Alternative Energy, Energy Independence and Global Warming Reduction

the Political Landscape
Reconciling the Divergent Energy Bill Measures: Survival of the Weakest?
by Mortimer L. Downey   Washington DC


Hopes and expectations for positive action by the Democratic controlled 110th Congress were high as 2007 began. While there is still time for action, Congressional accomplishments have fallen below expectations.
      For example, incoming Speaker Pelosi put an energy bill among her top six priorities for the new Congress, with a goal of enactment, or at least House passage, by the 4th of July in celebration of “energy independence.” In fact, that bill did not pass the House until the day before the August recess, and only because the members were held in town for an unusual Saturday session.
     Two interrelated factors have slowed action in this Congress. First, the attention of the members, as well as the public, has been focused again and again on Iraq. Both the House and the Senate have debated almost continuously on war policies and on funding issues, leaving less time for action on other matters. The Senate has been sharply divided on Iraq and on other issues, and it has been necessary to break filibusters on virtually all controversial matters brought before the body. The necessity to get 60 votes to consider any measure, when the Democrats have only 51 members, means that one or two determined opponents can derail or substantially delay any legislative matter.
     The Congressional action to date can be divided into two main work-streams, although it is not clear how they may move forward into law, as the parties within and outside the Congress strategize for maintaining or improving their interests. Nonetheless, it is useful to break down the legislative action into what might become an energy bill and what might become more of a climate change bill—recognizing that there are major areas of overlap both substantively and politically between the two categories.
     In each case, the outcomes and actions are heavily influenced by the organizational makeup of the House and the Senate, as well as by the
pressures put on leadership and members from outside parties ranging from industry lobbyists to the representatives of the interested non-governmental organizations (NGOs). The consensus is that an energy bill of some kind is likely to emerge, but the prospects for a climate change bill are harder to evaluate, with many believing that this will not happen until after the 2008 election.

ENERGY BILLS

At this point, both the Senate and the House have passed comprehensive energy bills covering many areas of supply, efficiency, conservation and regulation. The Senate bill (H.R. 6) passed by a vote of 65-27 on June 21st (It is styled as a House bill because it was treated as a Senate amendment to a placeholder energy bill moved by the House back in January.) The House passed a new comprehensive bill (H.R. 3221) by a vote of 241-172 as the Congress was leaving for its August recess. The margins in the two bills indicate a degree of bipartisan support, although not enough to overcome a possible Presidential veto. A conference committee will need to be appointed to reconcile the two versions; a step which has yet to occur because of parliamentary obstacles relating to the fact the same numbered bill has not passed both Houses. This would normally be a pro-forma action, but has to date proven difficult. The margins on passage in both bodies suggest that the President will have some ability to influence the outcome through the use of veto threats.
     While the two bills do have some overlapping provisions, the key area for conference committee deliberations is likely to be those areas on which only one house has acted. Each of the bills has some important provisions that were only included by the one house. Looking at the Senate bill first, it does include increases in CAFÉ standards, the corporate average fuel economy regime for automobiles and light trucks, discussed further below. On the other hand, the Senate was unable to overcome procedural bars to the inclusion of tax incentives for renewable energy or requirements for utilities to generate more of their electric output through the use of renewable fuels.
     The failed Senate tax package would have provided $32 billion in new supports for renewable fuels and new technologies, fully offset by reduced tax benefits for oil and gas. While supported by a majority of Senators, the motion to close debate on the provision failed with only 57 supporters, three short of the needed 60 votes. A provision to set a 15% standard for use of renewable fuels by electric utilities was also blocked, and Senate Leader Harry Reid (D-NV) declined to seek cloture.

A Tilt Toward Cellulosic Ethanol — Eventually

Elements that were in the final Senate bill included quotas for use of biofuels, setting a national goal of 36 billion gallons by 2022 with an increasing proportion coming from cellulosic ethanol. Provisions were included for energy efficiency, including new standards for appliances and steps to be taken by the federal government and other public building operators. Research initiatives included support for the development of carbon sequestration methods, but measures to encourage development of coal-to-liquid fuels were defeated. A politically attractive provision was included to make “price gouging” in petroleum markets a federal crime, but this so-called “NOPEC” amendment is likely to be the target of a Presidential veto threat.
     Perhaps the most surprising element of the Senate bill was its inclusion of new CAFÉ standards. While there had been a threatened fight between a strong provision supported by the environmental community and a weaker program being advanced by the auto industry, a last minute compromise offered by Senator Ted Stevens (R-AK) was quickly adopted by voice vote. Under the compromise, standards for the total fleet (eliminating the current distinction between autos and light truck/SUVs) would rise approximately 40 percent by 2020 to a fleet wide average of 35 miles per gallon. Stevens’ surprise move and the opportunity for easy enactment caused the supporters of the stricter plan authored by Senator Dianne Feinstein (D-CA) to drop their plan for continuing increases of 4% per year between 2021 and 2030.
     Auto industry lobbying efforts were divided between efforts to kill the provision entirely or to raise support for a weaker plan, now being supported by House Conservative Democrats (the so-called “Blue Dogs), which would raise auto standards to 35 mpg and light trucks to 32 mpg by 2022 and would retain the separate measurement pools for domestic and import products.. The auto industry is being advised, even by their friends, that some action is likely this year and that they should behave accordingly.

Michigan's Dingell Pushes Mileage Standards Into An Uncertain Future

At this point, CAFÉ is not addressed in the House energy bill, largely as an accommodation to Congressman John Dingell (D-MI), the Chairman of the House Energy and Commerce Committee. Dingell is a long-time foe of CAFÉ standards, responding to the concerns of his constituency which includes the Big Three auto companies and the United Auto Workers. On the other hand, Dingell has been among those advising the industry that action is likely.
     Dingell’s current position is that any consideration of CAFÉ should come in a more comprehensive climate change/energy bill that his committee will consider in the fall. While positive action on such a bill is by no means certain, Dingell has also signaled his intention to consider a carbon tax as part of his climate bill, a direction consistent with the auto industry’s long term position that higher costs for gasoline will do more for efficiency than any government standards. Speaker Nancy Pelosi clearly decided to pick her fights carefully and not force the issue on the House floor. The option, of course, remains open to include CAFÉ in a conference committee version of the energy bill. The politics of the energy bill conference are discussed below.
     On the House side, the August energy bill was a smorgasbord of large and small provisions, with no coherent policy theme. It was initially developed as individual bills emanating from virtually every House committee, with the leadership essentially stapling the various bills together into an omnibus measure introduced directly to the House floor by the Speaker in conjunction with the various committee chairs.
     With two notable exceptions, the House-passed bill (H.R. 3221) has a little bit of everything. Missing are CAFÉ standards, as discussed above, and any significant ethanol programs, although the latter may still appear as part of a House farm bill to be considered later. Its tax provisions are somewhat more modest than those rejected by the Senate, matching some $16 billion in increased oil and gas industry taxation with a variety of tax code provisions to encourage renewable production, offer tax credits to support plug-in hybrids and other miscellaneous items. The House bill also contains the “NOPEC” provisions.

The House Bill: A Chinese Menu That May Not Be Very Filling

A strong element of the House bill is its treatment of renewable energy standards. Through a floor amendment which was opposed by several Committee chairs including John Dingell, the bill requires private utilities (public entities and cooperatives are exempt) to achieve a standard under which 15% of energy will be produced using renewable fuel sources. This amendment was passed by a vote of 220-190 and includes provisions to allow utilities some ability to trade credits among themselves.
     The House bill, on the whole, is one of great breadth (reflecting the many committees involved) but less depth in the nature and focus of its provisions. Divided into more than 60 titles and subtitles, and enhanced by more than 20 floor amendments, the bill ranges from research and development in a number of areas, federal actions to greenhouse gas emissions, federal programs to encourage alternative energy sources, efficiency standards, sequestration initiatives, even a prohibition against the Coast Guard using incandescent lamps. Residents of the Washington area are happy to see that Congress is proposing improvements to capture and store the CO˛ output of the coal-burning Capital Power Plant, known to be the largest stationary source of pollution in the region. Where the CO˛ will be stored is not discussed, although the Capitol Dome would not likely serve well for this purpose.
     Making some sense out of this bill, both in terms of its overlaps and its gaps will be a significant challenge for the conference committee and the leadership. With so much difference between House and Senate bills, there is a wide variety of outcomes. The conference committee could take the best of both bills, in a “Chinese menu” fashion, or they could agree to throw out the provisions that they don’t agree with. House members could offer to drop the renewable energy standards, for example, in return for the Senate dropping CAFÉ standards.

What Passes May Come Down to Who's on the Conference Committee

Much will depend on the makeup of the conference membership. In a complex bill like this one, there will be large number of House conferees, appointed by the Speaker and agreed to by the body. Some will be conferees on the whole bill, some for specific provisions only. If the Speaker chooses the conferees carefully, she can avoid being sold out by experienced members like Congressman Dingell, who as noted will be trying to maneuver items into his future bill where his control will be greater. Congressman Boucher (D-VA), who chairs the subcommittee of jurisdiction within the Energy and Commerce Committee, sought to defer the conference on the grounds that it would delay action on his climate change bill. This approach was rejected by Speaker Pelosi. While conferees have not yet been appointed, staff discussions to lay out the issues for conferees have now begun.
     On the Senate side, there will also be a relatively large contingent of conference members, but all of them will be conferees on the entire bill. Their goal, and that of Senate leadership, will be to put together a bill that can gain the 60 votes needed to end debate on the conference report. This will mean having things in the bill that gain support from many Senators, enough support to have them accept provisions they would otherwise not support, since the conference report can only be voted up or down, and not amended. Building a successful conference outcome will take time and skill. Washington observers do not believe it will be complete until near the end of the current Congressional session.

CLIMATE CHANGE BILLS

Also among Congress’ unfinished business is any comprehensive legislation to set and enforce climate change measures. Given the opposition of the White House and the fact that there are members of the Senate who will use any tactic to head off such legislation, the lack of action is not surprising. Many believe that the work underway this year is simply a dress rehearsal for serious legislative action in the 111th Congress which will be elected, along with the new President, in November 2008.
     Nonetheless, the discussions underway do suggest that some form of legislation, probably incorporating a cap-and-trade mechanism, can ultimately be enacted. The degree of greenhouse gas emission reduction and the nature of the industries to be covered vary according to the specific legislation, but the measures are broad enough to stimulate discussion and ultimate compromise. While there are many bills floating in both the Senate and the House, a comparison of the main Senate bills illuminates the potential range of consideration. (Note that the consensus position at the latest UN climate meeting in Vienna was that industrialized nations should aim for greenhouse gas emissions (GHG) in 2020 to be reduced by 25% to 40% from 1990 levels. Taking these bills in numerical order:

     S. 280 Lieberman (I-CT), McCain(R-AZ) and others:    Covers electric, industrial, commercial and transportation industries. Aims to reduce GHG emissions 15% from 1990 levels by 2020 and 65% by 2050. Includes various funding and research provisions.
     As the Congress left on its August recess, Senator Lieberman announced that he will be introducing a modified version that will be co-sponsored by his subcommittee’s ranking Republican, Senator John Warner (R-VA). This revised bill will accomplish a 70% GHG reduction by 2050, roughly splitting the difference with the more aggressive Sanders/Boxer bill. It is understood that the Lieberman-Warner bill will be reported out of Senator Lieberman’s subcommittee and will be the basic vehicle for Senate action.
      S. 309 Sanders (I-VT), Boxer (D-CA):    Perhaps the “greenest” of the bills. Setting standards with an option for cap-and-trade, it would seek 15% reduction of GHG emission by 2020 and 83% by 2050, dealing with electric generation, motor vehicles and fuels. A similar bill (H.R. 1590) has been introduced in the House by Congressman Waxman (D-CA).
      S. 317 Feinstein (D-CA), Carper (D-DE):   Dealing only with electric utilities through a cap-and-trade system, reducing GHG emissions by 8% through 2020 and 41% by 2050. Would include various R & D and funding provisions.
      S. 485 Kerry (D-MA), Snowe (R-ME):   Cap-and-trade provisions with source coverage to be determined administratively. Includes various regulatory and subsidy measures, aimed at a 15% GHG reduction by 2020 and 67% by 2050.
      S. 1766 Bingaman (D-NM):    A complex bill covering major carbon emitters such as refineries, energy processors, utilities and carbon emitting manufactures. It sets out a cap-and-trade program relating to emissions intensity, and seeks annual reductions of GHG in the range of 2.5 to 3% per year into the future. A controversial feature of this bill is its inclusion of a so-called “safety-valve” under which additional carbon permits would be issued if the market set costs above a critical level.

Congress has had some preliminary hearings on these measures, and hearings are likely to continue into next year. In the House, much of the action will be in Chairman Dingell’s Committee on Energy and Commerce, although the recently appointed Select Committee on Energy Independence and Global Warming, chaired by Representative Edward Markey (D-MA.) will also be active. Chairman Dingell’s distaste for this select body was evident when he described it as being “as useful as feathers on a fish.”
      It is expected that comparative analyses of the various programs, including their effectiveness in GHG reduction and their impact on the economy, will be requested from various governmental bodies such as the Congressional Budget Office, the Governmental Accountability Office and the Energy Information Administration in the Department of Energy. Additional analyses will undoubtedly emerge from industry groups, environmental organizations and the think-tanks.
     One key issue for any cap-and-trade scheme will be its relationship to any international measures adopted through the UN process. As the Congressional debate moves on, there will be a back-and-forth with the international discussions with the goal of harmonizing the provisions and achieving maximum effectiveness. The prior failure of the Senate to even consider the Kyoto Protocol was largely attributed to fear of economic impacts on American industry, and this continues to concern even those elected officials most interested in environmental progress.

Leveling the Playing Field at the Water's Edge

One interesting development has been the consideration of trade requirements that incorporate environmental measures. While no such requirements now exist, and their use must be validated under the rules of the World Trade Organization, thought is being given to assessing imports with a cap-and-trade requirement that would offset the environmental difference between US standards and those in, say, China. While not technically a tariff, such a provision could serve both as a cost equalizer between imports and domestic production as well as an encouragement to international producers to reduce their emissions as a means of price competition.
     For now, it is enough to say that the twin subject of energy and climate change is firmly on the Congressional agenda. What issues will wind up in which bill, and when such bills will move to the White House is impossible to predict. But the joint pressures of international, state and local, nongovernmental and industry interests is likely to produce results within the next year or two.