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Senate Approves Energy Bill, Calls for Fuel Economy Increase

Published by MAC on 2007-06-22

Senate Approves Energy Bill, Calls for Fuel Economy Increase

By J.R. Pegg


22nd June 2007

The U.S. Senate passed energy legislation late Thursday night that mandates a 40 percent increase in fuel economy standards by 2020 and calls for a massive expansion of renewable fuels production. But the final bill is far less ambitious than Democrats had originally hoped for, as Republicans successfully derailed a plan that would have funded $32 billion in renewable energy tax breaks by increasing taxes on oil companies and blocked a measure requiring utilities generate more electricity from renewable sources.

The vote, 65-27, came after more than a week of intense debate that demonstrated deep partisan and regional divides over the nation's energy future, as well as the pervasive lobbying power of electric utilities, auto manufacturers and the oil industry.

Despite ample public pressure to tackle high gasoline and energy prices, the prospects for the legislation are unclear.

The White House has voiced concern over the mandated increase in fuel economy and threatened a veto because of language in the bill imposing stricter penalties on oil companies for price gouging.

The House is also working on energy legislation, with the goal of considering a bill after the July 4th recess, but has thus far avoided tackling the fuel economy question.

Fuel economy is a tricky political issue for U.S. lawmakers, and the Senate bill only passed after a compromise was reached over the fuel efficiency provision. The original language called for raising standards to 35 miles per gallon, mpg, by 2020, with four percent annual increases from 2021 to 2030.

Current standards require automakers to meet an average of 27.5 mpg for cars and 22.2 for sport utility vehicles and small trucks. Other than a very small increase in requirements for SUVs and trucks, the standards have not changed in two decades.

The compromise eliminated the mandated annual increases, instead calling on federal regulators to increase the standards "at a maximum feasible rate."

"Our message to the domestic auto industry is, 'You can do this,'" said Senator Tom Carper, a Delaware Democrat.

U.S. automakers did not comment on the final language, but bitterly opposed the original provision and lobbied fiercely against it. Michigan's two senators, both Democrats, opposed the final bill due to continued concern about the fuel economy issue.

Environmentalists praised lawmakers for mandating an increase in fuel efficiency and criticized the auto industry for their efforts to block higher standards.

"If automakers were half as good at making efficient cars as they are at fighting new environmental and safety laws, they'd all be enjoying record profits," said Dan Becker, director of the Sierra Club's global warming program.

Environmental groups also praised the Senate for rejecting plans to increase production of liquid fuel from coal, but were left disappointed in the area of renewable energy.

Earlier on Thursday Republicans thwarted the inclusion of the $32 billion tax package, which would have benefited renewable energy at the expense of the oil and gas industry.

The plan would have set up tax breaks and incentives for development of renewable fuels and to support energy efficiency programs, clean coal technology and plug-in hybrid cars.

Some $29 billion of the $32 billion price tag for the package would have been paid for by the elimination of a major corporate tax break used by oil companies on domestic manufacturing income and the imposition of a new tax on offshore oil and gas production in the Gulf of Mexico.

That did not sit well with Republicans, who rallied to kill the plan amid criticism the overall bill failed to adequately support domestic production of oil and natural gas.

"It makes absolutely no sense to advocate for independence from foreign oil and turn right around and raise taxes on our domestic companies who are producing America's oil and natural gas," said Senator Pete Domenici, a New Mexico Republican. "It will mean higher prices for consumers."

Democrats argued that the impacts on consumers would have been modest at worst, noting that the tax break they wanted to rescind only came into effect in 2004. The excise tax, they added, aimed to recoup royalties lost on production due to an error by the U.S. Interior Department under the Clinton administration.

Senator Max Baucus, a Montana Democrat and chair of the Senate Finance Committee, dismissed criticism of the package as "political rhetoric that has nothing to do with the facts."

The plan is needed to jumpstart an aggressive push toward more renewable energy and help the United States become less dependent on foreign energy sources, said Baucus. He added that the package "is very balanced, very fair and will not create the horrible results claimed here.

Proponents fell three votes short of keeping the tax package alive – they also were unable to muster enough votes to include a provision that would have required U.S. utilities obtain 15 percent of their electricity from renewable energy sources by 2020.

The defeat of the renewable energy plans left the fuel economy standards and the increase in biofuels as the centerpieces of the final legislation, which also increases home appliance and federal building energy efficiency standards, and requires the federal government to boost its use of renewable energy and cut its oil consumption.

The bill expands the production of renewable fuels to 36 billion gallons by 2022, with 15 billion to come from corn-derived ethanol.

The increased mandate was strongly supported by lawmakers from farm states, who also fought off an effort by New Hampshire Republican Judd Gregg to repeal the 54 cent tax on foreign ethanol. Gregg argued that the tax hurt east coast communities keen to expand their use of ethanol, which is too volatile to be shipped through existing pipelines.

"People from the east coast cannot get ethanol from the Midwest," Gregg said, adding that U.S. corn producers, who have been granted massive incentives to produce ethanol, no longer need protection for foreign competition.

"That may have had some resonance a few years ago, but it certainly does not have any resonance any longer," Gregg said. "It does not have any credibility any longer."

Critics said the recent growth of the domestic ethanol industry does not mean it can survive without government protection.

"Just because all of a sudden we have a burgeoning production of ethanol from grain corn doesn't mean this industry is mature to a point where we are going to be as energy efficient as we should be, as energy independent as we should be, and that is why it is still necessary to keep the tax incentives," said Senator Charles Grassley, an Iowa Republican. "That is why it is still necessary to have this import duty."

The Senate did respond in part to concern about the environmental impacts of ethanol, adding an amendment that gives the U.S. Environmental Protection Agency, EPA, the authority to mitigate any adverse air or water quality impacts from the increased use of renewable fuels.

"We say to the EPA: Make sure that whatever these fuels are, they are real good for our people, good for our air, good for our water, good for our land use, and also our long-term ability to produce biomass feedstocks," said Senator Barbara Boxer, a California Democrat.

Debate over the bill also foreshadowed the difficulty the Senate is likely to have tackling the issue of climate change. Lawmakers declined to even consider the inclusion of a provision to set up a federal greenhouse gas registry, much to the disappointment of Minnesota Democrat Amy Klobuchar, who authored an amendment requiring the registry.

"This is an opportunity that the Senate should be willing to put its head up and vote for," Klobuchar told colleagues. "It is an opportunity to at least get the accurate data so we can start talking about climate change reform. It doesn't dictate what the policy will be. It simply asks that we collect accurate information."

Copyright Environment News Service (ENS) 2007. All rights reserved.

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