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Houston Chronicle: New taxes proposed for Big Oil: Revenue from drilling off Gulf Coast would fund renewable energy projects

EXTRACT: The tax package also would repeal the rollback in the corporate tax rate now scheduled for the nation’s five largest integrated oil and gas companies — Exxon Mobil, Chevron Corp., Shell Oil Co., BP and ConocoPhillips — and would increase taxes oil companies pay on their operations overseas.

THE ARTICLE

By DAVID IVANOVICH and MICHELLE MITTELSTADT
Copyright 2007 Houston Chronicle Washington Bureau
June 19, 2007, 11:39PM

WASHINGTON — Senate tax writers Tuesday proposed slamming the oil and gas industry with nearly $29 billion in new taxes to pay for alternative energy and “clean coal” projects.

As the Senate continued its effort to pass an energy bill by week’s end, the Senate Finance Committee voted 15-5 in favor of a plan to impose a new severance tax ranging from 12.5 percent to 14 percent on oil and natural gas produced from the Gulf of Mexico’s federal waters.

While an offshore producer would be able to use its existing federal royalty payments as credit against the new tax, the provision would represent a significant hit for companies now enjoying relief from royalty payments.

Those receiving relief include operators drilling for deep gas deposits in the shallow waters of the Gulf, as well as companies that signed flawed deep-water lease agreements that failed to include provisions triggering royalty payments when oil prices reached certain levels. The U.S. Minerals Management Service, which administers federal oil and gas properties, entered into the defective leases in 1998 and 1999.

The measure’s sponsor, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, D-N.M., argued the provision had been “carefully crafted to raise revenues while doing the least to discourage production.”

“We carefully considered where the tax should apply,” Bingaman said in a statement, adding: “The industry in the Gulf of Mexico is robust (particularly in this price climate), and the lessees and operators there tend to be large — either the major oil companies or large independents.”

The tax package also would repeal the rollback in the corporate tax rate now scheduled for the nation’s five largest integrated oil and gas companies — Exxon Mobil, Chevron Corp., Shell Oil Co., BP and ConocoPhillips — and would increase taxes oil companies pay on their operations overseas.

The Finance Committee tax plan would use the revenues raised from the oil companies to provide incentives for a host of alternative energy sources, from biomass to tidal energy. The package also would provide $3.8 billion to provide tax credits for cleaner coal projects.

“We are turning the corner,” said Senate Finance Committee Chairman Max Baucus, D-Mont. “We are enacting legislation that will help move America away from the past and toward the future. And the future is renewable energy. It’s alternatives. It’s conservation.”

Sen. Kay Bailey Hutchison of Texas, like many of her Republican colleagues, reacted angrily to the tax package, calling it “a disaster” and “amazingly inept.”

“It’s going to raise the price of gasoline,” Hutchison said, with consumers absorbing the billions in new taxes.

Sen. Trent Lott, R-Miss., agreed: “The big talk is about gasoline prices. This will do nothing to lower gasoline prices. In fact, it will increase gasoline prices because it doesn’t do anything to encourage more incentives for refineries in this country and it’s going to cost more to get oil and gas out of the Gulf.”

Mark Kibbe, a tax analyst for the American Petroleum Institute, the Washington-based trade group that represents the major oil companies, argued the higher taxes will make U.S. oil companies less competitive and will discourage investment in U.S. refining, domestic oil and gas exploration and production.

The Senate probably will vote within the next few days on whether to add the tax package to an evolving energy bill.

While the tax writers were willing to provide billions in incentives to encourage investments in less polluting coal plants, the full Senate resoundingly rejected a Democratic proposal to provide $10 billion in loans to encourage construction of new plants that would produce diesel and jet fuel from coal. The Senate also turned down a Republican plan that would have required the nation to use 6 billion gallons of coal-to-liquids fuel between 2016 and 2022.

The Senate also approved an amendment nicknamed NOPEC that would take a jab at the Organization of Petroleum Exporting Countries, branding as illegal the cartel’s efforts to control world oil prices.

The House has passed a similar provision, but the White House has threatened to veto legislation that includes the language.

The Senate rejected a proposal that would have given states greater say over where liquefied natural gas plants can be built.

Today, the Senate is slated for a showdown over new fuel mileage requirements. The bill would require new cars and light trucks sold in the U.S. to attain an average fuel mileage rating of 35 miles per gallon by 2020, up by about 10 miles per gallon from current levels.

But with automakers warning they would be unable to meet such a standard, Sens. Mark Pryor, D-Ark., and Carl Levin, D-Mich., Tuesday unveiled a more modest proposal that would set a fuel mileage requirement for passenger cars of 36 miles per gallon by 2022 and 30 miles per gallon for light trucks by 2025.

Sen. Richard Durbin, D-Ill., a champion of the tougher fuel mileage requirements, said proponents were in danger of losing as many as nine Democrats who would support the Levin-Pryor amendment.

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http://www.chron.com/disp/story.mpl/headline/biz/4904501.html

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