ENERGY POLICY:

Senate panel approves offshore oil tax, incentives for renewables

The Senate Finance Committee approved a measure today that would establish new taxes on oil companies to pay for a $28.5 billion energy package that includes credits for renewable energy, biofuels and "clean coal" projects.

Overall, the legislation includes new and extended incentives for renewable power and motor fuels, plug-in hybrid vehicles, and energy efficiency. Senate Democrats plan to attach the measure to sprawling energy legislation currently on the Senate floor.

The tax package that the committee approved in a 14-6 vote is twice as large as the draft proposal that the panel chairman, Max Baucus (D-Mont.), unveiled Thursday (E&E Daily, June 15).

Among the changes is a 13 percent excise tax on oil and natural gas production on the federal outer continental shelf. The plan allows companies to take a credit against the tax for royalties they pay on OCS oil and gas production.

The plan is aimed at oil and gas producers holding late 1990s offshore leases that allow them to forgo paying federal royalties regardless of the price of oil. At issue are deepwater leases that the Minerals Management Service issued in 1998 and 1999 without clauses that suspend royalty waivers when energy prices are high.

The new proposal would raise an estimated $10.6 billion over a decade, according to the Joint Committee on Taxation. Sen. Jim Bunning (R-Ky.) tried to strip the provision, but his amendment was rejected, 13-7. Bunning said the proposed tax would violate contracts and lead to litigation. "A contract is a contract, a deal is a deal," he said.

But Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-N.M.) countered that the plan passes legal muster, noting that companies' contracts do not prevent them from being subjected to taxes. Also, he said the provision is not only meant to address the 1998-1999 leaseholders, but applies across the board.

The committee's approval of the plan marks the second time today that a Senate committee attempted to address the 1998-1999 leases. Earlier, a Senate Appropriations subcommittee approved a measure that would prevent companies holding these leases from bidding on new offshore contracts unless they renegotiate (Greenwire, June 19).

The tax package also would repeal major oil companies' eligibility for a deduction applied to domestic manufacturing, which the Joint Committee on Taxation estimates would bring in more than $9 billion in 10 years.

Democrats said the plan would boost renewable energy while removing unneeded tax breaks for oil companies. But Republicans said the plan would work against energy security by raising the costs of domestic oil and gas production, and do nothing to help curb prices.

Karen Matusic, a spokeswoman for the American Petroleum Institute, said the oil tax provisions would threaten investment in domestic energy energy supplies and called it a "back-door windfall profits tax."

But Bingaman said there are sufficient incentives to produce oil and gas in the Gulf of Mexico and said the measure is not burdensome.

Incentives for renewables, carbon sequestration

The plan would extend for five years the production tax credit for wind power, geothermal and several other forms of renewable energy through the end of 2013.

Last week's draft of the tax package had extended this credit -- which the wind industry calls crucial -- by two years. Bingaman said the longer term renewable energy tax credits would help ensure investment in these technologies.

Another change would add new tax credits for carbon capture and sequestration. The plan would give a $10 credit per ton for the first 75 million metric tons of CO2 captured at industrial sources and used for enhanced oil recovery.

It would provide a more generous credit -- $20 per ton -- for CO2 permanently sequestered in geologic formations. The credits are estimated to cost around $1.1 billion over a decade. It also allows a seven-year cost recovery period for pipelines that transport CO2.

The proposal boosts several credits for renewable energy and energy efficient properties, such as extending the 30 percent tax credits for solar and fuel cell investments through 2016. Another provision includes production tax credits for cellulosic ethanol. It also extends the tariff on imported on imported ethanol for two years through 2010.

Coal-to-liquids

The bill includes incentives for "clean coal" power projects and coal gasification projects -- including coal-to-liquids plants -- that control carbon dioxide emissions.

The measure would extend an alternative fuel excise tax credit, which can be applied to coal-to-liquids fuels, through 2012. The panel approved an amendment by Sen. John Kerry (D-Mass.) that mandates these fuels must come from coal-to-liquids facilities that capture and store 75 percent of their carbon dioxide emissions.

The committee rejected an amendment from Sen. Orrin Hatch (R-Utah) that would have allowed 100 percent expensing for refinery expansion projects, rather than the 50 percent level in the underlying bill.

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