The CLEAN Energy Act of 2007 ( H.R. 6 ) was introduced by the House Democratic leadership to revise certain tax and royalty policies for oil and natural gas and to use the resulting revenue to support a reserve for energy efficiency and renewable energy. The bill is one of several introduced on behalf of the Democratic leadership in the House as part of its "100 hours" package of legislative initiatives conducted early in the 110 th Congress. Title I proposes to repeal certain oil and natural gas tax subsidies, and use the resulting revenue stream to support the reserve. According to the Congressional Budget Office (CBO), the provisions in Title I would make about $7.7 billion available for the reserve over the 10-year period from 2008 through 2017. H.R. 6 came to the House floor for debate on January 18, 2007. In the floor debate, opponents argued that the reduction in oil and natural gas incentives would dampen production, cause job losses, and lead to higher prices for gasoline and other fuels. Opponents also complained that the proposal for the Reserve does not identify specific policies and programs that would receive funding. Proponents of the bill counterargued that record profits show that the oil and natural gas incentives were not needed. They also contended that the language that would create the Reserve would allow it to be used to support a variety of research and development (R&D), deployment, tax incentives, and other measures for renewables and energy efficiency, and that the specifics would evolve as legislative proposals come forth to draw resources from the Reserve. The bill passed the House on January 18 by a vote of 264-123. The Energy Policy Act of 2005 ( P.L. 109-58 ), enacted on August 8, 2005, expanded some of the existing tax subsidies for the oil and gas industry and created several new ones. The oil and gas tax incentives in EPACT05 were added on top of several existing special tax subsidies for oil and gas. The industry also benefits from provisions of current tax law that are not strictly tax subsidies (or tax expenditures) but that nevertheless provide advantages for and reduce effective tax rates of the oil and gas industry. The remainder of this report discusses these tax provisions in detail. The first section, below, discusses the origin and evolution of the oil and gas tax subsidies that were incorporated into the 2005 act. The second section summarizes each of the oil and gas tax subsidy provisions in the 2005 energy act and reports its corresponding revenue loss estimate. Section three describes other oil and gas tax subsidies, those that existed before EPACT05 and were generally not affected by it. The final section describes several tax provisions that benefit the oil and gas industry; these are not tax subsidies per se—they are not considered to be tax expenditures—but are deemed by some observers to confer excessive (or unfair) benefits for the industry. Tax incentives for oil and gas supply have historically been an integral (if not the primary) component of the nation's energy policy. The domestic oil and gas industry was granted three tax code preferences, or subsidies: (1) expensing of intangible drilling costs (IDCs) and dry hole costs, introduced in 1916; (2) the percentage depletion allowance, first enacted in 1926 (coal was added in 1932); and (3) capital gains treatment of the sale of oil and gas properties. These tax subsidies reduced marginal effective tax rates in the oil and gas industries, reduced production costs, and increased investments in locating reserves (increased exploration). They also led to more profitable production, some acceleration of oil and gas production, and more rapid depletion of energy resources than would otherwise occur. Partially in response to tax incentives, but also due to the low cost of discovering and developing the huge new resource base, there were discoveries during the 1930s of vast reserves in Texas, which led to a period of overproduction of oil and gas and concomitant declines in prices, which led to demand to prorationing under the Texas Railroad Commission. Beginning in the 1970s and through much of the 1990s, energy tax policy shifted away from fossil fuel supply and moved toward energy conservation through both energy efficiency and the development of alternative and renewable fuels. However, rising and repeated spikes in petroleum prices that began around 2000 and were repeated over the next six years (combined with high and spiking natural gas prices, an electricity crisis, and blackouts) caused policymakers to focus on increasing energy production and supply of many diverse energy sources, including oil and gas. The tax incentives for the oil and gas industry in the EPACT05 originated in the106 th Congress's effort in 1999 to help the ailing domestic oil and gas producing industry, particularly small producers, deal with depressed oil prices. This situation fostered proposals for economic relief through the tax code, particularly for small independent drillers and producers. Proposals focused mainly on production tax credits for marginal or stripper well oil, but they also included carry-back provisions for net operating losses, and other fossil fuel supply provisions. Subsequent comprehensive energy policy legislation, including H.R. 4 in the107 th Congress, proposed an expanded list of oil and gas tax incentives. The energy tax breaks in this bill (the Securing America's Future Energy Act of 2001, as approved by the House on August 1, 2001) were larger in terms of tax revenue loss than any other comprehensive energy policy legislation proposed during this period. They also were larger than those proposed in EPACT05: $33.5 billion of energy tax cuts, compared with the $14.5 billion loss eventually enacted under P.L. 109-58 . Interest in incentives and subsidies was boosted by the belief that much of the crisis was caused by insufficient domestic production capacity and supply. All the early bills appeared to be weighted more toward stimulating the supply of conventional fuels, including capital investment incentives to stimulate production and transportation of oil and gas. These proposals were further repackaged and expanded into the first broadly based energy bills and comprehensive energy policy legislation, such as H.R. 6 in the 109 th , that evolved further and ultimately became EPACT05. The House approved the conference report on July 28, 2005, and the Senate on July 29, 2005, clearing it for the President's signature on August 8 ( P.L. 109-58 ). The 2005 act became law at a time of very high prices for crude oil, petroleum products, and natural gas, and record oil and gas industry profits. This engendered the enmity of the general public and congressional proposals to (1) revoke the incentives enacted under the 2005 act; (2) repeal or pare back the historical, but extant, tax subsidies and other tax advantages; and (3) impose sizeable new taxes on the industry such as a windfall profit tax. Public and congressional outcry did lead to a paring back of one of the tax subsidies liberalized in the 2005 act: two-year amortization, rather than capitalization, of geological and geophysical (G&G) activity costs, including those associated with abandoned wells (dry holes). This exploration subsidy was the largest upstream tax subsidy (as opposed to a "downstream" or a refinery subsidy), in terms of federal revenue loss, enacted under the 2005 act, although it was and still is a relatively small tax subsidy. The Tax Increase Prevention and Reconciliation Act ( P.L. 109-222 ), signed into law in May 2006, reduced the value of the subsidy by raising the amortization period for major integrated oil companies from two years to five years, still faster than the capitalization treatment before the 2005 act, but slower than the treatment under that act. Independent (nonintegrated) oil companies may continue to amortize all G&G costs over two years. This relatively minor cutback has not muted the calls for rolling back oil and gas tax subsidies, as petroleum prices (and industry profits) remain somewhat high, particularly those of the biggest oil and gas companies. On September 1, 2006, the House Democratic leadership reportedly sent a letter to the House Speaker proposing a rollback of all of the 2005 energy act tax subsidies. On October 25, 2006, then-House Democratic Leader Nancy Pelosi, urged the Congress to repeal those tax breaks. Many bills were introduced in the 109 th Congress to pare back or repeal the oil and gas industry tax subsidies and other loopholes. Many of the bills focused on the oil and gas exploration and development (E&D) subsidy—expensing of intangible drilling costs (IDCs). This subsidy, which has been in existence since the early days of the income tax, is available to integrated and independent oil and gas companies, both large and small alike. It is an exploration and development incentive, which allows the immediate tax write-off of what economically are capital costs, that is, the costs of creating a capital asset (the oil and gas well). On September 18, 2006, Senators Wyden and Bennett introduced a bill ( S. 3908 ) to give consumers a discount on the purchase of more fuel efficient vehicles that would have been paid for by reducing the IDCs deduction for major integrated oil companies. Comprehensive energy legislation ( S. 2829 ) unveiled by Senate Democrats on May 17, 2006, would have not only eliminated expensing of IDCs, but would have also reduced several other tax benefits (or loopholes) to the oil and gas industry (such the foreign tax credits). The latter are not subsidies (or tax expenditures) in the strict sense of special tax measures unavailable generally, but as discussed below, some consider these unnecessary tax benefits nonetheless. H.R. 5234 focused on repealing three of the seven fossil fuel tax provisions in the 2005 act: temporary expensing of equipment costs for crude oil refining, the small refiner exception to percentage depletion, and the amortization of geological and geophysical (G&G) costs. H.R. 5218 would have denied oil and gas companies the new domestic manufacturing deduction under IRC § 199.