Oil and natural gas producers have dodged — at least temporarily — a bullet in the deficit-reduction package that President Obama and congressional leaders agreed to in time to avert a default on the government’s debt obligations.

The package will cut the deficit by $2.4 trillion over 10 years and increase the debt ceiling by at least $2.1 trillion. It does not call for any tax increases — something that Obama wanted, especially for producers — but it creates a special congressional committee to consider an additional $1.5 trillion in deficit reduction, and one of its targets could be tax reform. Broad-based tax reform could mean the repeal of certain producer breaks.

The special congressional committee will be required to report legislation identifying further deficit cuts and possible tax reform by Nov. 23 (the day before Thanksgiving), with Congress to vote on it by Dec. 23 (two days prior to Christmas), according to the schedule laid out by White House.

“Although industry tax increases were not included in the deficit-reduction plan, this administration continues to target America’s oil and natural gas producers with tax hikes. We anticipate these tax provisions will be raised again during future budget and deficit debates,” said the Independent Petroleum Association of America, which represents independent oil and gas producers.

“I think in the context of tax reform the oil [and gas] incentives are certainly on the table…but there are consequences to making changes to those incentives,” said Lisa Epifani, a partner with the law firm of Van Ness Feldman and former assistant secretary of the Department of Energy (DOE) under the Bush administration.

Take away the tax incentives and there could be a reduction in domestic production, and potentially higher production costs could be passed along to customers, she said. “So you better know what the consequences of those changes [are],” Epifani said on the Platts Energy Week program on July 31.

“People are willing to discuss ideas,” such as a “sliding tax incentive based on the price of oil,” she said. “I think there’s some creative things we can do to solve how much money we’re putting…towards tax incentives so it’s not perceived [as an] unfair system.”

Elgie Holstein, senior director for strategic planning at the Environmental Defense Fund, said he believes that a “reduction of tax incentives for energy would more likely hurt the renewable industry than it would hurt oil and gas.”

Both Holstein, who was chief of staff at DOE under the Clinton administration, and Epifani signaled that the budget cuts to federal energy programs in Congress are far from over. “I think it is just the beginning,” Holstein said, citing as an example the Interior-Environmental Protection Agency spending bill for fiscal 2012, which took a big bite out of the agency’s budget (see NGI, July 18).

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