Congress divided on energy plan

By: AP
By: AP

WASHINGTON (AP) -- As millions of people approach the summer vacation season under the threat of $4-per-gallon gasoline, Congress is scrambling to respond. But don't wait for anything that will drive down prices at the pump.

A Senate vote on a GOP plan is scheduled for Tuesday, and Senate Majority Leader Harry Reid has promised to bring up a Democratic package before the Memorial Day congressional recess. Except for halting the flow of oil into the government's Strategic Petroleum Reserve, neither plan is likely to go very far. Both will be challenged by filibusters by opponents, meaning they would require 60 votes to advance.

Here is a rundown:

THE DEMOCRATIC PROPOSALS.

-Enact a windfall profits tax on oil companies.

SPIN: Oil companies are making too much money, earning $123 billion last year while motorists faced soaring gasoline costs. Imposing a 25 percent windfall profits tax on the five largest oil companies and repealing $17 billion in tax breaks could help the shift away from fossil fuels toward alternatives. Taxes could be avoided if profits are used for refinery expansion or development of wind, solar or biomass projects.

FACT: Profits are large because the companies are huge, and oil now sells for well over $120 a barrel. The taxes could spur some new alternative energy projects, but economists say they also could reduce investments in oil and gas exploration, and are unlikely to affect prices. They could do more harm than good, says Robert Hansen, senior associate dean at Dartmouth's Tuck School of Business. "Anytime you put in a tax you create an incentive to avoid it," says Hansen.

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-Create a law against energy price gouging and new rules to stem energy market speculation.

SPIN: The government must police the energy markets with a federal law against price gouging and new rules against market speculation. The proposal creates a federal price gouging law with civil penalties of up to $5 million during a presidentially declared energy emergency. The law would prohibit refiners, wholesalers and retailers from charging an "unconscionably excessive price." Traders would be required to put up more cash collateral in the energy futures markets to curb speculation.

FACT: Energy price gouging laws now in 28 states are uneven and inadequate to deal with energy market abuses. Congress has considered a gouging law since 2005. Separate versions have passed both the House and Senate, but never gained final approval. Critics say gouging is ill defined and the law amounts to price controls. Bush has threatened a veto.

A former Federal Trade Commission chairman argued such a law could do consumers more harm than good and may result in higher prices if providers, fearing stiff penalties, avoid selling fuel when prices soar.

Increasing cash collateral, or margins, in energy futures trading could curb speculation, but there might be unintended consequences. Such new requirements, said a spokesman for the Commodities Futures Trading Commission, which would enforce the new rules, "may drive traders to unregulated trading or overseas" without reducing market abuses.

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-Take on the OPEC oil cartel.

SPIN: We need to stand up to the OPEC oil cartel. The Justice Department would be given authority to bring antitrust cases against countries that collude to fix prices as part of OPEC.

FACT: While politically popular, such a measure would probably not change OPEC production decisions and could provoke retaliation. Similar proposals have been debated in Congress since 2005. "It's a catchy phrase, but it doesn't have any substance," says energy consultant Robert Ebel of the Center for Strategic and International Studies.

THE REPUBLICAN PROPOSALS.

-Pump oil from Alaska's Arctic National Wildlife Refuge, now off limits.

SPIN: The coastal strip of ANWR, as the refuge is called, probably has 11 billion barrels of oil. At the rate of 1 million barrels a day, it would add to domestic production, reduce U.S. reliance on imports, lower prices and produce jobs. With modern technology wildlife and the environment can be protected.

FACT: Drilling in ANWR has been debated for 28 years and remains one of the most contentious environmental issues. Several times the House, under GOP control, has approved development; it passed Congress in 1995 only to be vetoed by President Clinton. Drilling supporters repeatedly have been unable to get the 60 votes needed to overcome filibusters and are unlikely to do so this time.

While ANWR has substantial oil, none would flow for 10 years. Even then, its impact on global production of 87 million barrels a day will be minimal, energy experts say, as OPEC could adjust to compensate.

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-Develop vast amounts of oil and natural gas in offshore waters now off limits.

SPIN: For a quarter century, energy development has been blocked in more than 80 percent of U.S. coastal waters, depriving the country of vast oil and gas resources. States should be allowed waivers to the moratoria and get some of the revenues from development.

FACT: Most areas of federal offshore waters outside the western Gulf of Mexico and off much of Alaska have been placed off limits to drilling by a succession of presidential orders and congressional action to protect tourist industries and avoid the risk of spills and environmental damage. The House has twice approved giving states the right to opt out of the federal ban.

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-Ease permitting for new refineries.

SPIN: A shortage of refineries is fueling high gasoline and diesel prices. There has not been a new one built in 30 years, with environmental and other permitting problems contributing to the reluctance of oil companies to build new refineries.

FACT: The lack of new refinery construction has been more an issue of economics, not government regulations. While the oil industry has complained about permitting and environmental regulations, oil company executives also have said the permitting issue has not been a deciding factor over refinery expansion or construction. Refinery investments are based in expectations of increased demand.

Oil company executives, asked recently if they wanted to build new refineries, said no. In part, this is because of the growth of ethanol as a substitute for gasoline. The industry prefers to expand existing refineries.

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-Allow coal-based diesel be used as motor fuel.

SPIN: Coal is the country's most abundant energy resource, and technology exists to produce diesel fuel from coal. A mandate to produce 6 billion gallons a year of coal-derived motor fuel by 2022 would contribute to greater energy independence and spur the industry's development.

FACT: The process requires large amounts of energy and results in greenhouse gas emissions, running counter to efforts to combat global warming.

(This version CORRECTS 'billion' to 'million' in paragraph 24.) )

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