows all manufacturers to deduct their manufacturing expenses in an effort to keep jobs in the United States and create new ones," Landry said. "Another example is the 'dual capacity' tax provision, which enables all U.S. companies -- including the U.S. oil and natural gas industry -- to operate and produce goods and services in other countries without having their profits taxed twice.

"This particular provision, which is actually more restrictive than the general foreign tax credit rules, ensures that U.S. companies can compete on a level playing field with foreign competitors as well as pay their fair share of U.S. taxes."

The Obama administration wants to eliminate many of the industry's tax concessions, including a tax deduction given to manufacturers, deductions for some drilling costs, and credits given for low-volume oil and gas wells. In addition, there would be new taxes on Gulf of Mexico oil and gas production and the reinstatement of taxes to generate revenue for cleaning up hazardous waste sites.

The same Obama revenue-raising proposal stalled last year, and the proposal so far has received a cold reception from the Senate. That chamber last month rejected, 35-61, an amendment that would have ended $35 billion worth of tax breaks for oil and gas producers over the next decade. The amendment would have cut oil and gas tax breaks related to amortization, depletion of oil wells and domestic production income (E&E Daily, June 16).

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