LOBBYING:

Oil and gas ads target 'energy industry taxes'

The oil and gas industry is funding an advertising campaign aimed at stopping new energy taxes, an effort that comes as it faces both a loss of tax benefits and possible new penalties as part of climate legislation.

Industry trade group American Petroleum Institute launched the ads now running in Washington, D.C., and 10 states.

"What would new taxes on oil and gas mean to to you?" one ad asks, followed by a woman who answers: "Well, I'm against it because it would really hurt our economy. It would take money away from businesses and stores. People would just be in more of a bind. I think it's just, it's not a good idea."

Another ad urges: "Tell Washington to say no to energy industry taxes."

The ads target President Obama's fiscal 2011 budget proposal to eliminate tax breaks for petroleum companies, API said. The Department of Energy said the plan would generate $36.5 billion over the next 10 years. The industry says it would cost companies $80 billion over the same period.

The spots attempt to tie the budget proposal to people's pocketbooks, said Adele Morris, policy director for climate and energy economics at the Brookings Institution.

"The purpose with these ads is to make it seem these taxes will be felt by consumers at the pump," Morris said. "It's to try to tell a story that energy consumers will be harmed."

The 15- and 30-second spots refer only to generic "energy industry taxes." While API said they are spurred only by the budget proposal, analysts and critics of the industry say the ads also could be seen as an attack on a climate bill emerging from Sens. John Kerry (D-Mass.), Lindsey Graham (R-S.C.) and Joe Lieberman (I-Conn.) The bill could include elements of a carbon tax on transportation fuels, something some environmentalists, economists and Exxon Mobil have said they prefer to a program of buying and selling carbon emissions permits, known as cap and trade.

"I assumed they were talking about the climate bill," Morris said of her initial reaction to the API ads.

The ads began running last year before details of Kerry, Graham and Lieberman's bill effort surfaced, API spokeswoman Cathy Landry said. API first ran the ads in late 2009 when Congress was working on funding bills and restarted them as Congress began voting on the budget. The ads are running in the District of Columbia, Arkansas, Colorado, Indiana, Michigan, Nebraska, New Mexico, North Carolina, North Dakota, Pennsylvania and Virginia.

"Climate change is important to us, but these taxes are very, very important to us as well," Landry said. "Taxes is a priority for us."

The industry may get a double hit with the ads because "only a few people in America outside of Washington, D.C., have heard about the president's proposal" to take away the tax benefits oil and natural gas companies now get, said Sierra Club spokesman Josh Darner, adding that many people opposed to cap and trade call it "cap and tax."

Tax benefits at risk

The Obama administration wants to eliminate a series of tax benefits that oil and gas companies receive, 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. This year it received a cold reception from key lawmakers on important committees, including Sens. Lisa Murkowski (R-Alaska), Robert Bennett (R-Utah) and Mary Landrieu (D-La.).

But while that opposition could make it difficult to get that proposal passed in a committee, the oil industry is concerned it could be added as an amendment to legislation other than budget bills. With the large federal budget deficit, lawmakers are looking for revenue sources, analysts said.

The Obama administration is "making the calculation that this is a politically palatable way to raise revenue," said Morris with Brookings.

Obama's proposal this year comes after the Group of 20 world leaders -- which includes the United States -- pledged last year to phase out fossil fuel subsidies.

"Part of this is simply punishing who they view as bad guys," said Kenneth Green, resident scholar at American Enterprise Institute, a think tank favoring market-based solutions. He added, "The public tends to want to punish or distrust the oil industry."

But eliminating subsidies at least in the United States would be unlikely to have the desired environmental impact of lowering carbon emissions, Morris said. In some other countries like China, the government subsidy is given to consumers at the pump, she said, so that even when oil prices rise, gas prices paid do not keep pace. If that subsidy were eliminated, consumers likely would drive less, she said.

In the United States, Morris said, "unless you do something to broadly affect the cost of fossil fuels, you're not going to change consumption ... and how much carbon goes up in the air."

The Obama proposal also would affect the mining industry. But it comes as the Obama administration funds research into ways to capture coal's carbon emissions and sequester them underground.

"It's kind of taking with one hand and giving with the other," said Carol Raulston, spokeswoman for the National Mining Association, a trade group for the industry.

Results debated

In addition to running the ads, API lobbyists are talking to lawmakers and their aides about the budget proposal, arguing that eliminating the tax incentives will decrease domestic production. That in turn, they say, could mean lost jobs as the work is shifted overseas.

"With America still recovering from recession and 1 in 10 Americans out of work, now is not the time to impose new taxes on the nation's oil and natural gas industry," said API President Jack Gerard last month when the proposal was unveiled.

"Imposing new taxes would reduce our nation's energy security by discouraging new investment in domestic oil and natural gas production and refining capacity and pushing those investments -- and American jobs -- abroad," Gerard added.

The National Mining Association is talking to lawmakers about jobs as well, and the cost of power, Raulston said.

The administration argues that the tax benefits do not drive increased production.

Analysts disagreed about whether a change in the tax benefits would shift production and cost jobs.

"It's correct to say that if you increase taxes you're going to decrease profitability, and therefore you're going to decrease investments," Green said. "If you're made less competitive and you wind up doing more of your research overseas, it's going to have repercussions in the U.S. job market."

Changing tax benefits is highly unlikely to affect natural gas production, which is booming, said Morris with Brookings. Additionally, she said, not much natural gas is imported.

Most of the changes also would be unlikely to affect oil production in the short-term, Morris said.

"They're already pumping the oil," Morris said, adding, "it might possibly affect some exploration and production in the future."

The changes, if they occurred, would be unlikely to affect gas prices because oil is an international commodity, Morris said.

Green argued there should not be subsidies for any energy producers.

"The vast majority of these [tax benefits] are purely self-serving to the oil industry," Green said. "To the extent that the oil industry gets more subsidies than other forms of energy, energy markets are distorted. Investment is probably distorted as well.

"Either everybody gets subsidies," Green added, "or nobody gets subsidies."

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