Washington (Platts)--19Jun2007

The US Senate Finance Committee Tuesday approved a tax package seeking
about $29 billion in incentives for renewable and alternative energy, while
increasing to $28.5 billion the levy faced by oil and natural gas companies to
pay for the tax breaks. 

     Approved by a 14-to-9 vote, the tax package is nearly double the size of
a first draft released June 15. The incentives and taxes would be for a
10-year period. The first draft of the bill called for $14.6 billion in taxes
to be paid by the oil and gas companies.

     The tax package is to be added to energy legislation currently being
debated on the Senate floor.

     The new proposal, introduced by Senate Finance Committee Chairman Max
Baucus, Democrat-Montana, includes a new 13% excise tax on "the removal price
of any taxable crude oil or natural gas produced from federal submerged lands
on the Outer Continental Shelf of the Gulf of Mexico." The new excise tax
would bring in revenues of $10.6 billion over the 10-year period, according to
the Joint Committee on Taxation. The measure would impose an excise tax on all
producers, but those who pay royalties would get a tax credit that would
eliminate the excise taxes' costs.

     The provision is apparently designed to penalize companies that refuse to
insert customary price threshold clauses in certain deepwater OCS Gulf of
Mexico lease contracts signed with the government in 1998-1999. The US
Minerals Management Service omitted the clause, an oversight that could cost
US taxpayers more than $10 billion. 

     A spokeswoman for the American Petroleum Institute was critical of the
tax provision. "This approach is flawed not only because it violates the
sanctity of contracts but also because it hits all lease holders in different
ways, API spokeswoman Karen Matusic said in emailed remarks. "Increasing
development costs discourages domestic production, loss of well-paying US jobs
and increases our reliance on imports," she said.

     The Senate Finance Committee also proposed a tax on finished gasoline
"upon removal from the refinery or entry into the United States and eliminates
the bulk transfer exception."

     This provision would raise $824 million over 10 years, according to a
Joint Committee on Taxation analysis of the proposal.

     The bill also takes away the manufacturing tax credit to five oil majors,
generating revenues of $9.4 billion over 10 years, the JCT estimated. It also
changes the way oil companies can get tax credits on taxable energy, a
provision that would raise $3.2 billion over 10 years.

     Other new energy taxes on the oil companies included are:

     -- Excise taxes would need to be paid upon removal of fuel from a foreign
trade zone. If the fuel is later exported, a credit or refund must be claimed.

     -- Limits fuel credits to fuels consumed or sold for consumption in the
US. The proposal requires that the per-gallon tax incentives for alcohol
fuels, biodiesel, renewable diesel and alternative fuels be consumed or sold
for consumption in the US. The proposal would raise $62 million over 10 years,
according to JCT.

     -- Alcohol fuel mixtures and biodiesel fuel mixtures would be defined as
a taxable type of diesel fuel, generating $15 million in revenues over 10
years.

     -- Excludes the volume of denaturant in the fuel for purposes of
calculating the volume of alcohol eligible for the alcohol fuel credits,
raising an estimated $285 million over 10 years.

     -- The criminal penalty for sale of fuel failing to meet US Environmental
Protection Agency regulations would be increased, which could raise an
estimated $500,000 over 10 years.

     The energy tax package also extends the US tariff of 54 cents/gal on
non-Caribbean Basin imported ethanol for two additional years to 2010 and it
would reduce the 51 cents/gal tax credit for ethanol by 5 cents/gal beginning
the first calendar year after the year in which 7.5 billion gallons of ethanol
has been produced.

		--Cathy Landry, cathy_landry@platts.com