Tax Breaks, Not an Import Fee, Will Be Asked to Spur Oil Hunt

Energy Secretary John S. Herrington plans to recommend today that the Reagan Administration adopt a series of tax incentives, rather than an oil import fee, to spur domestic oil exploration and curb imports, lawmakers said Monday.

The recommendations were drawn from the Energy Department’s long-awaited study of options to counter the national security threat posed by increasing oil imports, which reached 40% of U.S. demand late last year.

Herrington briefed a group of key members of Congress a day before the report is scheduled to be made public.

“The study analyzes all proposals available to try to reduce foreign imports in terms of a benefit-to-cost analysis,” Sen. Phil Gramm (R-Tex.) said of the 800-page Energy Department report.

Harm to Economy

“The secretary said the study indicated an oil import fee was not a cost-effective way of dealing with the problem. It would generate increased exploration but would hurt the general economy very heavily,” Gramm said.

A report released last month by the Citizen-Labor Energy Coalition, an advocacy group, said a $10-a-barrel oil tariff would probably cost the American economy $100 billion a year. There is now an 11.7 cents-per-barrel tariff on imported oil.

Under Gramm’s tax incentive proposal, oil producers would get a 27.5% oil depletion allowance, which is a deduction based on the value of the oil produced, for new wells or those that use enhanced recovery methods.

Now, independent producers get a 15% depletion allowance and major producers get none, Gramm said.

The Energy Department study underlined the need to do more leasing on the Outer Continental Shelf and to open the Alaskan National Wildlife Refuge, a large potential recovery area east of Prudhoe Bay.