THE VINE AUGUST 11, 2008
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It looks like the "Gang of Ten" energy compromise that Josh mentioned last week—which would lift the moratorium on offshore drilling in four states in exchange for an array of clean-energy incentives (paid for by repealing a handful of tax breaks for oil companies)—is advancing fairly rapidly in the Senate. Um, in other words, yes, the Paris Hilton energy plan...
Obama's cautiously praised the idea, McCain's holding back, and Rush Limbaugh's screaming at Republicans not to support it. Harry Reid's staff, meanwhile, is working with the bill's drafters, presumably to make sure Dems don't get rolled like they do on most "compromise" bills. (For now, the Senate bill doesn't open up Western lands for oil-shale drilling, though a companion bill in the House does—that would be a major sticking point, since shale drilling is vastly more destructive, and turning oil shale into energy produces far more in the way of greenhouse-gas emissions than conventional oil does.)
Anyway, in principle, I agree with Josh's analysis below of why a compromise along these lines could work, though we'll really have to see how the bill turns out here. The final legislation will need 60 votes—and probably 67 to override a White House veto, since Bush won't support repealing tax breaks for oil companies (even if many of those deductions are largely unnecessary with oil prices this high). So the whole thing could very easily turn into an expensive, pork-filled (or ethanol-filled) mess that's actually worse than nothing.
--Bradford Plumer
4 comments
Mr. Plumer, what exactly are the tax breaks oil companies would lose with this compromise bill?
- r-ennis
August 11, 2008 at 2:25pm
R-ennis, I'll raise you one--not only what ARE those oil company tax breaks, but why were they given in the first place? Before congress decides to remove incentives, it ought to consider the reason they exist--and whether there remains any validity to that reason. Just taking a shot in the dark here, but I would have thought they were put in place as an incentive for drilling, refining and building the infrastructure necessary for delivery. Of course, now that we Americans have enough oil, who needs tax breaks?
And speaking of "obscene profits"--I LIKE the idea of having our government decide whose profits are obscene and whose should be over-looked. As we all know, profit is a bad, bad thing, and the idea is to punish any company --and most assuredly, their shareholders--that dares to succeed more than any other company. Why, it's the American way!
- elliesch
August 11, 2008 at 2:45pm
r-ennis-- The bill's not out yet, but I imagine Congress would start by repealing the manufacturing deduction that was expanded to cover oil companies in the big 2004 tax bill. Getting rid of that deduction for just the five biggest oil companies would raise about $13 billion over the next decade, and the Joint Economic Committee found that scrapping it would have no impact on gas prices:
http://jec.senate.gov/index.cfm?FuseAction=Reports.Reports&ContentRecord_id=c6302fb8-7e9c-9af9-7c4d-405fa2b9ef33&Region_id=&Issue_id=
So that one's a no-brainer, I'd say. From what I can tell, the compromise bill would also close up some of the loopholes around royalty payments for companies drilling in the Gulf of Mexico. After that, though, I have no idea. I really doubt they'll go after the depletion allowance or the credit for enhanced oil recovery...
- Brad Plumer
August 11, 2008 at 2:48pm
$1.3 billion per year works out to about 1 cent per gallon on gasoline.The tax credit for ethanol is about 67 cents per gallon and $1.00 per gallon for biodiesel. The tax credit for ethanol from cellulose is higher but this technology is not yet commercial. For the record, at today's prices, ethanol needs no tax credit either. It is commercially viable without it. The tax credit amounts to a windfall, at taxpayer expense, for producers and blenders.
- r-ennis
August 11, 2008 at 3:34pm