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The Wall Street Journal: Energy Bill Faces Battle

Auto Makers Fight
Proposed Targets;
Coal Seeks Tax Cut
June 18, 2007; Page A8

WASHINGTON — Senate Democratic leaders face two floor fights this week over their energy bill, one led by auto makers that want to weaken proposed fuel efficiency standards and another pushed by the coal industry for tax incentives to make diesel fuel from coal.

Tomorrow, the Senate Finance Committee will decide another touchy issue: the cost of the tax provisions in the bill, which is intended to curb gasoline consumption and push cleaner fuels.

Committee leaders estimate the proposed package, which would extend existing tax breaks for producers of cleaner energy sources from wind-generated electricity to ethanol to diesel fuel made from chicken fat, will cost $13.7 billion over 10 years. That figure will likely rise as the bill works its way through Congress.
Committee Chairman Max Baucus (D., Mont.) said in a statement that the package won’t result in new taxes because its costs will be offset by ending tax deductions and foreign tax credits enjoyed by major oil companies.

The measure includes $1.5 billion of tax credits for coal-burning utilities that inject at least 70% of their carbon-dioxide emissions deep into the ground, and a $2,500 tax credit for buyers of plug-in hybrid vehicles. The electric cars that can be recharged at home aren’t yet in production.

A consortium of nine major American, Japanese and German auto makers will attempt to weaken proposed fuel-efficiency standards that could require the average car to get 45.9 miles per gallon and the average light truck to reach 39.2 mpg by 2025. The auto makers say they could make cars that get an average of 36 mpg and light trucks that reach 30 mpg, but argue that tighter standards will be too difficult and costly.

Senate Majority Leader Harry Reid of Nevada and other Democratic leaders have criticized American auto makers, saying they already produce more-efficient cars for European and Asian markets. But the Alliance of Automobile Manufacturers, which represents General Motors Corp. and Ford Motor Co. as well as Toyota Motor Co. and Volkswagen AG, asserts that the Democratic bill poses “the greatest technological challenge” the industry “has ever faced.”

Former Missouri Sen. Jim Talent, now a spokesman for the auto makers, called the Democratic proposal “wildly extreme” and argued it would endanger 13.3 million American jobs. Americans’ preferences, he said, are different: half of the vehicles sold in the U.S. are sport-utility vehicles and other versions of light trucks while Europeans prefer much smaller vehicles, many of which are diesel-powered with manual transmissions.

Michigan Democrat Sen. Carl Levin has proposed standards that would weaken the change proposed by the Senate Democratic leadership.

Another big and expensive proposed amendment will come from the Coal to Liquids Coalition, a consortium of coal producers, unions, airlines and railroads interested in a process that makes diesel and jet fuel from coal. Coalition spokesman Corey Henry said it wants a total of $200 million in investment tax credits that would help start up as many as 12 coal-to-liquid refineries.

The process has so far been commercialized only in South Africa. “Our product would be an ultra-clean diesel, and the U.S. Air Force and airlines would be major customers,” Mr. Henry said. Environmental groups argue the measure would encourage more carbon dioxide emissions.

Mark Kibbe, a senior tax analyst for the American Petroleum Institute, which represents the oil industry, estimates that five major U.S. oil companies would bear much of the cost of the Finance Committee’s proposal. He said it would remove the major companies’ tax deductions for creating jobs in the U.S. and reduce tax exemptions for some income earned from foreign oil and gas production.

Mr. Kibbe said the changes would make U.S. oil companies “that much less competitive in the search for foreign oil and gas reserves.”

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