Washington (Platts)--6Aug2007

The US House narrowly passed a controversial energy tax bill Saturday
that would strip more than $15 billion in production incentives from large oil
and natural gas companies over the next 10 years.

     The House, working a rare weekend session ahead of a month-long recess,
approved the Democrat-authored bill (H.R. 2776) by a vote of 221-189. Most
House Democrats supported the measure, while all but a few Republicans opposed
it. 

     The bill would re-direct the billions of dollars in oil-industry tax
breaks towards programs to boost renewable forms of energy, including solar
power, fuel cells, cellulosic ethanol and plug-in hybrid electric vehicles,
among others. 

     House Democrats said the bill, which is part of the party's "energy
independence" initiative, would help wean the US from its dependence on oil
and steer the country towards a cleaner, more sustainable energy future. 
     "We live in a nation addicted to oil, and we simply can't afford it
anymore," said Representative Jim McDermott, Democrat-Washington. 

     McDermott said America's reliance on oil is a main driver of global
climate change. Oil dependency is also one of the central reasons that the US
invaded and continues to occupy Iraq, McDermott said. 

     "No one here in this House still believes that oil wasn't a major reason
we went into Iraq," declared McDermott, who added that the US must break the
oil addition "that is destroying us."

     Republicans vigorously opposed the bill, saying it would raise gasoline
prices and bring about supply shortages and the sort of long gasoline lines
that the US experienced in the 1970s. Representative Paul Ryan,
Republican-Wisconsin, called the bill a "fiscal Frankenstein" that would raise
prices at the pump for consumers. And Pennsylvania Republican Phil English
blasted a provision of the bill that would re-direct some $6 billion in
oil-industry incentives to states to perform "green energy projects."
 
     English dubbed that provision a "$6 billion slush fund" that states would
"dole out like Halloween candy" with no oversight. "But it won't be a treat
for the American people," he said. 

     Democrats countered by accusing Republicans of coddling the oil industry.
McDermott said the oil majors have raked in "obscene" profits in recent years
and that depriving them of some tax breaks "won't be the end of the western
world as we know it." 

     "Anybody who thinks we're destroying the oil industry simply isn't
looking at the facts," McDermott said. 

     The bill would raise about $11.4 billion by making oil and gas
companies ineligible for a tax break under section 199 of the US tax code,
which allows manufacturers to deduct a portion of income garnered from
domestic production activities. The provision would apply only to "major
integrated oil companies" that own refineries and produce at least 500,000
barrels of crude oil a day, such as ExxonMobil. Another $3.6 billion would be
raised by altering how oil companies are taxed for foreign-source income. 

     The tax package is the second of two major energy bills that the House
passed Saturday. Earlier in the day, the chamber passed a measure (H.R. 3221)
that would require more stringent energy efficiency standards for buildings,
appliances and a host of other things. One of the most controversial
provisions of that bill would require investor-owned electric utilities to
generate 15% of their power from renewable sources by 2020. 

--Brian Hansen, brian_hansen@platts.com