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Associated Press

WASHINGTON — A dispute over how to avoid a potential loss of federal highway money with a sharp increase in the use of corn-based ethanol in gasoline is the latest snag in Congress' efforts to complete a broad energy bill.

House and Senate tax writers couldn't reach a compromise over the ethanol squabble at a meeting on Monday, and plans to wrap up a Republican-drafted energy package were put off until next week.

Sen. Pete Domenici, R-N.M., and Rep. Billy Tauzin, R-La., leaders of the energy talks, said they believed the tax dispute can be worked out and planned to schedule a vote on a GOP draft proposal early next week by all the conferees.

The measure would then have to be approved by both the House and Senate. "We are absolutely confident of putting a comprehensive energy bill on the president's desk this year," Domenici and Tauzin said in a statement.

The ethanol tax issue remains "one of the major differences," said Sen. Charles Grassley, R-Iowa, chairman of the Senate Finance Committee. He said a compromise in language was offered "but the House has rejected it three times."

The legislation, the first broad overhaul of energy policy in a decade, has been held up for two weeks as House and Senate members in conference struggled to hash out conflicts over electricity transmission lines, tax breaks for a proposed Alaska pipeline and how to deal with a gasoline additive that contaminates drinking water supplies.

Most of those issues have been resolved, but in some cases, a few details need to be worked out, GOP congressional sources close to the discussions said Monday.

But Grassley and Rep. Bill Thomas, R-Calif., chairman of the tax-writing House Ways and Means Committee, have yet to agree on a tax matter involving ethanol.

The energy bill calls for doubling ethanol use to 5 billion gallons a year by 2012. Ethanol receives a 5.2-cent a blended gallon tax credit. If more ethanol is used, the government's highway trust fund would lose hundreds of millions of dollars in revenue from gasoline that has been displaced by ethanol.

Grassley, whose state is a leading producer of corn-based ethanol, has sought to resolve the problem by changing the way gasoline taxes are collected. He would create a system where the government's general revenue fund will make up for the tax loss to the federal road fund. The legislation also would extend the tax credit for ethanol from 2007 to 2010.

Thomas has balked at the idea. He said Monday that the ethanol tax is something that ought to be taken up later in another bill.

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But Grassley told reporters, "We think it's an energy issue." He has said he would not vote for an energy bill unless the ethanol tax issue and highway funding were both resolved. Twenty-nine senators, including 17 Republicans, wrote a letter supporting Grassley.

Grassley and Thomas failed to compromise at a meeting on Monday. The two sides also have yet to resolve differences over a tax package that would fund construction of a 3,500-mile pipeline to bring natural gas from Alaska's North Slope. That is expected to be resolved if the ethanol dispute goes away.

Democrats have complained that the final bill is being put together without their involvement, adding to the likelihood that Senate approval of whatever comes out of the negotiations will not come easily.

Sen. Charles Schumer, D-N.Y., already promised to filibuster the bill over a measure likely to be included which protects makers of the gasoline additive MTBE from environmental lawsuits.

Republicans say they are confident they will have the 60 votes necessary to overcome the filibuster. However, that cannot be said for several other measures in the bill — such as oil drilling in the Arctic National Wildlife Refuge in Alaska and a requirement for an inventory of energy resources under coastal waters now off-limits to drilling.

Domenici has said he would not allow anything in the bill that might jeopardize it in the Senate. As a result both the Arctic refuge provision and the coastal waters inventory likely will be jettisoned.

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