On Friday of last week, Republican Senate leaders successfully filibustered the Lieberman-Warner "cap and trade" bill (S. 3036). This bill would reduce carbon emissions from electric power, transportation, manufacturing, and natural gas by 4 percent below the 2005 level starting in 2012, then by 19 percent below the 2005 level in 2012 and by 71 percent below 2005 level in 2050. Permits to emit carbon would be allocated to industry. Some of these allocations would be given away while others would be auctioned off, and the allocations could be traded (hence the term "cap and trade").
The proceeds from these auctions would be used for various purposes, some of which could mitigate the resulting higher energy costs for low- and middle-income families. Part of the revenue would be dedicated towards tax changes that would help consumers, but the exact nature of the tax provisions would have to be worked out by the Senate Finance Committee.
On Tuesday, Republican Senate leaders managed to block another energy bill, (S. 3044), which would have eliminated some significant tax giveaways for large oil and gas companies and would have imposed a windfall profits tax on those not investing enough in sustainable energy. The bill would impose a 25 percent tax on windfall profits, which are defined by a formula that targets profits far out of line with average profits over the 2002-2006 period. Any windfall profits invested into renewable energy development would not be subject to this tax.
Revenue from the windfall profits tax would be dedicated to an Energy Independence and Security Trust Fund to be used for the development of renewable energy sources. The bill would also bar large oil and gas companies from using the deduction for domestic manufacturing (often called the Section 199 deduction), raising about $10 billion over ten years, and would also restrict the use of credits for foreign taxes by oil and gas companies, raising $4 billion over ten years.
Current tax policy gives oil and gas companies breaks that other industries don't enjoy and does little to encourage the development of alternative energy sources. Jeffrey Hooke, an expert on investment and finance, argued in a Baltimore Sun op-ed back in April that "Oil executives lament that only 9 cents of every sales dollar is profit, which is below the average for American business. However, if profit margin were a reliable yardstick, all supermarkets would close, because they earn less than 1 cent per sales dollar." Further, he says, "Alternative energy research has a minuscule budget at Big Oil. Any oil substitute would be a prized commodity, but its discovery presupposes a reduced value for the industry's reserves, refineries, pipelines and the like. The companies' incentive to find a substitute is thus quite weak."