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Senate Advances $29 Billion Taxes For Oil Companies To Pay For Renewable Energy, Conservation

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WASHINGTON (AP) _ 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 discussed 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 is expected later this week to 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 of Iowa, the Finance Committee's top Republican, 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.

Senators meanwhile considered a string of amendments Tuesday to the broader energy bill as Democratic leaders still hoped to finish the legislation this week. But that remains an uncertain prospect as some Republicans showed signs of balking on the tax package and a fight over auto fuel economy also was likely.

Senators added to the bill a provision that would give the Justice Department authority to sue OPEC over oil production quotas. Sen. Herb Kohl, D-Wis., author of the amendment, said it would give notice ``that we too have recourse'' and can respond to price fixing by the OPEC cartel.

Sen. Jeff Bingaman, D-N.M. called it ``a feel good amendment'' that would have little purpose. But it passed, 70-23.

The Senate rejected two proposals aimed at accelerating the development of liquefied coal for use as a substitute for diesel and jet fuel. Environmentalists contend 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 Senate Minority Leader Mitch McConnell, R-Ky.

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 concerns about the impact of fossil fuels on global warming and motorists' anger over soaring gasoline prices.

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.

The American Petroleum Institute, the oil company trade group, said in a statement that the taxes ``will discourage new domestic production, discourage new investments in refinery capacity and would lead to the loss of good-paying U.S. jobs.''

Baucus said he expects the oil companies to complain, but he doesn't believe the taxes ``will substantially change these companies' incentives to produce energy.''

Grassley said the ``narrow change'' in tax policy ``seems likely to have little if any effect on domestic production'' or the price of gasoline at the pump.

The bill would funnel about $11 billion over 10 years into 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 bill 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 Bingaman, was aimed at collecting $10.7 billion in royalties the government has been unable to retrieve because of flawed oil leasing contracts the Interior Department issued 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.
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