House and Senate Democrats are moving further away from each other on energy-related provisions of their sprawling budget reconciliation bill at a critical moment for President Joe Biden’s domestic policy agenda.

The latest sign of trouble came Monday night when a trio of Texas Democrats released a letter asking party leaders to drop new taxes and fees from the budget bill they say would harm U.S. oil and gas producers.

The letter from Vicente Gonzalez, Henry Cuellar and Filemon Vela also targets a linchpin of Democrats’ climate policies: a “clean electricity performance” program to reward utilities that increase their output from renewable resources each year, and penalize those that don’t.

The Texans asked Democratic leaders to “reconsider some of the revenue raising provisions of this otherwise sound and critical effort,” and said they’re concerned about provisions that would “jeopardize U.S. energy independence, harm American jobs, raise energy costs, and increase global emissions.”

The new letter follows another from those three plus four other Texas Democrats earlier this month expressing similar concerns. The group includes three of the most vulnerable party members in next year’s midterms, Gonzalez, Colin Allred and Lizzie Fletcher; they’re among 32 lawmakers singled out for special help by the Democratic Congressional Campaign Committee.

House Ways and Means Chairman Richard E. Neal, D-Mass., didn’t include specific tax increases on oil and gas companies that Biden proposed, in a nod to moderates in his chamber. But environmental groups and Senate Finance Chair Ron Wyden, D-Ore., have been pushing to dig deeper into the oil industry’s pockets for revenue.

[House Democrats look for a sign from the Senate on budget bill]

Neal’s office on Monday blasted out statements from various groups backing the Ways and Means bill. But there were hints of discontent in some of the statements.

“While this bill makes the tax code more progressive and cuts some fossil fuel subsidies, there is more the Senate must do to hold polluters accountable,” reads a statement from the Natural Resources Defense Council’s John Bowman. “It’s time to end a century of handouts to the oil and gas industry — and invest in a clean future.”

Tax differences

Neal’s piece of the House reconciliation package would expand existing clean energy incentives and create some new ones, at a net cost of $235 billion over a decade. While Neal wouldn’t repeal several existing oil and gas tax benefits, he’d reinstate a hazardous materials cleanup tax that lapsed after 1995 at a higher rate of 16.4 cents per barrel on domestic crude oil and imported petroleum products.

Another section of the Ways and Means package would hit the industry’s foreign earnings. It would eliminate an exemption in the 2017 tax law from the so-called global intangible low-tax income levy for foreign oil and gas extraction, while increasing the overall “GILTI” tax rate and cutting in half a deduction from the tax for returns on investment in tangible assets like plants and equipment.

The Ways and Means bill would also limit foreign tax credits U.S. companies can claim for payments made to foreign governments for special economic benefits, like drilling rights. 

Senate Finance marked up its own $259 billion package in May that would overhaul the existing patchwork of energy tax breaks and consolidate benefits into three bins: clean electricity, clean transportation fuel and energy conservation. The incentives would be tied to performance, rewarding fuel that’s cleaner than average and buildings that save more energy, for example. 

That bill would also eliminate the foreign tax credit break, worth nearly $6 billion over a decade, while repealing the GILTI exemption for overseas oil and gas extraction profits. But it would go further and eliminate some longstanding tax breaks including deductions for drilling expenses like labor costs, surveys and ground clearing, and costs associated with depletion of oil and gas reserves. 

Separately Wyden is working on an international tax proposal that would raise the GILTI rate to an unspecified amount, while completely eliminating the current deduction for returns on tangible properties.

New solar credit

At the same time, Wyden is bringing in new issues that haven’t yet emerged from his or Neal’s committee, like a solar energy manufacturing credit bill authored by Georgia Democratic Sens. Jon Ossoff and Raphael Warnock, each of whom won their seats in nail-biting Jan. 5 runoffs. Warnock, who won a special election, is a top GOP target next November. 

The proposal is backed by companies manufacturing solar panel components in Georgia, including South Korea-based Hanwha Q CELLS and Atlanta-based SolAmerica Energy, according to a release from Ossoff. Sen. Debbie Stabenow, D-Mich., who represents firms like Hemlock, Mich.-based Hemlock Semiconductor that would benefit, is a cosponsor and was on hand at an event with Wyden, Ossoff and Warnock to tout the measure  Tuesday.

Wyden and Rep. Dan Kildee, D-Mich., a Ways and Means member, said they’d push to include the new solar credit in reconciliation. “We’ve got a lot of big questions to answer in terms of the size and scale, but this certainly is one that we think is worthy of inclusion for sure,” Kildee said.

Wyden on Tuesday downplayed any divisions with Neal on the scope of energy tax policy, saying only that the pair are “making progress on all fronts” and discussing a “whole range of issues.”

Neal has consistently met questions about House-Senate differences by expressing support for the package his panel marked up. He said Tuesday he didn’t know how the two approaches might be melded because Senate Finance hasn’t released a comprehensive proposal yet, other than the energy tax package in May before the reconciliation process began.

“We were very dedicated to the principles of regular order,” Neal said. “We held a markup — 40 hours of public debate.” However, he said agreement was possible as soon as this week: “I’m an optimist on this.”

Little margin for error

House Democrats can’t afford to lose more than three votes for their multitrillion-dollar budget package they hope to bring up later this week. And pockets of concern have bubbled up on other fronts, ranging from immigration to prescription drug pricing.

[Many lingering questions despite ‘framework’ for reconciliation offsets]

Vela, Gonzalez and Cuellar represent neighboring districts that stretch from the Mexican border toward San Antonio and Austin. Oil and gas companies represent the largest career campaign contributors to both Gonzalez and Cuellar, according to the Center for Responsive Politics, and are among the top donors to Vela, who’s retiring after this Congress. 

All three were part of a group of moderates that held up a vote in August to move ahead with consideration of the budget bill. But since then, moderates’ aims for the bigger package have been fragmented.

The new letter shows Gonzalez, Cuellar and Vela’s goals are aligned, and they have enough votes to pose a problem in the House. The stance taken by Gonzalez and Vela in particular is notable since earlier this week they announced they were prepared to back “swift passage of the President’s $3.5 trillion reconciliation package.”

The tax increases envisioned in the House bill opposed by the Texas Democrats would hit overseas profits of firms like Houston-based ConocoPhillips, which just bought major shale oil and gas assets in West Texas’ Permian Basin and has a major presence in South Texas’ Eagle Ford Shale. Both shale plays touch or are close to the three lawmakers’ districts. 

The Texans’ objections to the Energy and Commerce panel’s clean electricity program are based on a carbon intensity threshold that natural gas wouldn’t meet without investing in costly carbon capture technologies. And they argue a $1,500 per ton fee on methane leaks from oil and gas wells and pipelines will disproportionately hit low-income consumers while undercutting other yearslong regulatory efforts.

Gonzalez, Cuellar and Vela are also opposing almost two dozen provisions increasing oil and gas royalties and fees that the House Natural Resources panel approved for the budget bill. They wrote that the measure would be “hugely burdensome on an industry leading us to a cleaner future and offering our fellow Americans good-paying jobs.”

The Texans’ positions are more or less aligned with those of Sen. Joe Manchin III, D-W.Va., whose vote party leaders can’t afford to lose in the evenly divided Senate, putting even more pressure on progressives’ climate positions.

Sen. Elizabeth Warren, a Finance panel member, said Tuesday the committee is still discussing energy pieces that didn’t make it into the House bill, including scrapping fossil fuel subsidies from the tax code. 

The Massachusetts Democrat and House progressives have pressed for similar provisions in the budget bill, but Warren acknowledged diverse views in the caucus on the issue and the need to encourage different businesses to move into areas hit by a shift away from fossil fuels.

“It’s always a challenge to bring people together from all parts of the country and representing different economic regions and interests,” she said.

Lindsey McPherson contributed to this report.