June 6, 2003

June 6, 2003 | WebMemo on Energy and Environment

Energy Amendments Inconsistent with Economic and Energy Security

The Senate is debating S. 14, The Energy Policy Act of 2003. Numerous amendments to the version reported out of the Energy and Natural Resource Committee are expected. 

 

Regrettably, many of these amendments, if adopted, would suppress U.S. energy supplies. Given that total energy consumption is projected to increase more rapidly than domestic energy production through 2025,[1] these amendments are shortsighted and irresponsible. The Senate should soundly reject them.

 

Among the most onerous of these amendments are:

  1. Mandatory renewable portfolio standard (RPS),
  2. Kyoto-like climate change language,
  3. Statutory increase in CAFE (Corporate Average Fuel Economy) standards, and
  4. Prohibition of an inventory of oil and natural gas resources of the U.S. Outer Continental Shelf (OCS).

Irresponsible Renewable Energy Scheme

The Energy and Natural Resources committee recently defeated an amendment that would require electric utilities to provide 10 percent of their generation by 2020 from renewable energy sources. The same amendment will be offered during floor debate, with reports that a similar amendment mandating 20 percent will reach the floor. The full Senate should follow the committee's sensible lead and rebuff these unreliable and costly measures.

 

Since 1978, the U.S. Department of Energy has spent over $11 billion of taxpayer money on research and development of renewable energy.[2] Renewable energy sources also receive generous taxpayer subsides through tax credits and incentives. Yet, despite two decades of billion-dollar funding from taxpayers, renewable energy accounted for only about 8 percent of total generation in 2001, and is projected to increase to only 8.5 percent of generation in 2025.[3] 

 

Moreover, if only non-hydroelectric renewables are accounted for, that percentage drops to 2.1 percent of generation in 2001, and a mere 3.3 percent in 2025.[4] In fact, renewable energy, including hydroelectric sources, is projected to remain just a minor contributor to U.S. electricity supply through 2025.[5]

 

The costs of generating electricity from renewable sources generally exceed the cost of generating electricity from traditional sources such as coal and natural gas as well as hydropower.[6] Likewise, renewables, such as wind and solar power, have low capacity factors and are site-constrained and intermittent.[7] To compensate for the unreliability of these renewables, back-up capacity is needed, adding to the cost of production.[8]      

 

Given that the nation's economy depends upon reliable, affordable supplies of energy, and that "[Renewables such as solar, wind, and biomass] cannot be counted on to provide the timely, reliable, inexpensive electricity resources the U.S. needs,"[9] the Senate should reject a renewable energy mandate.

 

Kyoto-Like Approach to Climate Change

President George W. Bush was right to walk away from the Kyoto Protocol on global warming. He did so, in part, because of "the incomplete state of scientific knowledge of the causes of, and solutions to, global climate change and the lack of commercially available technologies for removing and storing carbon dioxide."[10] Yet despite major gaps in knowledge of the science of climate change, some Senators want to force reductions in greenhouse gas emissions that would severely restrict the nation's use of energy.  

 

For example, the Senate will likely debate a floor amendment that would compel U.S. electricity, transportation, industrial and commercial sectors to reduce their greenhouse gas emissions to 2000 levels by 2010 and to 1990 levels by 2016. Although, touted as a market based cap and trade approach to reducing greenhouse gases, this proposal is nothing more than a scheme to impose an energy tax on the use of fossil fuels. This disguised energy tax would raise the price of energy for families and businesses, cause job losses, and undermine the nation's economic and national security.

 

With over 50 percent of U.S. electricity generated by coal, this plan would also pressure companies to switch from coal to natural gas, a fuel that is already in increasing tight supply. The Senate should decisively reject this type of amendment.

 

Likewise, the Senate should reject an amendment that would establish a purportedly "voluntary" national greenhouse gas emissions reporting system that would become mandatory after five years if less than 60 percent of the nation's greenhouse gas emissions are reported and certified. 

 

Proponents of this provision claim that widespread participation by the utility and auto industries, along with some industrial participation, would easily achieve the requisite reporting levels.[11] Many, however, doubt this assumption and believe that reaching the required level of reporting would necessitate widespread industrial and manufacturing reporting and the participation of commercial operations ranging from offices and apartment buildings to hospitals.[12] Many small entities such as homeowners and commercial facilities most likely would not report their greenhouse gas emissions, thereby triggering the mandatory reporting scheme. 

 

A mandatory registry would do the following:

1.     Create regulatory uncertainty by raising the possibility that non-pollutant carbon dioxide emissions could be regulated in the future, cause major capital improvements in the energy sector to be withdrawn, and impede needed rebuilding of the nation's energy restructure.[13] 

2.     Impose burdensome reporting requirements on businesses that would pass on those costs to consumers through higher prices for energy, manufactured goods, and services.[14]

 

This so-called "voluntary" program was ill advised when the Senate adopted a similar provision in last year's energy bill (S. 517) and it remains irresponsible today. Unlike last year, the Senate should reject this Kyoto-style reporting scheme.  

 

Higher Federal Fuel Economy Standards Jeopardize Consumer Safety
Congress enacted the federal fuel economy program, known as CAFE (Corporate Average Fuel Economy), in 1975 following the 1973 OPEC (Organization of Petroleum Exporting Countries) oil embargo. This program requires auto manufacturers to meet certain fuel economy levels for their fleets of new cars and light trucks (pickups, minivans, and sport utility vehicles). The standard for passenger cars is 27.5 miles per gallon (mpg) and 20.7 mpg for light trucks. 

 

The goals of the CAFE program were to reduce U.S. dependence on imported oil and consumption of gasoline. But while CAFE has failed to meet these goals it has had tragic even if unintended consequences. As vehicles were being made lighter to achieve more miles per gallon to meet the standards, the number of fatalities from crashes rose.[15] In fact, a National Academy of Sciences report released in 2001 found that CAFE's downsizing effect on passenger cars is responsible for between 1,300 and 2,600 deaths a year.[16]

 

CAFE is also an extremely inefficient policy because it does not equate the marginal cost of the policy across all users.[17] It only targets a very small subset of energy users - those who buy new motor vehicles.[18] It does not target older motor vehicles, those who use oil for industrial boilers, and those who use oil to burn for home heating.[19] 

 

Likewise, fuel economy standards stimulate more driving and lead to greater energy consumption-not less. This well-known "rebound effect" was the subject of an article in The Wall Street Journal that noted that cars are more than 50 percent more efficient than in the 1970's and the number of miles driven have doubled.[20]

  

Yet, despite the number of lives lost and the ineffectiveness of this program to achieve its purpose, some Senators are expected to push for even higher CAFE standards during floor debate, with an amendment to increase CAFE standards to 40 miles per gallon. The Senate should follow the House's lead and reject these ill-advised amendments.

 

Another expected amendment directs the Department of Transportation to propose fuel economy standards taking into consideration relevant factors such as the impact on the U.S. economy, jobs, cost, technological feasibility, and other similar measures. Instead of trying to improve this ineffective program, however, the Senate should repeal CAFE and replace it with free market strategies. Consumers respond to market signals. That - not big government regulations - is the right way to foster energy conservation.

 

Removing Comprehensive Energy Inventory Provisions Is Irresponsible.

An amendment to strike Section 105 of the energy bill calling for a comprehensive inventory of outer continental shelf oil (OCS) and natural gas resources is expected. This amendment would deny the American public access to important information regarding the nation's offshore energy resources. Likewise, it would deny members of Congress vital information needed for them to make prudent and long-term energy policy decisions. This inventory would not undermine or terminate the existing moratoria. Nor does it allow any drilling. In fact, it explicitly prohibits drilling to obtain estimates of resources in the OCS. All that Section 105 does is provide an accurate and up-to-date assessment of the energy resources beneath the waters of the U.S. Outer Continental Shelf. It is irresponsible to prohibit access to this crucial information. The Senate should reject this ill-advised and misguided amendment to strike Section 105 from the bill. 

 

Amendments Jeopardize Energy Reliability and Affordability

The vital role that energy plays in U.S. national and economic security cannot be overstated. The nation's energy consumption is projected to increase more rapidly than production. This imbalance threatens America's economy, national security, and standard of living. The country needs an energy plan that enhances the nation's energy supplies-not one that exacerbates the gap between supply and demand. Amendments, such as those cited above, will only widen this gap and jeopardize the nation's ability to provide reliable and affordable energy to consumers. The Senate should soundly reject these ill-advised provisions.



[1] U.S. Department of Energy, Energy Information Administration, Annual Energy Outlook 2003, DOE/EIA-0383, January 2003, p.6.

[2] U.S. Department of Energy, Energy Information Administration, Federal Financial Interventions and Subsidies in Energy Markets 1999: Primary Energy, SR/OIAF/99-03, September 1999, Table C1, pp. 114-115.

[3] Annual Energy Outlook 2003, p. 73.

[4] Ibid.

[5] Ibid.

[6] Glenn R. Schleede, Fact Sheet on "Renewable Portfolio Standards," Energy Market & Policy Analysis, Inc., September 25, 2001, p. 1.

[7] Robert L. Bradley, Jr., "The Increasing Sustainability of Conventional Energy," Cato Institute, Policy Analysis, No. 341, April 22, 1999, p. 19 (citing footnote 107).

[8] Jerry Talyor and Peter VanDoren, "Evaluating the Case for Renewable Energy: Is Government Support Warranted?" Cato Institute, Policy Analysis, No. 422, January 10, 2002, p. 7.

[9] Sallie Baliunas, "Renewable Realities, " TechCentralStation.com, April 23, 2002, p. 1.

[10] "Bush Firm over Kyoto Stance," CNN.com, Marcy 20, 2001.

[11] Myron Ebell, "The Hagel-Voinovich Amendment 3146 and the Brownback-Corzine Amendment 2017 to Title XI of S. 517 - GHG Reporting and Reductions," Competitive Enterprise Institute, April 22, 2002.

[12] Ibid.

[13] Myron Ebell, "Senate Should Drop Mandatory Greenhouse Gas Registry," Press Release, Competitive Enterprise Institute, April 16, 2002, at http://www.cei.org/utils/printer.dfm?AID=2961 (August 24, 2002).

[14] Ibid.

[15] James R. Healey, "Death by the Gallon: Push for Better Mileage Raises Death Tolls," USA TODAY, Special Reprint Edition, reprinted from MONEY, July 2, 1999.

[16] Dr. Robert W. Crandall, Barry Felrice, Sam Kazman, and Dr. W. David Montgomery, "Fuel Economy Standards: Do they Work? Do they Kill?", The Heritage Foundation WebMemo #85, March 8, 2002, p.3 at http://www.heritage.org/Research/Energyand

Environment/WM85.cfm?renderforprint=1
.

[17] Ibid.  

[18] Ibid, at p.1.

[19] Ibid.

[20] Kimberly A. Strassel, "Conservation Wastes Energy," The Wall Street Journal, May 17, 2001.

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