The Missing Ingredient

Yesterday the House of Representative passed compromise energy legislation, an amended version of the previous HR.6 that the Senate passed earlier in the year, by a margin of 235-181. The bill now goes to the Senate for a final vote, which could take place this weekend. In her remarks closing the debate, Speaker Pelosi referred to the bill as a "shot heard 'round the world for energy independence for America." I wish it were so. While the bill contains many useful elements, including the 35 mpg fuel economy provision on which I've commented recently, on balance its thousand or so pages seem unlikely to worry the Middle East oil producers at whom this rhetoric is aimed. Because it fails to promote additional oil and gas production, it could actually reduce domestic energy production in the near term, worsening our reliance on imports. If anything, with its focus on the technology and production of renewable energy, the Energy Bill should raise more eyebrows on Wall Street and in Silicon Valley than in Caracas, Riyadh, or Tehran.

The renewable energy sources covered by HR.6 are going to be extremely important for the energy future of this country. Cellulosic ethanol, wind, solar and geothermal power constitute important new resources that also provide significant benefits for tackling our greenhouse gas emissions. We need them to become competitive and expand rapidly, in order to meet the challenges posed by climate change. However, they won’t supplant oil and gas or make the US independent of its foreign energy suppliers within the timeframe considered by this legislation. What is needed, then, is a transition from the current, fossil-heavy energy mix to a future diet built mainly around renewable energy and nuclear power. By excluding the most obvious source of new energy production available to us, this bill will make that transition more arduous and expensive than it has to be. Anyone expecting this bill to drive down the price of gasoline or heating oil within the next several years is bound to be disappointed.

Given the kitchen-sink nature of the "Energy Independence and Security Act of 2007", including the tougher CAFE standard, an expanded renewable fuel standard, a controversial 15% national renewable electricity standard, and assorted other subsidies and a few earmarks, it's hard to understand the absence of truly meaningful supply provisions. CAFE, ethanol and renewable electricity do not add up to energy independence, not by a long shot, though the demand-side measures in the bill should begin to slow the rate at which our energy dependence is growing.

One of the speeches I caught on C-SPAN's coverage of the House debate provided a clue as to why such a massive omnibus energy bill would rule out expanding US oil and gas production, which account for almost half of our present 71% level of energy independence. Representative Hinchey (D-Ithaca, NY), recited as part of the bill's justification the well-worn "3-25 Fallacy": Although it is accurate that the US consumes 25% of the world's oil, while possessing only 3% of global proved oil reserves, this ignores the fact that we have produced 1 out of 5 barrels of petroleum ever extracted and still contribute 10% of global production, ranking third behind Saudi Arabia and Russia, but ahead of Iran and Venezuela combined. And while our output is declining because of the mature nature of most of our oil fields, this is also occurring because we have chosen to leave many billions of additional barrels--barrels that would really get OPEC's attention--untouched.

Speaker Pelosi described the effect of the energy bill as being, "as immediate to them as the price at the pump they face when they fill up their tanks." Given the long phase-in of renewables and higher fuel economy standards, that is surely an exaggeration. As urgent as the problems of energy and the environment are, there is still time to get this right, and that ought not to be dictated by the legislative or electoral calendar. The question facing the Senate and, should they pass it, the President, is whether the many positive aspects of this bill are sufficient to outweigh its negatives, including its notable failure to increase domestic conventional energy production by opening up new areas for drilling or making it easier to add new refining capacity. No legislation is ever perfect, and we urgently need stronger energy policy. Nevertheless, a bill constructed on the premise of moving us towards energy independence--however unattainable that goal may be--should include more robust supply provisions than doubling our already problematic output of corn ethanol. While the country's former energy policy has been too oil-centric for years, this new policy is not oil-centric enough, when petroleum still accounts for 98% of the energy we use for transportation. If opening up additional offshore tracts and federal lands to drilling is a bridge too far for this Congress, then at least they ought to ensure that the 2007 Energy Bill is oil-neutral.