By Ken Silverstein Director, Energy Industry Analysis

The U.S. House of Representatives has passed another energy bill. But, unlike the version that also got the thumb's up by the lower chamber in early 2004, this one might pass the Senate too given that the high price of oil and natural gas has changed the dynamics of the discussion.

An energy bill has long been a priority of the Bush administration and it is willing to compromise on issues it holds dearly. At the heart of the House bill is an emphasis on fossil fuels and the efforts to make it easier to drill for them. Specifically, the measure provides $8 billion in tax breaks over 10 years to those industries—a move that supporters say is necessary to lead the country toward greater energy independence. Critics counter, however, that such polices come at a cost to the environment.

The Senate is not expected to take up the measure until May. If it can agree on a bill and then eventually reconcile it with the version passed by House members, it would land on the president's desk in August. In any event, the current bill under the microscope allows for drilling in the Arctic National Wildlife Refuge and provides funding to modernize the electric grid. It also funds initiatives for the coal and nuclear industries.

Certainly, some of the disagreements that haunted previous energy bills are expected to do the same now. That is, Republicans want to give makers of the gasoline additive MTBE a reprieve from lawsuits whereas the Democrats disagree with that provision and note that it has polluted drinking water. And, just as important, the Democrats want a greater emphasis to be placed on renewable energy forms and are less inclined to include more drilling rights for oil and gas producers. The bill would also give oil producers another $2 billion to find new energy sources in the Gulf of Mexico.

“This energy bill is very important,” says House Energy Chairman Joe Barton. “Without it, we have no mandatory electric reliability standards. Without it, we probably don't see any new refineries constructed. Without this energy bill, we may not get hydrogen fuel cell cars, lower natural gas prices and improved gasoline markets.” Interestingly, the bill extends daylight-saving time an extra two months a year.

Disagreements Persist

Disagreement still abounds. Environmentalists, for example, support additional funding for research and development of renewable energy sources. This bill does that. But, it also allots the preponderance of the research dollars to fossil and nuclear fuel production. Those green groups may eventually capitulate to the administration's position on fossil fuels if they can get more funding for clean energy initiatives.

And while the bill allows energy companies potentially to drill in areas now off limits to them, they would prefer far greater access. The discrepancy in the positions may lead to compromises and give all sides some of what they seek.

The legislation is laden with "special-interest provisions … that will mean more environmental harm without reducing our dependence on foreign oil,” says Frank O'Donnell, president of the Clean Air Watch. O'Donnell and other activist organizations such as Campaign for America's Future note that energy companies' contributions carry weight in these discussions and point out that Exelon Corp. and Southern Co. have given the most money this year.

Chairman Barton and supporters of the measure emphasize that their priority is to diversify the country's energy mix while trying to achieve greater independence. The bill passed by a margin of 249 to 183, but only after Republicans defeated attempts by Democrats to require greater fuel efficiency for automobiles—steps that the minority party says would do much more than allowing new drilling rights.

Democrats, meanwhile, argued that the bill would do little to address high oil and gas prices and that it amounts to nothing more than more largesse for the energy industry. The Democrats failed to strip provisions from the measure that would prohibit the exploration of oil and natural gas in the Arctic National Wildlife Refuge. At the same time, the measure would give federal government the power to override state governments when it comes to siting liquefied natural gas plants.

While the Bush administration has said that it does not support any new tax incentives for oil and gas companies, it is apparent that it won't stand in the way of those provisions if they are sent to the president for his signature. And most Republicans are steadfast about protecting oil companies from MTBE liability, noting that such giants produced the gasoline additive to comply with federal clean air standards. Still, the bill calls for a phasing out of the fuel additive by 2014 and provides $2 billion in funding to achieve that goal—also something that the Democrats are saying is too lenient and too generous.

Judgment Calls

Environmentalists are quick to point out that the fossil fuel industry has been subsidized for decades and that any fledgling industry with promise must be given equal advantages until it is able to compete on its own. Toward this end, they say the current bill fails to harness the potential of renewable energy sources and gives most of the breaks to traditional fuel sources. Critics of wind energy counter the tax bonuses given to wind developers exceed the revenue they get from selling electricity.

Clearly, the fossil fuel industry is not going anywhere for a while. The Energy Information Administration says that about 85 percent of the energy consumed in the United States in 2003 came from coal, oil and natural gas while all renewable energy forms and nuclear energy produced 7 and 8 percent, respectively. But, there is a growing awareness of the cost to the environment of pursuing fossil fuels at the expense of other energy sources—and this is causing some policymakers to demand the changes be made sooner than later.

It's a judgment call as to how to prioritize energy ideas and at what level to fund them. With the Republicans in charge of the legislative and executive branches of government, it appears that finding newer and better ways to develop coal, oil and natural gas will be given a higher standing and more tax breaks than finding similar opportunities for the renewable sector.

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