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Democrats Call for Shifting Subsidies to Green Energy

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Published: Tuesday, 1 Apr 2008 | 5:31 PM ET
By: Kenneth Stier|Features Writer

Investors in renewable energy have long suffered from Washington’s seesawing policy support.

That’s in contrast to the warm – and generous - embrace big energy firms have always found in Congress.

Now Democrats think they have a revenue-neutral solution: shift some $18 billion in subsidies now helping the bottom line of the oil and gas industry to fledging green industries – wind, solar and alternative fuels.

Wind turbines are seen in Dronten, the Netherlands, July 27, 2006. The Dutch have used windmills for centuries to pump water out of their low-lying country, and old-fashioned wooden mills are closely linked with their international image. But in the face of a large and growing lobby against the windmill's modern electricity-generating counterpart, the wind turbine, the country has now started moving them offshore and out of sight. (AP Photo/ Peter Dejong)

That’s the thrust of the proposed Renewable Energy and Energy Conservation Tax Act of 2008, which was the subject of a Congressional hearing Tuesday where top oil executives – from BP, Chevron, ConocoPhillips , ExxonMobil and Shell – were called to explain how these subsidies are justified at a time of record company profits.

“On April Fool’s Day, the biggest joke of all is being played on American families by Big Oil who are using every trick in the book to keep billions in federal tax subsidies, even as they rake in record profits,” complained Chairman Edward J. Markey (D-Mass.) and the Select Committee on Energy Independence and Global Warming.

At the hearing, which came as the national average for a gallon of gas hit a new all-time record and a nationwide truckers protest, Markey appealed to the companies to invest “at least 10 percent of their profits” in renewable energy and biofuels to help consumers.

Markey said poor Americans - those making under $20,000 a year – are spending roughly 10 percent of their income on fuel to drive an average of 12,000 miles a year.

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The five major oil represented at Tuesday’s hearing collectively earned $123 billion last year but only spend roughly one percent of net profits on developing alternatives, he added.

There are currently modest tax credits available for renewables – generally $0.02 per kilowatt hour produced – which brings solar and wind closer to being cost competitive with natural gas - but these are set to expire at the end of the year.

John Hofmeister, president of Shell Oil , said his firm was making significant investments in renewables – including involvement in 1,100 megawatts of wind energy. But he did not say what portion this was of the company’s $29 billion capital expenditure program this year.

“This new gas price record is a perfect example of why we need these oil companies to go on the record with the American people to discuss our dangerous dependence on oil,” said Markey.

There is an irony here. The principal pool of money Markey is targeting – $13 billion in tax credits for the petroleum industry as part of the America’s Job Creation Act of 2004 – was aimed at boosting domestic production by reducing the tax burden from 35 to 32 percent.

The bill was aimed at boosting domestic production for all manufacturers. The portion set aside for the oil and gas industry came to be derided as the controversial “Drill American First” policy.

Domestic exploration activity has spiked recently but Mark Kibbe of the American Petroleum Institute said it was too early to know just how new production will result and even more difficult to determine how tax policy influenced these investment decisions.

In fact, domestic field production decline slightly – from 7,228,000 barrels per day in 2004 to 6,879,000 bpd in 2007 but Kibbe said since these are long-term investments – 10-30 years in most cases – no firm judgments should be made.

Instead he pointed to a substantial increase in the number of wells drilled domestically, which shot up from 40,271 in 2004 to 52,731 in 2007.

“The record number of well completions is a good indicator of what we may see down the road as a result of this expanded investment currently,” he said.

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Democrats think they have a revenue-neutral solution: shift some $18 billion in subsidies now helping the bottom line of the oil and gas industry to fledging green industries – wind, solar and alternative fuels.
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