House Revokes Oil Industry Financial Breaks

House Revokes Oil Industry Financial Breaks





    
 
January 2007  - Legislation 
eliminating some $14 billion in federal subsidies and tax 
breaks for oil and gas companies was approved today by the 
U.S. House of Representatives. The bill, which includes 
language to funnel the money to renewable energy projects, 
passed by a vote of 264-163. 
The bill was the final piece of House Speaker Nancy Pelosi’s 
"100-hour agenda" and the California Democrat promised it is 
only the start of an aggressive effort to tackle the nation’s 
energy needs and to address climate change. 
House Speaker Congresswoman Nancy Pelosi of California (Photo 
courtesy Office of the Congresswoman) 
Pelosi told reporters today that she is creating a new Select 
Committee to develop a package of legislation focused on 
energy independence and global warming, with the goal of 
passing the bills by July 4. 
"Today is a start," Pelosi said. "It's just a beginning. I 
promise to do everything in my power to achieve energy 
independence ... and to stop global warming," 
"By investing in American ingenuity, Democrats will accelerate 
the implementation of existing clean, energy-efficient 
technologies," Pelosi said. "We will promote homegrown 
alternatives, creating good paying jobs while bolstering our 
national security, sending our energy dollars to the Midwest, 
not the Middle East." 
The legislation has a long way to go before it becomes law and 
its prospects in the Senate are uncertain. Some Democrats are 
keen to see a larger effort to revamp royalty payments for the 
oil and gas industry, while some Republicans and the Bush 
administration oppose several key parts of the bill. 
The measure would raise more than $7.5 billion over the next 
10 years by closing tax breaks for oil and gas producers as 
well as more than $6 billion over the same time period by 
repealing and restructuring royalty payments. 
That money would be used to create a research and development 
fund for renewable energy, alternative fuels and energy 
conservation programs. 
House Majority Leader Steny Hoyer, a Maryland Democrat, said 
the legislation is "but a first down payment on the promise of 
a new energy future for our country." 
Congressman James McGovern of Massachusetts has been in office 
since 1997. (Photo courtesy Office of the Congressman) 
"At last Congress is putting its money where its mouth is and 
increasing our investment in renewable energy," said 
Representative James McGovern, a Massachusetts Democrat. "We 
are not just talking the talking, we are walking the walking. 
We are not promising any quick fixes … but the bill before us 
today will put us on the path to energy independence." 
Opponents argued the measure will hurt the economy, costing 
jobs and raising energy costs, while doing little to spark 
increased development of renewable energy and alternative 
fuels. 
"There is nothing in the bill that would guarantee the money 
is spent on renewable energy," said Representative Marsha 
Blackburn, a Tennessee Republican. "While a new reserve is 
created, it does not have one single enforcement mechanism." 
Representative Don Young, an Alaska Republican, labeled the 
bill "communist Red" and said it illustrated that the "road to 
hell is paved with good intentions." 
"It will increase the competitive edge of foreign oil imported 
to this country," Young said. "If the problem is foreign oil 
and it is, why increase taxes and make it harder to produce 
American oil and gas? That makes no sense to me." 
Congressman Don Young of Alaska (Photo courtesy Office of the 
Congressman) 
Specific criticism of the legislation centers on two 
provisions - one that eliminates a major corporate tax break 
and a second designed to recoup lost royalty payments from 
drilling in the Gulf of Mexico. 
The tax break, created in 2004 to protect domestic 
manufacturers from foreign competition, gives oil and gas 
companies a reduction in the corporate tax rate on profits 
from domestically produced products. Rescinding the tax break, 
which critics argue never should have been extended to the oil 
and gas industry, will bring in more than $7 billion over 10 
years. 
"This is an ill-gotten windfall amounting to $700 million a 
year and it is time it be withdrawn," said Representative Earl 
Pomeroy, a North Dakota Democrat. 
"We pay once at the pump for gasoline already," added 
Representative Jay Inslee, a Washington Democrat. "We 
shouldn’t have to pay again on April 15 to line the pockets of 
the oil and gas industry. It is common sense." 
But the White House argues the provision is in effect a tax 
increase, singling out the oil and gas industry for punitive 
tax treatment. 
Industry groups, including the National Association of 
Manufacturers, warn revoking the tax break will increase 
energy costs for consumers and businesses - a position voiced 
by opponents during debate in the House. 
Representative Phil English, a Pennsylvania Republican said 
eliminating the tax break "will further erode the U.S. 
comparative advantage, forcing more and more of our 
good-paying manufacturing jobs overseas." 
"This legislation is bad energy policy and bad tax policy," 
English told colleagues. 
The royalty provision aims to alter about 1,000 deep water 
drilling leases for the Gulf of Mexico issued in 1998 and 1999 
by the U.S. Interior Department's Mineral Management Service. 
BP's Thunder Horse oil platform in the Gulf of Mexico. 
Designed to process 250,000 barrels of oil per day and 200 
million cubic feet per day of natural gas, Thunder Horse will 
be the largest producer in the Gulf. (Photo courtesy BP) 
The agency failed to include language triggering royalty 
payments once oil prices reached a threshold of about $34 a 
barrel, an error that has already cost the government some $1 
billion in lost royalties and could cost more than $10 billion 
over 25 years. 
The legislation requires companies to either renegotiate the 
flawed leases or pay fees on production from those leases or 
be banned from purchasing new leases in the gulf. 
The Bush administration favors voluntary negotiations to 
revise the leases and has completed negotiations with five 
companies. But at least 50 other affected companies argue the 
government has no right to force them to pay additional 
royalties. 
Several House Republicans voiced support for the position that 
the contracts are valid and warned that the bill sets up a 
potential legal quagmire over leasing in the deep waters of 
the gulf. 
"It opens up the floodgates for takings litigation," said 
Representative Mary Fallin, an Oklahoma Republican. "This is a 
trial lawyer’s dream bill."