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Conference Report on FY 2010 Budget Resolution Passes

The House Wednesday passed a conference report on the $3.5 trillion budget resolution for fiscal year (FY) 2010 that preserves President Obama's priorities for green and clean energy. But it makes no assumptions that existing tax incentives for oil and natural gas producers should be repealed to pay for the green initiatives. Still, producers are by no means out of the woods.

The House-Senate conference report cleared the House by 233-193, with 17 Democrats joining 176 Republicans in opposing it. The Senate was expected to approve the report late Wednesday.

The report establishes a deficit-neutral reserve fund to provide tax incentives for the production of renewable energy or to increase energy efficiency; investments in emerging energy or vehicle technologies or carbon capture and sequestration; reduction of greenhouse gas (GHG) emissions; assistance to business, industries, states, workers and households as the U.S. moves toward reducing and offsetting the impacts of GHG emissions; and the training of workers for green-collar jobs.

These energy measures can neither increase the government's deficit nor decrease its surplus, meaning that Congress may have to dip into other areas -- such as rolling back existing tax credits for oil and natural gas producers -- to pay for some of the green initiatives. Obama's proposed budget called for repeal of $32.6 billion in tax credits for oil and gas producers (see Daily GPI, Feb. 27).

The conference report allocates $5 billion for lawmakers to spend on energy measures in FY 2010 and nearly $26 billion over the next five years (2010-2014). It also provides $6.2 billion in 2010 for discretionary energy programs, which have to be renewed annually. This is $500 million more than what President Obama sought in his budget blueprint.

With respect to natural resources and the environment, the conference report allocates $37.6 billion for lawmakers to spend in FY 2010 and a total of $192 billion over the next five years.

For producers, the good news is that the conference report doesn't make any assumptions increasing oil and gas taxes and it contains no reconciliation instructions on how to finance the president's renewable energy priorities. It leaves those decisions to the Senate and House tax-writing committees.

"I think the response has been pretty positive so far," but that doesn't mean producers have completely dodged the bullet, said Lee Fuller, vice president of government relations for the Independent Petroleum Association of America, which represents independent producers.

"We're in for a lengthy debate" on the producer-related tax provisions, he said. "I can't predict the outcome that's certain either way."

Fuller expects the issue of producer tax credits to surface in either Sen. Jeff Bingaman's (D-NM) broad energy bill or in climate change legislation, which Reps. Henry Waxman (D-CA) and Edward Markey (D-MA) have proposed, or both.

"I think that [repeal of producer tax credits] is still coming," said Don Briggs, president of the Louisiana Oil & Gas Association. He estimates that there's "less than a 50% chance of stopping it."

And, he said, "I haven't heard any dialogue from the administration that they're going to back off" from the proposal. There isn't "anything that leads me to believe I don't need to be concerned."

On the issue of climate change Kent Conrad (D-ND), chairman of the Senate Budget Committee, made it clear Wednesday that "climate change is not going to be done through the [budget] reconciliation period." The reconciliation process would limit debate and amendments and would require only a simple majority for passage, thus preventing Republicans from trying to filibuster the bill.

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