House Votes to Rescind Oil Drillers Tax Breaks
by: Edmund L. Andrews 19 January 2007
House Democrats easily passed legislation on Thursday that would rescind $14 billion in tax breaks and subsidies for oil drillers and reserve the money to develop alternative energy projects and conservation technologies.
The measure passed 264 to 163, with many Republicans joining a bloc of Democrats. Passage came despite opposition from the oil industry and the Bush administration, which said the bill singled out the companies for higher taxes and could increase the country's dependence on foreign oil.
The bill will rescind $7.6 billion in tax breaks for oil drillers that Congress passed in 2004 and 2005 and will add $6.3 billion in royalties from companies that pump oil and gas in publicly owned waters of the Gulf of Mexico and off Alaska.
One provision is intended to correct errors in drilling leases signed by the Interior Department in the late 1990s that allowed oil companies to escape billions of dollars in royalties over the next decade.
The provision, opposed by the White House and the industry, would require companies that refuse to change their leases to pay a "conservation fee" on each barrel they produce. Otherwise, under the bill, the companies would be barred from acquiring additional leases.
"Big Oil is hitting the taxpayer not once, not twice, but three times," Representative Nick J. Rahall II, Democrat of West Virginia and chairman of the House Natural Resources Committee, said. "They are hitting them at the pump. They are hitting them at the Treasury through the tax code. And they are hitting them with royalty holidays."
Many Republicans complained that the bill would lead to higher gasoline prices by penalizing domestic production and create a "slush fund" for alternative energy projects.
"The San Francisco Democrats want to run the cars on the road with wind," said Representative Steve Pearce, Republican of New Mexico.
Representative Phil English, Republican of Pennsylvania, said the bill would increase energy costs for manufacturers and prompt them to move more jobs abroad.
The bill would also rescind a tax credit for "domestic manufacturing" that oil companies received in 2004 and a much smaller tax break for geological expenses.
The oil vote completed a first wave of measures that House Democratic leaders wanted to pass in their first 100 hours of legislative activity after taking control of Congress.
Senate Democrats are moving more cautiously, but they have signaled that they support most of the bill's provisions and plan to pass them in one form or another.
"I support the principle behind the House bill," said Senator Jeff Bingaman, Democrat of New Mexico, adding that he had asked that the House bill be placed directly on the Senate calendar.
The White House said that it "strongly objects" to much of the measure, arguing that it singled out the oil industry and that the royalty provision undermined the sanctity of binding contracts that the companies had signed.
But President Bush has opposed additional tax breaks and subsidies for oil companies and called for more spending on renewable energy and conservation. The White House stopped short of threatening a veto, and few if any lawmakers expect Mr. Bush to invoke one.
At a hearing of the Senate Energy Committee several hours before the House vote, investigators and Democratic lawmakers criticized the Interior Department's response to the bungled offshore leases.
The Government Accountability Office estimated that the mistake has cost the Treasury $1 billion, and could ultimately cost it $10 billion if the leases remain unchanged.
The leases entitled companies drilling in deep water to avoid royalties on much of their initial production, but in 1998 and 1999 officials during the Clinton administration omitted a standard escape clause that eliminated the incentive if oil prices climbed above $34 a barrel.
Earl E. Devaney, the Interior Department's inspector general, told the committee that midlevel administrators first spotted the mistake in 2000 but that top officials did not disclose the issue until The New York Times reported on it in February 2006.
Mr. Devaney said that senior officials discussed the issue in March 2004 with the director of the Minerals Management Service, Johnnie M. Burton, but they decided they were powerless to change the leases and dropped the matter.
The agency's silence and reluctance to take action, Mr. Devaney said, was "a shockingly cavalier management approach" and a "jaw-dropping example of bureaucratic bungling."
Ms. Burton did not testify Thursday. C. Stephen Allred, the Interior Department's assistant secretary for land and minerals management, defended Ms. Burton as a person with the "highest integrity."
The House vote on Thursday was an opening skirmish in a broader attempt by Democratic leaders to scale back government financial support for oil and gas producers while ramping up support for renewable energy and conservation.
"Today's vote represents the first step toward a future of energy independence," the House speaker, Nancy Pelosi, said.
Oil executives denounced the House vote, though none were surprised that it passed by a wide margin.
"This is purely a political bill playing on the campaign rhetoric of the 2006 election," said Barry Russell, president of the Independent Petroleum Association of America. "At a time when we need more American energy, it simply doesn't make sense to harm those companies that can provide it."
House Democrats offered little clue on Thursday about how they would channel the money from oil producers into alternative and renewable energies. The bill specifies that the money will go to a reserve, which is essentially an accounting device to offset the cost of separate legislation aimed at promoting other sources of energy and efficiency.
Many Republicans complained that Democrats were creating a slush fund with the oil money that would be sealed off from public debate. Democrats responded that the money would be allocated through future legislation that would be debated in Congressional committees and on the House floor.
President Bush is expected to weigh in with proposals in his State of the Union address on Tuesday, and White House officials have said that new energy programs will have a prominent place in the speech.