Energy Bill Focuses on Fuel Efficiency

Energy Bill Focuses on Fuel Efficiency

January 7, 2008

Ken Silverstein
EnergyBiz Insider
Editor-in-Chief

For the second time in three years, Congress has passed a comprehensive energy measure that the president has signed into law. The overarching aim is to reduce America's dependence on foreign oil. While the bill had bi-partisan support, it has still been criticized by both the right and left as harmful to the economy and giving short shrift to green fuel sources, respectively.

With the blessing of automakers, the new law will increase the minimum fuel-efficiency for passenger vehicles for the first time in 32 years from an average of 25-miles per gallon now to 35-miles per gallon in 2020. That, in turn, could help trim this country's use of foreign oil supplies by 1.1 million per barrels a day that equates to more than half of the oil exported by Kuwait and Venezuela.

Beyond that, the law requires lots more ethanol to be used as a motor fuel. Specifically, corn-based ethanol will rise from 6 billion gallons a year today to 36 billion gallons a year by 2022. After 2015, the emphasis will change from using food stocks to using cellulosic ethanol such as wood chips and prairie grass. At that point, 21 billion gallons must be derived from such sources. The measure furthermore requires more energy-efficient lighting and appliances, including refrigerators and dishwashers, and more energy-efficient federal and commercial buildings.

"Today, we make a major step with the Energy Independence and Security Act," said President Bush, after signing the bill at the Department of Energy. "We make a major step toward reducing our dependence on oil, confronting global climate change, expanding production of renewable fuels and giving future generations a nation that is stronger, cleaner and more secure."

The Democratic leadership said that the fuel economy standards will save motorist as much as $1,000 annually at today's gas prices. The auto industry had long fought the increase in those fuel standards, noting that it would reduce consumers' choices in the showroom. Others said it would lead to the creation of less safe cars.

The auto sector's backers, which include President Bush, said that consumers can already buy smaller cars. Rather than new fuel standards, the president had suggested providing tax incentives to consumers who choose to buy more fuel efficient vehicles. In the end, though, the industry said that with the longer phase-in period, it could cost effectively accommodate Congress' mandate, and its supporters fell into line.

Critics of the provision to require more ethanol say that it is nothing more than a boon to farmers, who get huge subsidies to produce the stuff. They say that touting ethanol as a renewable energy is misnomer, claiming that the production process results in a net energy loss. Those skeptics also say that such policy will lead to food shortages and rising food prices as more crops are diverted to make fuels.

Next Time

The leadership of both parties expressed satisfaction at the signing of this law. The Democrats underscored the increase in fuel efficiency standards and new energy conservation rules while the Republicans highlighted the increased use of alternative fuels for passenger vehicles, citing research that ethanol production results in a net energy gain and that it is a cleaner burning fuel than pure gasoline.

Nevertheless, both sides expressed disappointment. The Democrats say that the measure should have included provisions requiring utilities to generate more electric power from renewable energy sources as well as more tax breaks for wind, solar and biomass. Some Republicans, meanwhile, say the measure is "recessionary" and that it provides almost no support for the fuel supplies that feed most of this country's energy appetite.

Neither party has given up on those efforts. If the Republicans are to increase their odds of getting more of what they want, they will have to get to work soon. President Bush is now in his last year of office and there is a 50-50 chance that a new party may win the presidency. Democrats, meanwhile, are placing their bets on winning the highest office in 2008 and have vowed to try and pass legislation to promote the use of more renewables in the electric generation sector.

"It could have been stronger," says Senator Barbara Boxer, D-Calif., in reference to the current bill that just passed. "It's really unfortunate that we didn't have the renewable electricity standard or the incentives for wind and solar. But we'll fight for those another day." The Democrats would have paid for that expansion by repealing $13.5 billion in tax breaks given to the oil companies. That provision failed to win support in the Senate.

A key Republican House member opposes the law because it essentially ignores conventional energy sources. Rep. Joe Barton, R-Texas, ranking member of the House Energy and Commerce Committee says that it should be called a "non-energy" bill because there is nothing in it for coal-to-liquids or to motivate producers to drill for more oil and gas at home. He also says that the nuclear sector got stiffed.

As a result, the demand for conventional energy supplies will exceed the supply. That imbalance means that energy prices will rise. Barton says that this scenario will lead to an economic downturn as the cost of production ranging from everything to building homes to running manufacturing facilities increases. "So what happens when all these costs go up?" Barton asked on the House floor. "Jobs go down."

Democracy is a messy process. With the Executive and Legislative braches of government controlled by two different parties, passage of any legislation requires give-and-take on both sides. The approval of the latest energy law illustrates the practice. Politically, however, each party can tell its constituents that it is doing more to achieve fuel efficiencies and conservation -- in time for national elections next fall.