Senators reached agreement on a proposal to increase automobile fuel economy standards to 35 miles per gallon, the first significant boost demanded of automakers in nearly 20 years.
The agreement would scale back a proposal already in the Senate's energy bill but it still was considered strong enough to have wide support from environmentalists.
The compromise aimed to head off attempts by senators sympathetic to the auto industry from pressing a less stringent proposal. Supporters said they had the 60 votes needed to prevent opponents from blocking it.
Earlier Thursday, Senate Democrats fell three votes short of the 60 they needed to advance a tax package that would have levied $29 billion in new taxes on the oil industry to pay for development of renewable fuels and clean energy programs.
Automakers are now required to meet an average of 27.5 mpg for cars and 22.2 mpg for SUVs and small trucks. The car standard has not changed since 1989, though the Bush administration slightly increased the truck requirements.
Senate Majority Leader Harry Reid, D-Nev., said it was important that some version of the mileage increase be included in the broader energy bill, even if the requirements on automakers were eased a bit under the compromise.
"I can live with either one of them," Reid told reporters, referring to the provision already in the bill and the compromise.
It wasn't immediately clear when Reid would bring the issue up for floor debate.
The revised proposal was crafted in private discussions over several days by a few Republican and Democratic senators. Among them were Republican Ted Stevens of Alaska and Democrats Dianne Feinstein of California, Maria Cantwell of Washington and Byron Dorgan of North Dakota.
Key to the discussions was a view among senators that a proposed requirement that automakers increase mileage by an additional 4% per year after 2020 was unacceptable to the auto industry and could not get enough support in the Senate. The compromise eliminated that 4% mandate.
Another group of senators, including Michigan Democrats Carl Levin and Debbie Stabenow, have pressed for a less stringent proposal supported by automakers that would allow SUVs and small trucks to achieve 30 mpg and postpone the mandate to 2025.
It was not immediately clear whether the Levin group would now abandon that effort.
On taxes, Democrats came three votes shy, 57-36, of the 60 votes needed to overcome a threatened GOP filibuster and add the massive tax package to the energy bill. It called for $32 billion in tax breaks for renewable and clean energy programs and energy conservation, all but about $3 billion paid for by oil taxes.
Republican senators contended that the nearly $29 billion in additional taxes over 10 years on major oil companies would have led to reduced production and higher gasoline prices, an argument Democrats rejected, noting the largest oil companies earned $111 billion last year.
Reid said the industry stood to make $1 trillion in profits over the 10 years when the $29 billion in new oil taxes would have been collected. He expressed doubt the measure could be revived and put onto the Senate bill, but left open getting it added later, probably when Senate and House versions will be consolidated.
"It's not over," said Reid, suggesting the measure might be revived in negotiations with the House on final tax legislation.
A $16 billion tax package -- largely mirroring the priorities in the Senate legislation but smaller -- advanced from the House Ways and Means Committee on Wednesday, to be added to a House energy bill later this summer.
The tax measure marked a sharp turn from longtime congressional support of the oil industry to promoting alternative energy development and moving toward energy sources that would help deal with the growing concerns over global warming.
But Republicans said it tilted too far in favor of renewables and conservation at the expense of the oil companies.
"When you put a tax on a business it gets passed on to consumers," argued Sen. Jon Kyl, R-Ariz. "Instead of reducing gasoline prices, this bill is going to add to the cost of gasoline."
Sen. Max Baucus, D-Mont., whose Finance Committee crafted the tax package, said the incentives for renewable and alternative fuels would 'help wean ourselves away from OPEC ... from these very high gas prices.'
The tax changes would have channeled $11 billion over 10 years into development of renewable fuels such as ethanol, biodiesel and power from wind turbines. It provides an additional $18 billion in other tax breaks -- from tax credits to clean and renewable energy bonds -- to support improvements in energy efficiency, clean coal technology, development of gas-electric hybrid cars that could be plugged into the national power grid and other alternative energy programs.
It would have rescinded a tax break given to oil companies in 2004 that was aimed primarily at helping domestic manufacturing; increased taxes paid under an oil spill liability law; eliminated existing tax credits involving foreign oil production and imposed a new excise tax on oil produced from the Gulf of Mexico to recoup $10.7 billion in royalties the government has been unable to retrieve because of flawed oil leasing contracts issued in 1998-99.