H. JOSEF HEBERT Associated Press Writer WASHINGTON
A proposal to hit oil companies with $29 billion in new taxes advanced in the Senate on Tuesday, targeting the money to energy conservation, wind turbines, electric hybrid cars and clean coal technology. The massive tax package, double what Democrats had talked about as recently as last week, is "designed to promote clean and sustainable energy," said Sen. Max Baucus, D-Mont., chairman of the Finance Committee that approved the measure by a 15-5 vote. It will be added to energy legislation being considered by the full Senate. Senators acknowledged that oil companies would howl over the new taxes. But Sen. Chuck Grassley, R-Iowa, said, "We have entered a new era in energy markets ... (that) requires a dramatic shift away from tax incentives for oil and gas production" and toward support for other energy sources and efficiency. On the Senate floor, meanwhile, senators rejected two proposals Tuesday aimed at accelerating the development of liquefied coal for use as a substitute for diesel and jet fuel. Environmentalists argue liquefied coal produces more than twice the greenhouse gases of conventional diesel. Supporters argued that coal is America's most abundant energy resource. "It would be downright foolish not to take advantage of this resource," said Sen. Mitch McDonnell, the Republican leader from Kentucky. A proposal by Sen. Jim Bunning, R-Ky., that would have required the use of 6 billion gallons of liquefied coal a year by 2022, was rejected 55-39. A second measure that would have authorized $10 billion in federal loans to help build coal liquefaction plants, offered by Sen. Jon Tester, D-Mont., was turned back 61-33. The tax package that emerged from the Finance Committee reflected the dramatic tilt of congressional sentiment toward renewable fuels, and away from support of oil companies, since Democrats took over control of Congress. In part, the shift stems from growing concerns about the impact of fossil fuels on global warming and motorists' anger over soaring gasoline prices. The bill would funnel about $11 billion over 10 years into the development of renewable fuels such as ethanol, biodiesel and power from wind turbines in a combination of extensions of existing tax breaks and new tax benefits. An additional $18 billion in tax breaks, from tax credits to clean and renewable energy bonds, also were approved. To pay for the reductions in revenue, the legislation targeted the large oil companies, either ending a number of tax benefits, some provided as recently as three years ago, and imposing new taxes. The measure would extend and increase taxes paid under an oil spill liability law and eliminate existing tax credits involving foreign oil production. In all, the tax changes were expected to cost the industry more than $15 billion over a decade. Another measure, pushed by Sen. Jeff Bingaman, D-N.M., was aimed at collecting $10.7 billion in royalties the government has been unable to collect because of flawed oil leasing contracts issued by the Interior Department in 1998-99. The government would collect an excise tax on any oil taken from the Gulf of Mexico, subject to royalties not being paid. Bunning called the excise tax a "strong arm tactic," the sort of thing Venezuela President Hugo Chavez might try. But his attempt to strip away the offshore drilling tax was rejected. Sen. Jon Kyl, R-Ariz., said the taxes on the large oil companies, most of the provisions exempt smaller producers, "will almost certainly lead to gas price increases" as oil companies pass on the added cost. "You can't raise taxes ... by $29 billion and not expect gas prices to increase," he said. Baucus and Grassley said they do not expect higher prices as a result of the tax increases. Meanwhile, the auto industry pressed its lobbying efforts against higher fuel economy provisions included in the energy legislation. Car dealers and senior executives of General Motors Corp., Ford Motor Co. And DaimlerChrysler AG's Chrysler Group canvassed Senate offices to lobby senators. The industry officials urged senators to vote for a measure expected to be offered, perhaps today, that would allow for less stringent fuel economy increases. It would boost requirements to 35 miles per gallon for cars and 30 mpg for SUVs and small trucks, both by 2025. The bill being considered would require an increase for new cars, SUVs and trucks to 35 mpg by 2020 and a 4 percent annual increase after that. The automakers argue they can't meet such an increase, especially for the SUVs and pickup trucks.