The executives in both hearings tried to explain that their companies do not really have an excessive profit margin since their final profit is only a small percentage of their total revenue. They also tried to explain that they do not set their prices; for a commodity with a world market like oil, the prices are set on transparent exchanges where anyone is free to buy the product at whatever price they can find a willing seller. They also claim that they have been restricted from developing oil production in high potential areas and that those restrictions have prevented them from being able to produce enough additional oil to have much effect on the supply-demand balance.

There are many bloggers and commentators in business oriented journals that listen to those arguments and are willing to give the executive a pass. On Trading Crude Oil, for example, the author wrote a post titled Senators Challenge Oil Executives that blamed “politicians and environmentalists” and told readers that they were the ones that supported both of those groups and allowed them to establish rules that kept the oil companies from finding new sources of oil.

On Energy Outlook Geoff Styles, a former oil trader and current energy and environmental strategy consultant, wrote a post called Crossing the Rubicon that discussed how he could not blame the executives for their “admirable fiscal discipline” in building an organization that has achieved “record earnings, not only relative to its own past performance, but when compared against the performance of any firm in any industry at any time”.

My own analysis is that the senators were onto something yesterday when they dismissed the executives for attempting to play the role of passive victim (beneficiary) of market forces. What the senators may not understand is just how much of a role the long term decision processes inside the oil, gas and coal industry have driven our current market situation.

As Trading Crude Oil pointed out, the average price of oil in 1998 was $11.91, less than one tenth of the current world price. There have been a lot of factors that have gone into the remarkable escalation in those prices, and the energy industry does not control them all. Industry decision makers do, however, control and understand those forces far better than consumers, politicians and environmentalists. The major energy companies employ virtual armies of traders, analysts, geologists, statisticians and marketers. It is their business to know how to take advantage of opportunities and to recognize limitations. If there was no strategy and planning involved, it would be even harder to understand their compensation levels.

You can learn a lot about this process by digging through strategy and financial documents posted on websites at the major companies. Without picking on any one company, let me tell you what I found in a document titled 2007 Financial and Operating Review published by ExxonMobil. There is a section titled Outlook for Energy, A View to 2030 that starts off with the following statement:

Our outlook is focused on the world’s rising energy needs and how we expect these needs to be met. Providing this energy is not easy or automatic. The challenges reflect the global scope of the task, as well as substantial objectives related to economic development, energy security, and the environment.
The Outlook for Energy summarizes ExxonMobil’s projections for global energy demand and supply through 2030. The outlook is developed annually, the result of an ongoing process that has been conducted for decades. The results are used to assist our business planning and to increase public understanding of the world’s energy needs and challenges.

In other words, the oil companies are not surprised by the variations in the world’s energy markets, they look ahead and try to put themselves in a strategic position to benefit. That much is okay, but what benefits them does not necessarily benefit the rest of the economy and may not even benefit their shareholders very much. That may be because the decision makers at many major oil companies are very minor shareholders in their own company. (The document that I reviewed also revealed that the total shareholdings by top executives at ExxonMobil was less than 1.5% of the outstanding shares and that there had only been on minor purchase by an insider in nearly 2 years.)

What the oil companies have done in the ten years since 1998 is to continue spending a huge sum of money marketing their products to help increase demand. They have also spent a lot of executive time working on mergers and acquisitions to consolidate and reduce expenditures on their work forces. (Note: they are now complaining that their workforces are aging and that they are having trouble finding people to do the difficult and technically demanding work of finding and producing more oil and oil products.)

Major oil companies have spent a good portion of their earnings buying back their own stock, considering that investment to be a better use of capital than drilling new wells or expanding their refinery capacity. They have made token investments amounting to less than 1% of their total capital investments in alternative energy sources.

Note: you have to be careful when you read their advertisements and literature - many oil companies lump natural gas, coal and liquified natural gas into the “alternative energy” portion of their statements. They have also studiously avoided any mention or investment in nuclear power, the only non fossil alternative energy source that has ever replaced oil, coal or gas in generating reliable heat, electricity or motive power.

The oil companies have also been playing hardball with some of the countries that have remaining resources, trying to enforce agreements that were made at a time of much lower energy prices. Those agreements allow the companies to take most of the increased value of the oil without sharing it with the source. Of course, many graduates of American business schools think that contracts are inviolate, but the fact is that the only stable kind of business arrangement is one where both buyer and seller are reasonably satisfied.

Anyway, you get my point. Oil company executives are loving their perks, salaries, bonuses and power and think that they are succeeding in the game of life because they happen to sell a product that many of us cannot do without. They know that their profits depend on their being more demand than supply and they have made decisions that have limited the growth in supply in the name of operating efficiencies.

Because of the deleterious effect of high oil prices on countless other businesses, I imagine that oil company executives are having just as pleasant a time answering questions from their fellow Business Roundtable members or at the Davos conferences as they are getting in answering questions from US Senators.

Photo credit: Sturgis was a WWII era Liberty ship that was modified to carry a 10 MWe nuclear power plant. The system was owned by the US Army Corps of Engineers and supplied power to the Panama Canal Zone for more than a decade. US government archive photo.

Following the press conference, APRN spoke with Senator Ted Stevens. Legislation sponsored by Senator Stevens and Senator Lisa Murkowski, both from Alaska, allows for drilling in a designated section of ANWR if the price of oil reaches $125 per barrel and stays at that price for five consecutive days. These two Senators are advocates of drilling ANWR to obtain our own oil in order to drastically reduce the amount of oil we import from the middle east. Based on the amount of oil currently purchased and used per day, they say the oil obtained from ANWR would reduce our price at the pump.

According to Senator Stevens’ web site he supports a balanced approach to the energy crisis which includes retrieving domestic oil, conservation, and alternative energy sources. I agree with Senator Stevens, we need a balanced approach. Is drilling ANWR the answer? In April it was reported that billions of barrels of oil are sitting under the Bakken Shale, and that area is already being drilled. Would it make more sense to continue and expand our efforts there?

The price of gas is continuing to rise, apparently we (as a country) are not going to refrain from purchasing oil to feed our gas guzzling habits. There is much discussion about what to do. Again, I return to the citizens and look beyond the politicians. Plan more and drive less. Walk, ride your bike or stay home for a change of pace. However you want to contribute there are things we can do to make a statement to our government and to those purchasing oil from the middle east.

Photo Credit: Michael P. Whelan via Flickr

Among other things, the Consumer-First Energy Act of 2008 would roll back tax breaks for oil companies and invest the money in renewable energy development and energy efficiency technology. It also would create a windfall profit tax on oil companies failing to invest in increased capacity and renewable energy resources.

According to one of the bill’s co-sponsors, Sen. Bernie Sanders (Ind.-VT):

“The bottom line is that at a time when this country faces a major crisis in terms of the price of oil, when many working families in our state and all over this country are hurting, I think we have brought forth a comprehensive piece of legislation, which begins to attack that problem with the result of lowering the price of oil.”

Reaction Less than Stellar

Thus far, reaction across the blogosphere is just as what might be expected. Dave Roberts at Grist makes no bones about his skepticism and calls the move a “counter-pander.” He writes:

“Look: you can’t promise Americans you’re going to lower the price of gas. It’s a lie, and they’re going to notice when prices don’t go down. It might help you tactically in the short-term, but in the long-term it’s going to come back and bite you on the ass. Gas prices are going to keep going up, and good leadership begins with honesty.”

It’s not just bloggers who oppose the Consumer-First Energy Act, the New York Mercantile Exchange (NYMEX) released a statement yesterday decrying the windfall profits title of the bill as “misguided.” According to the statement:

“Regrettably, this proposed margin provision, which would push trading from regulated and transparent markets to unregulated and nontransparent markets, would constitute a significant step backward in transparency and market integrity.”

The problem I see with this legislation is that it does nothing to address the structural problems that are causing a rise in oil prices. Simply put, the only way for us to even try and stabilize oil prices is to use less. Using less would require major investments in public transportation, the kind of investments the feds are very skeptical of providing.

Some of the components of the Consumer-First Energy Act are as follows (adapted from bill summary - available here)

• A windfall profit tax for oil companies - A 25 percent windfall profits tax on companies that fail to invest in increased capacity and renewable energy sources. This provision would not apply to the profits those companies reinvested in clean, affordable, domestically produced renewable fuels, expanding refinery capacity and utilization, or renewable electricity production.
• Stop speculation in the oil markets - First, the bill prevents traders of U.S. crude oil from routing transactions through off-shore markets to evade speculative limits and sets forth reporting requirements. The bill also requires the Commodities Futures Trading Commission to set a substantial increase in the margin requirement for all oil futures trades, contracts or transactions.
• Roll back tax breaks for oil companies and invest the money in renewable energy - Bill would roll back $17 billion in tax breaks for oil and gas companies and instead invest those taxpayer dollars to improve consumer price protection, renewable energy development and energy efficiency echnology through a designated Energy Independence and Security Trust Fund.
• Stop government purchases of oil for the Strategic Petroleum until the price of oil drops to $75 a barrel or less - The Consumer-First Energy Act calls for suspending through December 2008 oil purchases for the SPR. Filling could resume when the 90 day average price of crude oil recedes to $75 or less.
• Protect consumers from price gouging - Give the President the authority to declare an energy emergency should there be a shortage, disruption or significant pricing anomalies in the oil market.

See Also:

• “Clean Energy Tax Credits Will Not Be Passed Without Funding“
• “Senate Passes Renewable Energy Tax Credits: Why am I not More Excited?“
• “Feast or Famine Cycles of US Clean Energy Development“
• “Show Me the Deliberation…Please“

Associated Press

Photo: © Tommyschultz | Dreamstime.com

According to Ryan Grimm at Politico.com, when asked what the President would do if the current iteration of the farm bill made its way to the President’s desk White House spokesman Scott Stanzel replied, “as it stands now, it is not something the president would support.” Stanzel wrote in an email:

“The proposal before Congress would dramatically increase spending, in part by masking additional spending in budgetary gimmicks and accounting tricks.”

Farm bills pass - that’s what they do

Despite the threat, there may be enough Congressional support to override the veto. According to House Agriculture Committee Chairman Collin Peterson (D-MN), “If the White House is stupid enough to veto this, they’re going to get overridden.”

The farm bill is a very popular funding mechanism for Congressional spending. Every state’s congressional delegation works extremely hard to get their slice of the agricultural pie - not doing so does not bode well in the eyes of powerful ag interests and the voters of agricultural states. In short, farm bills do not get vetoed. At least very rarely do they get vetoed - there are a few exceptions.

One exception to the rule is when a second term president uses a veto (or threatens to veto) an appropriations bill, such as a farm bill - and criticize Congress for loading it with pork and earmarks - without any serious political repercussions. Interestingly enough, the last time a farm bill was vetoed was nearly 10 years ago, when another late second-term president successfully vetoed a farm bill - a veto which Congress made no attempt to override. But the political climate is quite different from that of ten years ago, and I would suspect that this President does not have the political capital to successfully veto the farm bill.
See also: “Small Wind Remains in Farm Bill” :: Green Options (12/2007)

Photo: mike138

The renewable energy tax credits were slipped into a housing bill that that did not end up looking the way its lead author, Sen. Chris Dodd really intended it to, remarking earlier in the week that it was “a housing bill, not a Christmas tree.”

However, will the production tax credit and investment tax credit ever make it to the President’s desk to sign? Despite the optimism shown by some well respected voices in the green blogosphere, I would argue that we will see some sort of stripped-down version of the renewable energy tax credits, if any at all. The House has hardened its opposition to this version of the tax-credit extensions, which are estimated to cost $6 billion over 10 years. House leaders have strong objections to deficit-financed tax breaks, and with few exceptions, they have offset lost tax revenue with tax increases or spending cuts elsewhere. But since the President rebuked Congress’ previous attempts at funding the tax credits by rescinding tax breaks for big oil, there hasn’t been much of a discussion as far as where the money for this program will come from.

“I doubt that the House will accept these extensions without some corresponding offsets,” said Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) on the Senate floor. “This leaves the administration with a key role to play in developing a compromise that will be acceptable to both chambers.”

So we’re leaving this up to the administration to figure out? Yikes.

Dow Jones

[UPDATE: The Senate version of the Conservation Act passed overwhelmingly today, by a vote of 91-4]. The House of Representatives has voted to pass H.R. 2016, the National Landscape Conservation Act, by a tally of 278-140. The bill will give legal recognition to the National Landscape Conservation System, a Clinton-era program that oversees some 27 million acres of federal land mainly in 11 Western states and Alaska. Joining the 238 Democrats in support of the legislation were 50 Republican members of the House [follow this link to see how your Representative voted].

“These lands play an increasingly important role in protecting our natural and historic resources,” said William H. Meadows the president of The Wilderness Society in a statement released Wednesday. The Wilderness Society is one of 75 conservation, historic preservation, faith-based, recreation, business and place-based friends groups supporting the bill.

Former Interior Secretary Bruce Babbitt created the system in 2000 as a means to conserve, protect and restore nationally significant landscapes.

The Associated Press

Bipartisan Environmental Policy…Really.

The House is scheduled today to vote on H.R. 2016, the National Landscape Conservation Act. And a broad bipartisan coalition ranging from such groups as the Wilderness Society to Republicans for Environmental Protection, is asking you to call your Representative and demand that they support the landmark wilderness conservation legislation.

H.R. 2016 does not change management of the lands in question, nor does it require additional expenditures. In fact, the Congressional Budget Office scored the bill at $0, which means it does not violate House pay-go rules. Please consider calling, writing, or otherwise contacting your representative immediately and asking them to support this important bill that would safeguard millions of acres of wilderness, rivers, forests, mountains, and streams.

The Wilderness Society

In a wonky twist that would alter the clean energy incentive structure in this country rather significantly, Senators Alexander (R-TN) and Kyl (R-AZ) offered an amendment (S. Amdt 4429) that would extend the production tax credit for two years (instead of one) for wind, geothermal, biomass, landfill gas, small hydro, and wave and tidal power. But the provision would also cut the production tax credit for wind in half and spread the funding out more evenly across technologies.

“I would argue that wind is over-subsidized,” said Alexander. “Wind is a proven technology… and this amendment would focus on emerging baseload technologies.”

The amendments are being considered as part of a housing and foreclosure package and they are completely unrelated to the House’s Renewable Energy and Energy Conservation Tax Act (H.R. 3221), which would have rolled back tax breaks for oil companies in order to pay for the renewable tax incentives. The tax package last fell short of passage in the Senate in February - by a margin of one vote.

‘Feast or famine’ Cycles of Clean Energy Development (CleanTechnica)

The effort by Congress in 2007 attempts to transform our current transportation system by mandating higher vehicle efficiency, an increase in production of biofuels, and efforts in renewable electricity. More pie in the sky rhetoric? Well I believe that depends on us, the people, the citizens, innovators, entrepreneurs and activists in our country. American history teaches us about a people who sacrificed their lives settling in a new land, willing to give up convenience for their future. No, we don’t have to settle in a new land. I doubt we will have to give up too much convenience. The technology is available and we are able to transform our current dependence on oil to renewable energy sources.

Why is independence from foreign oil a valid goal? I believe independence in any area is a favorable goal. When a person or entity has independence they have the power to make choices, to contribute more to their community. Self-sufficiency provides security and opportunity for growth. For our nation, independence on many fronts does not mean we do not want to contribute to the global community. It means we are able to be healthy contributors to that community. In our case, as Americans, if we choose to pursue a goal of Energy Independence we can see positive change in our economy, national security and our environment. All of which will allow us to participate in our global community in a more productive way.

The same thing will happen if the renewable energy tax credits expire (referring broadly to the investment tax credit and production tax credit). The boom-and-bust cycle of clean energy development is a direct result of the waxing and waning of the federal production tax credit (PTC). Recently, the U.S. House of Representatives voted 236 to 182 in favor of extending the tax credit package which is set to expire at the end of this year. 17 Republicans joined the Democrats in supporting HR 5351, the Renewable Energy and Energy Conservation Tax Act of 2008 and all but 8 Democrats supported the bill.

Of course it is no surprise to see renewable energy trade associations like the American Wind Energy Association and the Solar Energy Institute of America in favor of the PTC and the ITC respectively, but it is not only the cleantech companies that are pushing for the tax package. A broad coalition of 120 corporations, environmental groups, investors, labor groups, nongovernmental organizations, public health organizations, and utilities have urged Congress to pass H.R. 5351. The far-ranging group includes corporate giants Wal-Mart Stores, Best Buy Co., The Home Depot, and Dow Chemical, and utilities including Florida Power and Light and Pacific Gas & Electric. Civil society supporters include the Sierra Club, National Association of Home Builders, National Resources Defense Council, National Wildlife Federation, and the United Steelworkers (I guess no AFL-CIO on this one). The coalition sent a letter to the House last week that read,

“America is on the cusp of a new, clean energy economy. The clean energy tax incentives in H.R. 5351 would help our country make the transition to this economy — an economy powered by low-carbon technologies that help solve global warming, reduce energy prices for consumers and create new high-wage jobs.”

I have argued elsewhere that the bill has a good chance of passing, mostly because of the souring economy detectable in many indicators. But, I am about to do what Republicans call a ‘flip-flop’, and amend my position. It now appears that unless Congress takes away the ‘Robin Hood-esque’ mechanism for financing the credit, the bill does not stand a very good chance of passing. But, is this necessarily a bad thing? No, not necessarily.

Let me be clear, the production tax credit is not the perfect vehicle to grow our clean energy sources, it is just the one we have adopted because of its ‘market-friendly’ orientation. For those of you that don’t already know, I am a huge advocate of developing renewable energy in this country, but I think we should follow the lead of the Germans and others who have adopted feed-in tariffs (FIT). The FIT policy mechanism has largely been ignored in the US, although it is being experimented with in California, and it has been recently been introduced as proposed legislation in Michigan, Rhode Island, Minnesota, and Illinois.

Why won’t the PTC pass as it is currently written? First off, the bill still needs to get by a sticky Senate, and a President who recently reaffirmed his commitment to veto the bill unless congress changed the existing financing mechanism for the tax credits. You see, as opposed to the “fiscally conservative” Democrats (sounds weird, huh?), Republicans have shown that they prefer to borrow money from foreign investors and have it paid off by future generations of Americans. It strikes me that this strategy is a bit risky - almost like relying on those payday loans places that lure you in with the promise of instant money, but also lock you into a pattern of borrowing.

The current bill is not substantively different from the one that did not pass on three separate occasions last year, including once in December when the package of tax credits for renewable energy fell just one vote short of the 60 needed to prevent a filibuster and move on to the President’s desk. In a statement, the White House said that industries need a level playing field and this “targeted tax increase” would unfairly overburden American oil companies who need to be able to reinvest in new exploration (isn’t the whole idea, though, that we move away from fossil-fuels?).

So, as the future of clean energy development in the US hangs in the balance, individual states are not waiting around to take action. I propose that it is at the state level where cleantech investors should be looking for incentives and investment security. The feds are simply dropping the ball on energy policy. Fortunately, however, the states are picking it up and running with it.

Photo Credit: Morten Mitchell Larod

Reuters
CQ Politics
Washington Post

Feed-in tariffs have proven remarkably successful throughout Europe, and especially in Germany, where some 55% of the world’s solar power capacity resides. I have covered the nuts and bolts of the FIT here and I have made a short argument for them here (but for a more comprehensive treatment of how and why the policy mechanism works, I recommend visiting the World Future Council’s PACT website, which is a powerful resource for advocates, policymakers, environmentalists, tech geeks and regular folks).

In a nutshell, a feed-in tariff offers a long-term guaranteed price contract (usually about 15-20 years) to any entity that contributes electricity to the grid via renewable sources like solar, wind, biomass, landfill gas, small hydro, geothermal and methane. Whereas existing policy mechanisms like the production tax credit favor large corporations with sizable tax liability, and investment tax credits favor those folks who can afford a large upfront cost that comes with a 20-30 year payoff, this policy tool encourages the distributed generation of renewable energy and it levels the playing field by providing long-term investment security for small businesses, homeowners, churches, schools and others, so they are more willing to make the financial commitment that is necessary for installing renewable energy themselves. This is not to say that our existing RE policy tools of choice (including renewable energy standards) are inherently bad, but they may be insufficient to spark the kind of growth in clean energy the public seems to be demanding.

The diffusion of renewable energy FITs has extended from Northern Europe to include some 47 countries worldwide, but the mechanism has yet to gain much political traction in the United States. The bill is modeled after the legislation proposed in the fall of 2007, when Rep. Kathleen Law introduced HB 5218 into the Michigan House of Representatives.

Ironically, while the eyes of renewable energy policy wonks (yes, there are such a thing) have been looking to California, Michigan and Minnesota for a successful German-style feed-in tariff, Rep. May’s bill took people by surprise. But the fact that Rep. May has introduced it, is less surprising, as the four-term legislator has been the recipient of the Environmental Leadership Award from the Illinois Environmental Council and has been consistently endorsed by the Illinois League of Conservation Voters.

According to renewable energy expert Paul Gipe, “Representative May’s bill would create a full system of feed-in tariffs with prices for an array of renewable energy technologies. Currently, the only true feed-in tariff system in North America is the limited program offered in Ontario.”

The Ontario limited offer program, along with the regional climate change agreement signed by the Midwestern Governor’s Association last November, and talk of FIT legislation in Michigan, Minnesota and now Illinois, is positioning the upper midwest to compete with other emerging clean energy hubs like Colorado, California, and New York/New England.

The proposed Illinois tariffs are virtually identical to those equivalent to the actual ones in Germany as well as the proposed ones in Michigan.

• Hydro less than 500 kW……………………………………………………………$0.10/kWh
• Biogas/Biomass less than 150 kW………………………………………………….$0.145/kWh
• Geothermal less than 5 MW…………………………………………………….$0.19/kWh
• Wind……………………………………………………………………………..$0.105/kWh
• Wind energy from small wind turbines…………………………………………….$0.25/kWh
• Rooftop solar less than 30 kW………………………………………………………..$0.65/kWh
• Solar façade cladding less than 30 kW………………………………………………$0.71/kWh

As you can see, not all technologies are treated the same in terms of the price the utility is required to purchase the electricity for. Solar PV has the highest payout because it is the most expensive to install, but it is also some of the easiest to adopt on a large scale. Wind has a much lower tariff because the technology costs much less to install, and the payoff-date would arrive more quickly. The formulas are essentially designed so that regardless of what RE technology you install, the payoff time will be roughly the same. And after you have finished paying off your initial investment, you begin to pocket the rest, or, as many are doing in Germany, you can re-invest in more panels with more long-term guaranteed power purchase agreements from the utility.

It should also be noted that most FITs are adjustable or they adjust automatically. By lowering the cost of the payout, it is believed to drive more technological investment and research in more efficient processes. In other words, if you have a guaranteed rate for 20 years with a 30% efficient solar panel, and businesses know that you have this guaranteed rate, why should they innovate?
Full Text of HB 5855

On Wednesday, the Senate Finance Committee included measures to extend the Production Tax Credit (PTC) for renewable energy through the end of the 2009. The PTC, which is currently the most effective policy tool for developing renewable energy in the US, is set to expire at the end of 2008. The bill would also extend for one year a credit, equal to 30 percent of qualifying expenditures, for the purchase for qualified PV and solar water heating.

Senator Ken Salazar (D-CO), a vocal supporter of renewable energy for rural communities, issued a statement in strong support of the move:

“This package provides targeted tax incentives for small businesses that are the engine of our economy…It is my hope that, before the end of the week, we can pass this bill in the Senate and begin working with our House colleagues to come to swift agreement on how to give America’s economy the jump-start it needs.”

Another proposed amendment came from the Senate’s second most liberal, Vermont Sen. Bernie Sanders. The Sanders amendment would extend funding to help those with skyrocketing home-heating costs. “Without increased home heating help, senior citizens on fixed incomes, persons with disabilities, and low-income families with children are in danger of going cold in Vermont and throughout the country. We must not let that happen,” said Sanders. You can watch Sanders comment on video here. (And no, that is not a Vermont accent!). The good folks over at Watthead make a good case for contacting your legislator in support of amendments like these and other green amendments in the economic stimulus package.

The Finance Committee’s version of the stimulus package will most likely face opposition to any amendments to the house version of the stimulus package. What will the opposition look like? “Form of - Senate Filibuster!” “Shape of - Veto Threat!” (Wonder Twins anyone?)

Photo: Jeff Kubina via flickr

Sen. Salazar Press Release

Renewable Energy Access

Source: truthout.org

Congress and the president have spoken: ethanol is America’s new renewable fuel.

Yesterday, President Bush signed into law energy bill H.R.6, which establishes a new renewable fuel standard in the United States (see Max’s earlier post). But not everyone is applauding Capitol Hill. James B. Meigs, editor-in-chief of Popular Mechanics, has railed against ethanol in an op-ed to be published in the magazine’s February 2008 issue. As Meigs points out, Washington is looking for quick fixes, not long-term solutions:

It’s great that our politicians have discovered the need for new energy technologies. But it appears that Washington is determined to put its money—our money—on the wrong horse. Right now, researchers are studying a host of energy solutions, including hydrogen, high-mileage diesel, plug-in hybrids, radical reductions in vehicle weight and cellulosic ethanol (made from cornstalks, switchgrass or other nonfood crops). It is far too soon to say which of these holds the most promise. But, instead of promoting experimentation and competition to find the best solutions, politicians seem ready to declare ethanol the winner. As a result, our nation could wind up with the worst of both worlds: an “alternative” energy that is enormously expensive yet barely saves a gallon of oil.

James makes an excellent point: Washington should not be mandating specific renewable technologies but offering incentives that promote intelligent and innovative research. The new renewable energy standard is actually the most extensive ethanol mandate to date, requiring 15 billion gallons of ethanol be produced per year by 2015—three times todays output.

That’s a lot of corn, which isn’t exactly Mother Nature’s most resource efficient crop. Corn returns about 1.25 units of energy for every 1 unit of input. Imagine putting $1 on the roulette table and getting back $1.25. Worth the risk? Not really. And since these energy inputs usually take the form of diesel fuel and petroleum-based fertilizers, producing corn-ethanol is hardly kicking the oil habit.

So why does Washington still support corn-based ethanol? James has one answer:

There’s a simple reason that ethanol is popular with politicians: money. Substituting corn ethanol for a large fraction of the gasoline we burn will mean sluicing gushers of cash from more populated states to politically powerful farm states. And a lot of that cash will wind up in the pockets of the big agribusinesses, like Archer Daniels Midland, that dominate ethanol processing—and whose fat checkbooks wield enormous influence in Washington.

On the flip side, the new standards require that by 2022 an additional 21 billion gallons of renewable fuel be produced from conventional and advanced biofuels, including biodiesel, cellulosic ethanol, butanol, and biogas. They also raise CAFE standards to an average of 35 mpg by 2020.

These are important steps, but James’ argument still holds water. The U.S. doesn’t need massive increases in corn-based ethanol production. What it needs is intelligent, incentive-based development of renewable energy sources. Let’s do it right the first time.

Popular Mechanics (Feb. 2008): The Ethanol Fallacy: Op-Ed
GreenCarCongress (Dec. 18 2008): House Sends Energy Bill to President Bush; New Renewable Fuel Standard

Photo Credit

The U.S. Senate has passed the new energy bill, which now goes back to the House for final approval before going to the president for his signature. But, as they say, there’s no free lunch.

While the legislation includes the landmark increase in fuel-economy standards for vehicles and a huge boost for alternative fuels, legislators caved in to oil and utility companies and stripped the legislation of a $13 billion dollar tax increase on those industries.

But that isn’t all, the bill also removed a requirement that utilities nationwide produce 15 percent of their electricity from renewable sources. Another example of the incredible clout of oil and utility company lobbyists in the nation’s capital.

The full legislation easily passed the House of Representatives last week, and that’s when the industry boys focused on Republican members of the Senate and the White House. President Bush has repeatedly threatened to veto the bill if the offending sections were not removed.

The new fuel economy standards will take effect in 2011, gradually rising to the establishment of a 35 mpg fleet average by 2020.

Is half a loaf better than none? The Edison Electric Institute, National Association of Manufacturers, the Chamber of Commerce and other groups representing the mining, petrochemical, paper and refining industries think so, they all lobbied to scrap the tax increase.

The oil industry claimed the new taxes would impose burdens on the industry when it needed all its resources to find and develop new sources of energy. The bill’s requirement that 36 billion gallons of renewable fuels be blended into gasoline was too specific on what kinds of fuels must be produced, be it from corn, plant fibers or animal fats.

So I guess that’s what we get, and it only points out again the old saying, “Them what has, gets”. Our lawmakers again capitulated to Senate Republicans and the White House. It’s all about money, folks, and money is power and President Bush has again made it very clear he likes the money people enough to scuttle nearly every legislation or agreement that would help this country clean up it’s environment.

Matter of fact, it appears we’re doing that right now in Bali.

For Shame, Mr. President.

Source:  NY Times

Dingell hasn't brought his plan to the House yet; he's in the public-opinion gathering stage at this point. But here's what he's suggesting: a $50-per-ton tax on petroleum, coal, natural gas and petroleum-based products, along with an additional 50-cent-per-gallon tax on gasoline (with exemptions for diesel and biofuels). He's also looking to roll back the mortgage interest deduction for houses larger than 3,000 square feet: the bigger the McMansion, the lower the deduction.

• Moving $16 billion in tax incentives away from oil companies and putting it towards renewable energy.
• New energy efficiency standards for appliances and building codes.
• The creation of a Solar Energy Industries Research and Promotion Board to raise national awareness of solar energy options. The program would be funded completely by a portion of solar industry revenues, with no appropriations authorized.
• A modified 4-year extension of the wind power Production Tax Credit (PTC) that limits the credit to 35 percent of wind project costs.

Not in the bill is an increase in the Corporate Average Fuel Economy (CAFÉ) standards (a.k.a. “fuel efficiency”) that was a hot topic as the session came to a close. By avoiding a vote on CAFE standards, Democrats avoid public in-fighting with fellow Dems from auto industry states, notably Commerce Committee Chairman John Dingell (D-MI).

1. Spending on Utility and Public Benefits Energy Efficiency Programs
2. Energy Efficiency Resource Standards
3. Combined Heat and Power
4. Building Energy Codes
5. Transportation Policies
6. Appliance and Equipment Efficiency Standards
7. Tax Incentives
8. State Lead by Example and Research & Development