Cap and Trade Rules
Lawmakers Take on Obama Tax Hike on Energy Producers

By Jennifer A. Dlouhy
Houston Chronicle
February 27, 2009

Energy-state lawmakers vowed Friday to block President Barack Obama’s
proposed $31.5  billion tax increase on oil and gas producers.
Obama’s $3.6 trillion budget blueprint released Thursday targeted U.S.
energy producers by imposing new taxes and fees, abolishing existing tax
breaks and changing accounting rules.

Sen. Lisa Murkowski, R-Alaska, called the proposals “punitive provisions”
that would raise revenues for the government but hurt the country’s energy security.

Rep. Gene Green, D-Houston, said Obama’s plans threaten the commercial
viability of new domestic production and would price developers out of the
market and force companies overseas.

“It would be devastating for the cost of energy and for the producing
states,” Green added.

Producers of traditional fossil fuels could face a hit of up to $100
billion if Congress heeds the president’s request to abolish what he
called of “oil and gas company preferences” in the tax code and adopts his
cap-and-trade emissions program.

The energy industry would shoulder most of the cost of a cap-and-trade
plan that would raise an estimated $79 billion in 2012 with new limits on
pollutants blamed for climate change.

Some of the money raised by higher taxes on traditional energy producers
would be used to underwrite development and deployment of clean energy
technologies, including solar, biomass, geothermal and wind.

The president’s budget would:

• Bar deductions for intangible drilling costs such as repairs, site
preparation and hauling supplies. Producers say the deductions are
essential to ensuring the viability of domestic drilling operations.

• Block oil and natural gas companies from claiming deductions for
domestic manufacturing income. That change would save the federal
government an estimated $757 million in fiscal 2011.

• Impose a new excise tax on Gulf of Mexico drilling leases, aimed at
leases issued in the late 1990s that contain what the administration calls
“excessive royalty relief” even when oil prices skyrocket. The new tax
would send a projected $582 million to federal coffers in 2011.

• Establish a “use-it-or-lose-it” fee on nonproducing leases in the Gulf
of Mexico designed to encourage companies to speed up development. Oil
company executives on Wednesday told a congressional panel they already
have financial incentives for quickly beginning production — if viable —
on leases they hold.

• Establish new fees for processing oil and gas drilling permits on
federal lands.

• End an oil and gas research and development program aimed at offsetting
some steep costs of producing in ultradeep-water fields.

• Reinstate taxes on oil and chemical producers to fill the Superfund
Trust Fund, which pays for cleaning hazardous industrial sites.

Lessening competition

The net effect of the proposals, said Mark Kibbe, director of federal
relations for the American Petroleum Institute, is to “make U.S. projects
less competitive with foreign projects.”

But House Natural Resources Committee Chairman Nick Rahall, D-W.Va., said
the proposals would ensure “that taxpayers receive a fair return for the
extraction of oil and gas resources.” The Obama plan would encourage
“wealthy oil companies to diligently develop the leases they already
possess on the Outer Continental Shelf,” he said.

The industry also would carry much of the costs of a proposed
cap-and-trade program governing emissions. Some of the revenues from the
program would be earmarked for renewable energy research.

Different approaches

Some industry leaders, including ConocoPhillips, BP America, and Shell Oil
Co., have backed a broad cap-and-trade plan; others, such as Exxon Mobil
Corp., have favored a more direct tax on carbon emissions.

Obama’s cap-and-trade proposal will be resisted by Republicans on Capitol
Hill who say its costs would be passed on to consumers in the form of
higher costs for energy and consumer products.

Rep. Kevin Brady, R-The Woodlands, said a cap-and-trade program carries
too much risk, especially during a recession.

The initiative, he said, is “open to political manipulation and hidden
taxes and real job harm.”


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