Energy Bill Compromise

Well, the Congressional leadership has apparently arrived at a compromise energy bill that includes a 35 mile-per-gallon fuel economy standard. It remains to be seen whether the concessions involved will be sufficient to garner a filibuster- and veto-proof majority, or whether the resulting legislation has been stripped of enough anti-industry provisions to win over the Administration. As I’ve noted previously, however, public expectations about effective energy policy are unlikely to be met, since the measures involved in this bill will take years to bring relief either at the gas pump or on the emissions front.

I’ve probably posted more frequently on the impact of corporate average fuel economy (CAFE) standards than any other subject for the last several months. At this point, all I’ve seen on the energy bill compromise is the report from the New York Times, because I’ve been bedeviled by Wi-Fi problems for the last couple days. If the Times has the gist correct, then new car buyers could be in for some frustrating years ahead. Congress has chosen a path that relies on pressuring the car industry to improve fleet fuel economy dramatically, particularly for SUVs, but has stopped short of augmenting the pressure that $3 gasoline exerts on consumers to choose more efficient cars. Closing that gap will boost car prices significantly within each class, as manufacturers add expensive technology, and force the sales mix to shift towards smaller, lighter vehicles. Because we’ve been telling consumers that Detroit can achieve all this without requiring any sacrifices of them, car-buyers will expect 35 mpg SUVs that accelerate like Porsches, and they are bound to become frustrated with the real-world choices they will encounter.

Moreover, if the deal delivering a 35 mpg CAFE relies on a bigger ethanol mandate, as the Times indicates, then the food-price inflation that the existing corn ethanol program has triggered will likely increase, draining additional billions from consumers’ wallets at the same time that ethanol subsidies tap additional tax dollars and CAFE drives up new car prices.

Given the dual challenges of high energy prices and steadily growing greenhouse gas emissions, strong legislation addressing these issues is necessary and inevitable. Perpetuating the status quo is not an option. Nor will any such legislation be perfect, requiring the usual horse-trading of provisions to gain passage. But just as the Energy Policy Act of 2005 failed to deliver energy security, the present bill will not conquer climate change or bring oil prices back to a more comfortable level. It’s an imperfect, but probably necessary prelude to the tougher, more effective measures that we’ll require in the years ahead.

Due to travel constraints, I won't post again until Wednesday.