Mar 25 - Chicago Tribune

Democrats are pushing a cleaner, greener energy policy that they will try to drive through the House later this month. But its ultimate outlook is uncertain _ and so is its impact.

As part of their 100-hour strategy to pass high-profile legislation, House Democratic leaders want to do away with billions of dollars in oil industry tax incentives and force oil companies to pay higher royalties on Gulf of Mexico leases. The extra money would be used to give a dramatic boost to renewable energy sources.

This shift in energy policy has been widely hailed by organizations that stress renewable and alternative sources of energy such as bio-fuels, solar and wind power. Energy efficiency and conservation groups also hope for more money. Although President Bush increasingly has talked about development of such energy sources, funding has been spotty.

"This was never particularly important to Tom DeLay (the former House Republican majority leader)," said Randall Swisher, executive director of the American Wind Energy Association.

He said he is hopeful Congress will use the extra money partly to extend production tax credits for wind energy for at least five years rather than at the current rate of one to two years at a time, a move that would dramatically increase the size of the industry.

But the new legislation faces two big hurdles _ a Senate where Democrats have a razor-thin margin and a White House that backed the tax breaks in the first place.

In addition, some energy analysts said they doubt that the bill would contribute greatly to easing the nation's energy problem any time soon, even if the House bill should become law. For now, emphasizing green power at the expense of other steps may be inadequate to the task, they say.

Philip Verleger, an Aspen, Colo., economist who specializes in the energy industry, said the nation needs a more comprehensive energy policy. He would advocate forcing more conservation by raising energy taxes sharply and imposing tougher mileage standards on vehicles. He also favors a minimum price for oil to keep the price from fluctuating so wildly, and encourage more production.

If the Democratic bill passes, he said, "I don't think much would happen" in terms of its broader impact on energy supply. "The real issues are whether it is going to get signed into law, and how they are going to get it through the Senate. I think the likelihood is that we are going to see a stalemate on energy legislation for the next two years."

Andrew Weissman, an energy consultant in Washington, said he also feels the Democratic approach is inadequate to address the longer-range energy problem that he foresees. "When I look at the situation developing beyond the next three or four years, we are facing massive supply deficits," he said. "I don't see Democrats or Republicans addressing them."

Ironically, oil and natural gas prices have declined markedly since last year, and warmer weather in some parts of the country has continued a downward price push.

But looking beyond the immediate period, the energy-supply situation is less certain. Prices have been extremely volatile in the past few years, and that pattern could continue.

Another major energy bill is co-sponsored by Sen. Barack Obama, D-Ill. It would require a dramatic expansion in the ethanol and biodiesel fuel supply. Now, ethanol comprises about 5 billion gallons of U.S. supply per year. The bill would raise that to 30 billion gallons by 2020 and 60 billion gallons by 2030. It would also require major oil companies to ensure that within 10 years, half of their gasoline stations would be able to pump gasoline containing 85 percent ethanol. Its chances are uncertain.

Sen. Jeff Bingaman, D-N.M., chairman of the Senate Energy Committee, said in an interview, "I think there is great sentiment in this Congress to move ahead with locking in provisions that will get us to a green energy future. A lot of people campaigned on that last fall, and I think the public is interested" in that energy-policy focus.

At the moment, the oil and gas industry is gearing up to fight the House measure by questioning whether Democrats are removing important incentives for production that could wind up discouraging domestic drilling for extra supply. But some Democrats believe the president might sign the bill.

"It sends the wrong signal to investors," said Charles Drevna, executive vice president of the National Petrochemical and Refiners Association. "It says you are not for increasing energy supply. You are not for increasing domestic resources. What you are for is some punitive measure because the oil and gas and refining industries enjoyed some increased profits. It's Alice-in-Wonderland energy policy."

Mark Kibbe, senior tax policy analyst for the American Petroleum Institute, said the Democrats are focusing on a 2004 job-creation bill providing tax deductions for companies, including oil and gas firms and refineries.

Kibbe said much of the new production occurs in the deep waters of the gulf, where drilling is expensive. "What you do at some point is you make U.S. projects non-economic" against foreign producers, he said.

Details of the legislation are still skimpy, but House leaders said it would call for repeal of about $5 billion in 2004 tax cuts for the oil and gas industry. In addition, it would seek to force oil companies to pay higher royalties on oil drilled in the Gulf of Mexico. House Majority Leader Steny Hoyer, D-Md., said last week that extra royalty income could total $9 billion to $11 billion.

Precisely how the money would be used to subsidize renewable fuels is also a question mark, and that decision could come after the House passes the revenue-raising legislation. It is also possible that Democrats would seek to reduce some oil and gas incentives in a 2005 energy bill to raise more money.

"We're going to make sure that we're not subsidizing oil companies, but that we're investing in renewable energy sources and alternative energy sources so that in the long term we will be energy independent," Hoyer said.

Scott Skald, president of the Stella Group LTD., a firm that specializes in renewable energy, said it's crucial that any new money not sit idly in a fund but is used for projects and tax credits. In the past, "green" industries have complained that promised funds either have not materialized or have been trimmed.

Kara Saul Rinadli, senior director of policy for the Alliance to Save Energy, said that after Bush signed a bill calling for a sharp increase in funding for energy efficiency measures, his budget last year sharply cut back on these programs. "It is important that Congress go back and take a look at these programs," she said.

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