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Saturday, June 23, 2007

Thoughts on the Senate Energy Bill - Final Grade: B-

Final Senate energy bill a good step forward but missing several important provisions

The Senate passed a new energy bill late Thursday night that among other things will require the first major increase in fuel economy standards in two decades and includes a hefty renewable fuels standard (see previous post).

The media has already begun calling the energy bill "sweeping" and "broad" and is hailing the bill's passage as a "victory" for Senate Democrats and clean energy advocates.

I followed the progress of the bill closely for the past couple of weeks (see previous posts here, here, here, and here) and my reaction to the bill is much more lukewarm. I think the bill can be at best considered a partial victory; it's a clear step forward, but leaves a lot left out several important provisions and warrants, in my opinion, a final grade of a B-

Steps Forward - What is in the Bill

First, the bill deserves praise for what is does include:

  • The increase in fuel economy standards is LONG overdue, and is a common-sense, effective and economic step towards reducing our oil dependence. 35 mpg by 2020 is not bad (I'll discuss the fuel economy standards a bit more later - we certainly could have been more aggressive). It will mean a significant decrease in oil consumption and a corresponding decrease in greenhouse gas emissions from the transport sector and will do both while saving Americans money.

    Democrats do deserve credit for fighting off strong opposition from the auto industry to keep the 35 mpg by 2020 standard intact despite several proposals that would have weakened the standard. Additionally, the new standards close both the SUV loophole and the 'buy a hybrid, save a hummer' scenario that plagues current CAFE standards, two clear improvements in policy. The new CAFE standards should be considered a clear victory.

  • The renewable fuels standard will help reduce fossil fuel dependence and reduce global warming emissions ... somewhat. I'm not a big fan of expanded use of corn-based ethanol - it offers only marginal fossil fuel use and greenhouse gas emissions reductions while driving up food costs and sucking up subsidies that could be better spent elsewhere.

    However, the new 36 billion gallon renewable fuels standard does specify that at least 60% of the standard must be met by "next generation" biofuels such as cellulosic ethanol, which offers considerable fossil energy and greenhouse gas reductions compared to gasoline. This provision should provide a strong incentive to invest in cellulosic ethanol production infrastructure, although the absence of the tax package from the bill (more on that below) will mean the financial incentives that should go along with this standard are missing for now.

    Additionally, the energy bill includes provisions that will help ensure that biofuel production is environmentally sensible - i.e. doesn't increase water or air pollution or greenhouse gas emissions - and specifies that "next generation" biofuels must result in at least a 50% reduction in lifecycle greenhouse gas emissions relative to gasoline. This is smart, as we want to ensure that we don't simply trade one environmentally destructive fuel choice for another.

  • The bill directs the Executive Branch - the Office of Management and Budget (OMB) - to develop and publish an action plan to cut oil consumption in the United States by 2.5 million barrels per day by 2017, roughly equivalent to the total current imports of oil from the Middle East. The amendment also targets a reduction of 7 million barrels per day by 2026 and 10 million barrels per day by 2031.

    While this is just a plan and not a requirement, the bill does direct and authorize the secretaries of federal agencies - departments of energy, defense, agriculture, etc. - to implement the policies recommended by the action plan and certainly wont hurt matters. This provision essentially calls on the President and his cabinet to utilize existing laws to their fullest extent and will hopefully result in the adoption of proactive policies by the Executive Branch.

  • The bill includes new federal appliance and lighting efficiency standards (although I don't know what the details are yet, so I'm not sure if they go far enough; they're certainly a step forward at the very least) which will help Americans save energy and money at home and at work.

  • The bill includes expanded support for research, development and deployment of electric drive vehicles, including plug-in hybrid vehicles as well as research into light weight vehicle construction materials and other technologies to reduce vehicle energy consumption. While I still think the federal government should be more aggressive in promoting the development of plug-in hybrid vehicles - my pick for best short-to-medium term solution to slash oil use and greenhouse gas emissions from the transport sector - this is also a good step in the right direction.

  • The bill also deserves a bit of praise for what stayed out of the bill: no support for coal-to-liquids synthetic fuel production and no support for expanded coal, nuclear or oil use. We need to be moving away from business-as-usual energy sources and on to a new, sustainable energy future, and while it falls a bit short, the energy bill at least keeps us from expanding our dependence on fossil fuels.

    Bill Falls Short - What's Missing

    Still, the energy bill is only a partial victory in my mind. It does a good job of addressing the transportation sector - with increased fuel economy, biofuels and electric drive vehicles provisions - but it largely ignores the electricity sector, the other major contributor to U.S. global warming pollution.

    Despite receiving support from a majority of senators, a minority of senators blocked the 15% by 2020 renewable energy standard proposal that would have helped our electricity sector transition away from fossil fuel dependence and towards renewable energy independence.

    Developing our nation's abundant, homegrown renewable energy resources is critical to the development of a sustainable energy future, and the absence of this key provision from the Senate energy package dings it a few points in my mind.

    Also missing is an equally crucial package of tax incentives, loans and other financial incentives that would support a variety of clean energy technologies, from wind, solar, geothermal and other sources of renewable electricity to advanced biofuels, electric drive vehicles and carbon capture and storage technologies.

    A $32 billion tax package that would have shifted subsidies from the oil and gas industry to support renewable energy, energy efficiency and other clean energy technologies was left out of the bill, again blocked by a minority of senators.

    This is a major disappointment and leaves the Senate energy bill incomplete - it lacks the financial incentives to push forward the clean energy technologies we'll need to achieve the standards in the bill and truly put America on a path to a sustainable energy future.

    Finally, while we're finally moving in the right direction with a 35 mpg by 2020 fuel economy standard, and it was all Democrats could do to preserve that standard, as the following graph (courtesy of Green Car Congress) illustrates, it really isn't that impressive when you look at fuel economy standards in the rest of the world, and even right here in several U.S. states.

    As the graph above illustrates, even with the 35 mpg by 2020 standard, in thirteen years American fuel economy standards will be at about where China and Japan are today, the EU was five years ago and where the states that adopt California's tailpipe standards will be in just five years.

    Summary and Final Grade

    In summary, the bill is clearly a step forward - it avoids backsliding, doesn't shower any more money on the oil, coal and nuclear industries, includes several long-overdue provisions and deserves credit for what it does include. But it's a long way from the 'giant leap forward' in energy policy we truly need at this point.

    I was hoping for an A+ - a truly comprehensive energy package that sets America on a course for a new, sustainable energy future.

    Indeed, I think Americans are demanding just such a bill: we're fed up with Congress doing little to fight America's oil addiction, end our reliance on fossil fuels and do something about the climate crisis. This bill will help each of those pressing issues, but falls short of a comprehensive solution.

    Final grade: B-


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    Heiko said...

    You might be interested in Geoffrey Styles' take on it.

    Basically, he's saying that if the renewable incentives are such a good idea, why do we need to finance them by taxing oil companies?

    He thinks an extra 2 cents per gallon in gasoline taxes would be a much better idea.

    Jesse Jenkins said...

    Thanks for the link Heiko. As far as Geoffrey's take on the tax package proposal that would shift subsidies from the oil and gas industry to support clean energy, I disagree with his fundamental assumption: that we're talking about taxing the oil industry for the sake of clean energy industries.

    The proposals are not about taxing the oil industry, but about removing unnecessary tax breaks current lavished upon the oil industry. No one (at least outside of California!) is proposing a 'severance tax' on the oil industry.

    Even President Bush has publicly stated that when oil prices are over ~$55/bbl, the subsidies currently provided to the oil industry are not necessary to incent oil exploration and production - the profit motive is strong enough already! Oil industry execs have also testified before the Senate to that effect (albeit reluctantly), at least according to my Senator, Ron Wyden (D-OR).

    The subsidies given to the oil industry - tax breaks, depreciation, loans, cheap royalty fees for production on public lands, etc. - are a relic of another time, a time when incenting oil production was necessary and in the nation's best interests. In the current age of $65/bbl oil, these subsidies are no longer necessary, and we should think about where our money could be better spent.

    At the same time, there is a growing consensus that it is time to end America's oil addiction and get a handle on the climate crisis, and it's time to recognize that we can't drill our way out of these problems. While expanding domestic oil production - something that the market should incent on its own, given current oil prices - would help reduce our dependence on foreign oil in the short term, it will only continue a pattern of addiction to depleting fossil fuels that exacerbate the climate crisis.
    Instead, we should focus on solving these problems through an investment in clean, renewable energy sources, energy efficiency and other clean energy technologies which offer a sustainable, long-term solution to both our oil addiction and the climate crisis.

    I would certainly support funding the clean energy tax package through a couple cent/gallon gasoline tax, as Geoffrey proposes, or another funding source, but it also makes perfect sense to me to reflect our shifting priorities and the changing times by shifting existing federal subsidies that go to the fossil fuel industries to support developing clean energy industries instead.

    Why raise taxes when we have a readily available and no longer necessary pot of money already in our energy budget?

    Geoffrey writes, "Getting oil companies to pay for alternative energy sounds like a smart and popular notion," before calling into question this notion. But noone's talking about making oil companies pay for alternative energy. The subsidies we currently give the oil industry is our money, taxpaying citizens' money, and if it no longer makes sense to give it to the oil industry, or it now makes more sense to give it to clean energy industries, then that is our - or Congress' - prerogative.

    In the end, Exxon won't miss the money that much!