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Auto Fuel Economy Agreement Closer in Senate As Part of Energy Bill

Republicans blocked a proposal Thursday to tax the oil industry an additional $29 billion, while the Senate moved closer to an agreement on raising automobile fuel economy for the first time in nearly 20 years.

The tax package was aimed at channeling billions of dollars to subsidize windmills, hybrid cars and other alternative energy resources. But many Republicans said it was too harsh on the oil industry and could lead to less production and higher gasoline prices.

The struggle over the tax provision signaled that Democrats may have a hard time pushing through the broader energy bill, which tilts heavily toward promoting energy conservation and renewable fuels and away from support for traditional fossil fuels.

As the debate over taxes reflected the Senate's division, senators were said to be close to completing work on a compromise on automobile fuel economy that would garner enough votes to overcome strong auto industry opposition.

Senate Majority Leader Harry Reid, D-Nev., chastised Republicans for caving into pressure from oil companies in blocking the tax provisions, but said he planned to press forward with the overall energy legislation, hoping to finish late Friday.

"We have (auto fuel economy) standards in this bill. This is a good bill. There's a lot of good stuff in this bill," said Reid. He said work was under way on a compromise aimed at gaining wider support.

"I can live with either one of them," Reid told reporters.

The talks were believed to be close to an agreement that would require automakers to increase the fuel efficiency of new vehicles to 35 miles per gallon by 2020, but abandon a provision that would have required 4 percent annual efficiency improvements after that. The automakers had complained vigorously about the 4 percent increase, saying they would be required to meet 52 mpg for cars and SUVs by 2030, a mandate they said they couldn't meet.

A group of senators, including Michigan Democrats Carl Levin and Debbie Stabenow, have pressed for consideration of an even less stringent proposal that would let SUVs and small trucks achieve just 30 mpg and postpone the mandate to 2025.

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.

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 massive 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 primarily aimed at helping domestic manufacturing; increased taxes paid under an oil spill liability law; and eliminated existing tax credits involving foreign oil production.

Another measure also would have 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.