By Ken Silverstein Director, Energy Industry Analysis

A cohesive national energy policy remains elusive but a bipartisan group hopes that its ideas will be implemented. The National Commission on Energy Policy on Wednesday urged the president and lawmakers to address climate change, natural gas supplies and new nuclear projects.

For at least the next half century, coal and natural gas will make up the preponderance of fuels that produce electricity—a portfolio that will most likely grow to include more renewable and nuclear sources. 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.

A broad energy bill is difficult to pass largely because of its largess to so many diverse—and controversial—interests. Conflicting messages abound. Natural gas, for example, has been labeled the "fuel of choice," because it is clean burning. But, its price volatility has pushed the cost ever higher this winter, and now people are second guessing our increasing dependence on it. The commission plots a course that it says would achieve that objective by encouraging the construction of liquefied natural gas plants and adopting incentives to build the Alaska natural gas pipeline.

Meantime, the commission acknowledges that coal will be an integral part of the national energy portfolio for years to come but pushes the utility industry to reduce carbon dioxide and other emissions. Without coal, the United States could not meet its expected future need for electricity. Coal now constitutes more than half of the fuel used to power electric generators. While that number is expected to drop to 40 percent over the next 17 years, its total use is expected to rise along with the country's appetite for power. The Department of Energy forecasts that coal consumption will increase 22 percent by 2020. At the same time, at least 200 years worth of reserves lays in the ground.

But if coal is going to play a critical role in meeting our future energy production, then it is essential that the pollutants created by burning it be drastically cut. Indeed, new technologies appear promising and have been shown to reduce coal emissions regulated under the Clean Air Act between 45 and 99 percent. That's why the report advocates spending $4 billion over 10 years in incentives for coal gasification technology and to capture and bury carbon emissions.

There are still more questions than answers. Can the U.S. continue to tap its abundant natural resources while keeping the environmental impact within acceptable limits? If so, what is the proper fuel mix? If not, then what blueprint could sustain the country's economic engine? Do we then increase our imports of liquefied natural gas from regions of the world with ample gas supplies? Do we invest more in renewable sources and work to safeguard our environment? Do we rely more on nuclear energy because it is "clean"? Or, do we focus on making coal cleaner, possibly at the expense of other energy alternatives?

“Political and regional polarization has produced an energy stalemate, preventing American from adopting sensible approaches to some of our biggest energy problems,” says John Rowe, commission co-chair and CEO of Exelon Corp. “Our commission reached consensus … because of a willingness to take on cherished myths from both the right and left. We believe that this package of recommendations can be of value to Congress and the administration in energy legislation next year and beyond.”

The report, “Ending the Energy Stalemate: a Bipartisan Strategy to Meet America's Energy Challenges,” uses original research to support its findings. It suggests spending $36 billion over 10 years to fund the programs—an amount that would be raised by selling emission allowances from greenhouse gases. It furthermore advocates reducing barriers to the siting of critical infrastructure and clarifying the rules for cost recovery, all to reduce uncertainty and to help raise capital for projects.

'Constructive Center'

Under the commission's proposal, the U.S. government in 2010 would begin issuing permits for greenhouse gas emissions based on an annual emissions target that reflects a 2.4 percent per year reduction in the average greenhouse gas intensity, which is measured in tons of emission per dollar of gross domestic product as opposed to a hard cap on total emissions. Such a metric is also the basis of President Bush's plan, which calls for voluntary reductions of 1.8 percent in emission intensity from 2002-2012.

Most such permits would be issued at no cost to existing emitters, but about 5-10 percent would be auctioned to accommodate new entrants. That would stimulate the market for emission permits and fund research and development of new technologies. Permits would be sold by the U.S. government initially for $7 per metric ton of carbon dioxide. The blueprint also includes a cost-capping mechanism to limit total expenses. It estimates that carbon dioxide emissions would decline by at least 540 million metric tons by 2020 from what they would otherwise be.

Market forces will play the deciding role. But public policy will undoubtedly tip the balance. Along those lines, the commission wants to enable nuclear energy to play a more meaningful role, particularly because the group has placed a high priority on climate change. It would do so by fulfilling existing federal commitments on nuclear waste management and providing $2 billion over 10 years to build two new advanced nuclear power plant projects.

At the same time, the commission suggests increasing federal support for renewable energy research and development by $360 million annually to enable technologies to reach a threshold whereby they are less expensive and become commercially viable. It also says that the tax credit given to wind should be expanded through 2009 and broadened to include all non-carbon energy sources, which would include solar, geothermal and new hydro plants and next generation nuclear facilities.

Dissenting Ideas

Most special interest groups found things to like and dislike in the report. But one group, United for Jobs, is critical and says that the costs would fall on small businesses. “This plan amounts to a backdoor energy tax focused solely on the financial gains from emission trading and provides no long-range solutions,” says Karen Kerrigan, co-chair of the group. “This scheme will drive up energy costs, hurt the U.S. economy, cost jobs and take resources away from technology development …”

Some of the primary obstacles in recent years to a comprehensive energy bill have been just what projects get the most funding and what emphasis is placed on production versus the environment. The report steers lawmakers to what it calls the “the constructive center,” although such terminology is nebulous and must be accompanied with definitive ideas and the research to support them.

The commission's report, which took two years to prepare, could be a catalyst for further discussion and a possible bridge between dissenting parties. In the end, however, the central conclusion is likely to be that the nation needs a diverse portfolio of energy sources.

©2004, UtiliPoint® International, Inc. All rights reserved. This article is protected by United States copyright and other intellectual property laws and may not be reproduced, rewritten, distributed, redisseminated, transmitted, displayed, published or broadcast, directly or indirectly, in any medium without the prior written permission of UtiliPoint® International, Inc.