With the U.S. House of Representatives changing hands in January, what will this mean for energy policy?

New House Speaker Nancy Pelosi (D-California) has stated that the Democrats hope to repeal $33 billion of tax breaks and subsidies that benefit the oil and gas industry, which could mean an end to $4 billion of tax breaks and subsidies from the Energy Policy Act, a repeal of royalty relief, and the closing of tax loopholes for large oil companies, says Standard & Poor's credit analyst Nicholas D. Riccio.

"The GOP favors ways to boost fossil fuel production, while the Democrats emphasize conservation and the development of renewable energy resources," he says. "Much of this has been played out in tax incentives included in the Energy Policy Act of 2005."

Credit analyst Andrew Watt adds, "Some of these proposals, if enacted, could limit the economic returns on certain deep offshore drilling projects in the Gulf of Mexico, which are often very costly and gain some benefits from favorable tax treatment. Tax credits for renewables, however, will probably be extended, and in some cases increased."

Peter D. Hart, whose firm has conducted polls for major newspapers and NBC since 1989, said at the IPAA annual meeting in Grapevine, Texas, this fall, "Pass out the Prozac guys, because this is going to be a tough election." Concerns about energy prices and supplies were showing up in the polls as a key issue, he said.

"The fact that people feel insecure about energy sours the mood of the country," said Jean Statler, senior vice president, Harris Interactive, another polling firm. Harris has recently conducted a major study of Americans' attitudes toward energy. Their favorable view of the industry has declined steadily during the past 30 years, she said.

A majority of Americans now want to see more work done on alternative energy sources. "Interestingly, most people believe it is only the oil and gas industry that can develop these new fuel alternatives," she added.

Congressman Joe Barton (R-Texas), current chair of the House Energy and Commerce Committee, said that, when New York Congressman Charlie Rangel becomes chair of the House Ways and Means Committee, some type of windfall profits tax, perhaps by some other name, will end up on the president's desk.

"Did you know that 85% of the House Democratic Caucus has voted 'no' on every energy initiative that has come before the House in the past two years? Fine, that's democracy, but in this...election, there is a real difference between Democrats and Republicans. The senior leadership under Nancy Pelosi has an attitude toward energy of 'Just say no.'"

Barton warned that many of the pro-industry elements in the Energy Policy Act of 2005 could be overturned under a Democrat-led House. "Two issues dear to IPAA members, regulation of stormwater drainage and hydraulic fracturing fluids, could be right out the window," he said.

Diemer True, a third-generation Casper, Wyoming, independent and former IPAA chairman, noted, "One of the harsh realities of a democracy is that public policy follows public opinion."

Barton urged IPAA members to work harder on improving the oil industry's image by getting the word out about its technology and clean operating practices.

Barton recently visited a drilling location in the Barnett Shale in his district, and was impressed by the small footprint of the rig. "It's within city limits and uses a closed-loop system. No drilling mud and no water goes off the drillsite. It's an excellent, safe system. But who knows about it except you? I haven't seen one TV commercial or comment about it, not even in the local media.

"It's as good as it gets environmentally, yet no one knows about it. And the best the U.S. Senate can do is offer a 200-mile buffer zone against drilling off Florida? Contrast that with the Arlington [Texas] City Council, which now requires a drilling perimeter of 300 feet!"

Statler said Americans want to be educated about energy. In 2007, the American Petroleum Institute plans a multimillion-dollar, multiyear public-relations campaign, she added.

"The price at the pump mostly drives Americans' views on industry favorability, but 75% of the rest of the factors involved are things the industry can control."

She advised the industry to focus on the fact that it heats homes and fuels the economy and lifestyles. "Fundamentally, Americans do believe you are essential, do produce things they cannot do without...do provide jobs and play a role in military security."

It will take 18 to 24 months to stop the slide in public opinion about the oil and gas industry, and another "three to five years to see real, measurable results" on the positive side, she said.

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