The sweeping energy legislation that the House is expected to take up Wednesday will not fare well with the oil and natural gas industry. Democrats have incorporated a proposal to strip producers of billions of dollars in tax benefits.

The House measure would repeal about $21 billion in tax breaks for oil and gas producers that Congress approved in the Energy Policy Act of 2005 (EPAct). This is $5 billion more than what the House sought to repeal in the energy bill that it passed earlier this year (see Daily GPI, Aug. 7). The tax breaks taken from producers would be used to offset the lost revenues from a gasoline tax caused by a higher fuel economy standard and to fund incentives for renewable fuels, such as wind, solar and geothermal power.

Allan Hubbard, assistant to President Bush for economic policy, warned Monday that the White House would veto any legislation that included an “overly prescriptive” renewable electricity standard and proposed raising taxes on oil and gas companies. But Rep. Edward Markey (D-MA) told reporters Tuesday that he didn’t think a veto would occur.

“We think that we can put together a package in its totality that the president will sign,” he said. “I think that there’s [going to] be a massive public acceptance” of this legislation.

Even with the repealed tax breaks, the oil and gas industry still will have a number of subsidies in place, said Rep. Mark Udall (D-CO), who joined Markey at the press briefing. “This is not a zero sum game. We need our fossil fuel assets to be developed and distributed. Nobody is suggesting that we’re not going to need petroleum, coal or natural gas. This is broadening the suite of energy options we have.”

A summary of the bill, which was provided by House Speaker Nancy Pelosi’s (D-CA) office, did not include a provision on the recovery of royalties from flawed deepwater leases that were issued by the Interior Department in 1998-1999. Markey confirmed that language on royalty recovery with respect to the 1998-1999 leases, which he championed, would not be part of the bill.

The measure, which is said to be a compromise on the two starkly different energy bills passed by the House and Senate this summer, includes two other contentious provisions — a mandate on the production of electricity from renewable sources by 2020 and a big increase in renewable fuels to power cars.

The electricity mandate would require utilities to generate 15% of their power from renewable fuels by 2020. It would permit utilities to meet up to 4% of their target through energy efficiency measures. “A 15% renewable electricity standard will reduce global warming emissions and lower energy prices and fossil fuel and natural gas consumption,” Pelosi’s office said.

Southern Co. is “fighting this very hard,” but “[we] will do our best to win,” Markey said. Critics of the renewable elctricity mandate argue that it would significantly raise power prices, but Markey pointed to an Energy Information Administration report issued Tuesday that concluded a mandate would only “slightly increase” electricity prices by 2030.

The renewable electricity standard also could face opposition in the Senate, which voted down a similar provision in its energy bill this year. “The Republicans [in the Senate] have made it clear they will oppose the bill if it includes [a renewable electric mandate] or biofuel provisions they do not support,” said energy analyst Christine Tezak of Stanford Group Co.

But Rep. Tom Udall (D-NM), who also participated in the briefing, said he was “optimistic” that the Senate would approve the renewable mandate once it sees the “package as a whole.”

The House bill would establish a renewable fuels standard requiring the use of biofuels — such as sweet sorghum from Texas, rice straw from California or corn stover from Minnesota — to fuel cars and trucks. The measure would ensure that biodiesel and cellulosic sources, such as switchgrass, are part of that mix.

In addition, the legislative package includes a deal to increase the fuel economy standard to 35 miles per gallon by 2020 for new cars and trucks. This would be the first increase in the fuel economy standard by Congress since 1975. House leaders estimate that the increase would save American families $700 to $1,000 a year at the pump, with net consumer savings reaching $22 billion in 2020.

Many of the troubling provisions for oil and gas, which was passed by the House Natural Resources Committee in June, are not in the final bill (see Daily GPI, June 14). Those provisions called for increased audits of royalty payments by 2009, penalties for companies that fail to pay all of their royalties, repeal of the “categorical exclusion” under the National Environmental Policy Act, an extension of time for the Commerce Department to rule on industry appeals related to the Coastal Zone Management Act, limiting the royalty-in-kind program to filling the Strategic Petroleum Reserve, the establishment of fees for the Interior Department to recover the costs of processing oil and gas permits, and the repeal of EPAct provisions with respect to energy right-of-way corridors across federal lands.

The House and Senate did not hold a formal conference this year due to the striking dissimilarities in their energy bills. Instead, Democratic staffs from both houses have been meeting informally since September to meld the two measures.

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