Errors by the barrel

IN THE NEW Democratic-controlled Congress, oil executives stand just below international terrorists on the unpopularity scale. The high gas prices that fueled record oil company profits last summer also fueled a backlash that Democrats are using to reach as far down into Big Oil’s deep pockets as possible.

The sweeping energy bill passed by the House this week, like much of the legislation approved during the Democrats’ artificial 100-hour deadline, tries to do too much with too little attention to detail. It rights some energy policy wrongs while creating new ones.

First, the good part: In 1998 and 1999, the Clinton administration made a serious clerical error when giving 1,100 leases to oil companies to drill in the Gulf of Mexico. At a time when gas prices were low, incentives were seen as necessary to prompt deep-water drilling, so the leases exempted oil companies from paying the usual royalties to Uncle Sam. The exemptions were supposed to cease once the price of oil rose above $34 a barrel, but the clause was inexplicably left out, costing the Treasury billions of dollars.

Congress can’t force the oil companies to renegotiate their contracts, but it can make things uncomfortable if they don’t. The House bill bars companies from bidding on new offshore leases unless they renegotiate on Gulf of Mexico royalty payments or pay a “conservation fee” of $9 a barrel. Critics claim this will depress domestic oil production and violate the sanctity of contracts. Nonsense. Prices have eliminated the need for government incentives to encourage oil drilling, and business contracts are renegotiated all the time -- there’s nothing sacred about them.

On a worse note, the bill exempts oil companies from the 2004 reduction of the manufacturers’ corporate income tax rate from 35% to 32%. Singling out a politically unpopular industry for special abuse is unfair to shareholders and sets a frightening precedent of punishing specific industries for their success. Tax laws should apply to all.

And it’s unclear how the estimated $14 billion generated by the bill over 10 years would be spent, though it looks disturbingly like a federal rerun of California’s failed Proposition 87. That November ballot initiative would have taxed oil companies to pay for alternative energy research -- even though government is very poor at allocating research dollars and private industry, thanks to high oil prices, is already investing heavily in the field. The bill is vague about the money, saying it would go into a reserve fund aimed at promoting energy efficiency and alternatives; later legislation is supposed to fill in the blanks. This looks a lot like a slush fund that could very easily be abused.

We can only hope that the Senate will do a better job with its own energy legislation.