Last summer's energy bill was loaded down with counterproductive
measures that would have raised energy prices. Fortunately for
consumers, that bill was never enacted. However, the House is now
trying to resurrect that bill's approach with a somewhat
scaled-back version that includes new fuel economy standards for
cars and trucks, a greatly expanded ethanol mandate, and new
renewable standards for electricity. This bill would still raise
prices for families and businesses, slowing the American economy
overall. The President should veto this bill if it reaches his
Fuel Economy Standards for Cars and
The new bill contains a sharp increase in the federally mandated
corporate average fuel economy (CAFE) standards. Under this
proposal, each manufacturer's fleet of passenger vehicles would
have to average 35 miles per gallon by 2020, a roughly 40 percent
increase over current standards for cars and trucks.
In theory, consumers can save at the pump by being made to
switch to more efficient vehicles, and at the same time reduce
greenhouse gas emissions and oil imports. But doing so will raise
sticker prices, and the costs could more than negate the energy
Beyond costs, in order to meet the tough new CAFE standard, cars
and trucks will need to be lighter, which makes them less safe in
collisions. A National Academy of Sciences study concluded that
vehicle downsizing costs 1,300 to 2,600 lives per year. A
tougher fuel economy standard would likely add to the death toll
from vehicle crashes.
Federally mandated smaller vehicles also raise the consumer
choice issue. Washington is acting as if fuel efficient cars and
trucks are currently unavailable, but in truth a variety of such
models are already on the market for those who want them, including
a growing number of hybrids. They fit the needs of some people but
not others. Does the American car-buying public--from soccer moms
to seniors--really want or need Washington stepping in and forcing
smaller vehicles on everyone?
The bill goes above and beyond the current renewable fuels
standard with an expanded mandate that will cost Americans at the
pump, at the supermarket, and at tax time.
The 2005 energy bill required that agricultural-based renewable
fuels, mostly ethanol made from corn, be mixed into the gasoline
supply. The mandate has raised the cost of driving, because mixing
ethanol into the gasoline supply reduces fuel economy. Ironically,
the increase in fuel economy standards in the bill will be
partially negated by the expanded use of less-efficient
Ethanol has also failed to deliver on its promise to appreciably
reduce greenhouse gas emissions and dependence on oil imports.
At the same time, the diversion of corn to ethanol plants has
led to higher corn prices, in turn leading to higher prices for
food items such as corn-fed meat and daily products. Current
ethanol usage is much lower than that envisioned in the current
bill, but an Iowa State University study estimates that food prices
have already increased by $47 annually per capita, or $14
The new bill seeks to increase the current mandate nearly
five-fold--from 7.5 billion gallons by 2012 to 36 billion by 2022.
Meeting this expanded mandate will require not only much more
corn-based ethanol but also other renewable fuels that are even
more expensive. The bill specifies that 21 billion gallons of the
total be cellulosic ethanol, even though this energy source is just
a few steps beyond the drawing board at this time. It is unknown
whether it can be produced in such quantities and at what cost.
Under the new standards, the price increases for food and fuel,
which are expected to be significant under the current, smaller
mandate, would likely skyrocket.
The bill may also include hefty penalties for refiners that are
unable to comply with the mandate--a real possibility, especially
given how unproven cellulosic ethanol is at this point. These
penalties would act as a gas tax, further raising the price at the
In addition, the large government subsidies for renewables,
including a 51-cent-per-gallon tax credit, would rise commensurate
with the mandate. The agricultural subsidies to corn growers would
also expand with the increase in acres planted. Further, the
handouts necessary to launch the cellulosic ethanol industry would
also be significant. These costs, to be borne by taxpayers, could
soon reach tens of billions of dollars annually. In effect,
taxpayers would be paying hundreds of dollars per household for the
privilege of higher fuel and food prices.
Renewable Portfolio Standards
The bill also mandates that 15 percent of electricity be
generated from so-called renewable sources--chiefly wind power but
also solar and others. In order to comply, utilities generating
electricity from natural gas, coal, and nuclear power would have to
diversify into these environmentally correct alternatives.
As with renewable fuels, the only reason why renewable
electricity needs to be mandated in the first place is that these
alternatives are far too expensive to compete otherwise. In effect,
Washington is forcing costlier energy options on the public. This
is particularly true for certain states, especially those in the
Southeast, where the conditions are not conducive to wind power.
Moreover, these sources of electricity are intermittent and
unreliable and thus pose problems beyond the added costs. And like
ethanol, renewable sources of electricity enjoy substantial tax
breaks; thus, the mandate will cost Americans both as taxpayers and
About half the states have recently adopted their own renewable
portfolio standards (such as California, New York, and Texas), and
others have opted not to have them. Simply put, these sources of
energy make more sense in some states than in others. There is no
good reason for the federal government to step in with a costly,
Missing: Any Real Steps Toward
Conspicuously absent from the bill is any effort to increase the
supply of the proven energy sources that America relies upon. An
energy bill that helps consumers would streamline or eliminate the
many laws and regulations that restrict access to domestic oil and
natural gas, both offshore and onshore, but no such measures are
included. The bill also does nothing to untangle the red tape that
has slowed everything from refinery expansions to new nuclear
Costlier vehicles running on costlier fuels, and a boost in
electric bills: This is Washington's solution to the nation's
energy challenges. It is no exaggeration to say that everything
this bill touches will go up in price. Though the bill is a bit
less damaging than last year's version, it is still a major step in
the wrong direction. If this bill reaches the President's desk with
any of these provisions intact, the President should veto it.
Ben Lieberman is Senior
Policy Analyst for Energy and the Environment in the Thomas A. Roe
Institute for Economic Policy Studies at The Heritage
National Academy of Sciences, "Effectiveness
and Impact of Corporate Average Fuel Economy (CAFE) Standards,"
2002, p. 3.