Senate 'Gang of 10,' House working group try to break energy logjam

Bipartisan groups of US Senate and House members offered new energy proposals as Democratic and Republican leaders continued to trade potshots and a five-week congressional recess began.

Politically centrist Senators calling themselves "the Gang of 10" unveiled a proposal on Aug. 1 which combines responsible, targeted increases in domestic oil and gas production with an intensified effort to move vehicles to non-petroleum alternatives and a strong federal conservation and energy efficiency commitment. Majority Leader Harry M. Reid (D-Nev.) said he did not agree with all of the ideas but added that he hoped it could help begin to break the Senate's current legislative stalemate.

In the House, meanwhile, a bipartisan group which has been meeting since July 15 introduced on July 31 what its members called "a package of common-sense steps that address the short and long-term energy needs of the country; that will help us develop our own resources so that we can move toward energy independence and stop sending hundreds of millions of dollars overseas to buy oil; [and] that will provide stable, significant funding to develop alternative fuels and renewable energy." HR 6709 was sponsored by Rep. John E. Peterson (R-Pa.) and has 47 co-sponsors.

The proposals were similar but not identical. They offered a contrast as other congressional Democrats and Republicans accused each other of ducking serious energy proposals.

'A critical challenge'

"Our country faces a critical challenge because of skyrocketing energy costs. This is not a Democratic issue or a Republican issue. It is an issue that affects all of us. I am committed to working with all of my colleagues in a bipartisan manner to resolve the energy crisis. The time for delay is over. We need to act now," said Sen. Kent Conrad (D-ND) at the Gang of 10's press conference.

"I believe this effort epitomizes what the US Senate is all about. Nothing gets done in this body without 60 votes, and you don't get 60 votes without a true bipartisan effort. This has been a cooperative effort on the part of all 10 members. It has not been easy, and it has been very difficult at times. But the discussion has always taken place in a very professional way, even though sometimes it's been in a very direct way," added Sen. Saxby Chambliss (R-Ga.).

"America is confronting an energy crisis of high prices with no end in sight, and the Senate has come to a screeching halt. But the Gang of 10 has reached a potential breakthrough. This bill would do more to lower [gasoline] prices at the pump than any other plan," said Sen. Mary L. Landrieu (D-La.).

"There is no greater problem facing average Americans and small business today than high fuel costs and our nation's dependency on foreign oil. Our proposal is not perfect, but it is a bipartisan start on the road to a comprehensive energy strategy leading our nation to independence from foreign oil. It will create new jobs from new technologies good for American wallets and our environment," said Sen. Lindsey O. Graham (R-SC).

The group also included Sens. Blanche L. Lincoln (D-Ark.), Bob Corker (R-Tenn.), Ben Nelson (D-Neb.), John Thune (R-SD), Mark Pryor (D-Ark.) and Johnny Isakson (R-Ga.). Before the Independence Day recess, it urged Reid to convene a day-long energy summit to hear testimony from experts and develop a comprehensive plan. Reid accepted their proposal on July 30 and said he wanted to work with Minority Leader Mitch McConnell (R-Ky.) to hold such a summit when the Senate comes back to work after Labor Day.

Specific provisions

Specifically, the Gang of 10's proposed legislation, which the group named the New Energy Reform Act of 2008, would provide $20 billion in funding to convert 85% of new US motor vehicles to non-petroleum sources within 20 years.

This would include $7.5 billion for research and development focused on major technological barriers to alternative fuel vehicles, such as advanced batteries; $7.5 billion to help US automakers and parts manufacturers retool and re-equip their factories; and consumer tax credits of up to $7,500 per vehicle for the purchase of advanced automotive vehicles which do not run primarily on petroleum-derived fuels and $2,500 per vehicle to retrofit existing cars and trucks.

The bill's energy conservation provisions include extending the renewable energy, carbon mitigation and efficiency tax incentives (including the production tax credit) through 2012; introducing new tax credits of up to $2,500 per vehicle for consumers to purchase highly fuel efficient vehicles; extending and expanding the $2,500 tax credit for hybrid electric vehicles, and providing $500 million in funding for R&D into new materials and other innovations to increase vehicle fuel efficiency.

Other energy conservation elements include $2.5 billion for the research, development and deployment of "next generation biofuels and infrastructure"; tax incentives to install alternative fueling stations, pipelines and other infrastructure; expanding transmission capacity for electricity from renewable sources, and new dedicated funding for weatherization assistance.

More domestic production

When it comes to increasing domestic energy production, the Gang of 10's bill plans to make certain it is "responsible" and "targeted." For offshore oil and gas, that means consulting with the US Department of Defense to ensure that leasing and drilling occurs in more of the eastern Gulf of Mexico consistent with national security. It means allowing Virginia (where a 2011 federal OCS lease sale already is scheduled), North Carolina, South Carolina and Georgia to agree to let federal leasing take place off their shores.

A 50-mile environmental buffer zone would be retained where new oil production could not take place, and all new production would have to be used domestically, according to the proposal. States which allow production off their shores would get an appropriate share of revenues, and a commission would be created to make recommendations to Congress on areas to consider for future leasing.

The measure also would provide a carbon dioxide sequestration credit for use in enhanced oil recovery to increase production from existing wells. It would provide grants and loan guarantees to develop coal-to-liquids plants with a carbon capture capability (as long as those plants' lifecycle greenhouse gas emissions were below those of the petroleum fuels their production would be replacing). And it would support nuclear energy by providing workforce training and accelerated depreciation for new nuclear power plants, increasing the US Nuclear Regulatory Commission's staff, and supporting spent fuel recycling R&D.

The Gang of 10 said that it would not make an energy market speculation recommendation initially because it was concentrating on supply and demand issues, but may do so after the US Commodity Futures Trading Commission issues a report on the subject in mid-September.

The bill's $84 billion of investments in its bill would be financed partly by approximately $30 billion of payments from the oil and gas industry through actions such as modifying the Section 199 manufacturing deduction "and other appropriate measures to ensure that the federal government receives its fair share from Gulf of Mexico leases," according to the group. It said that remaining financial offsets would be finalized after consulting with the Senate Finance Committee on inter-action effects with other legislation.

House group's proposal

HR 6709, the bill developed by Peterson and Rep. Neil Abercrombie (D-Haw.) who have cosponsored similar measures, takes a broader approach in its energy production section. It would repeal all federal prohibitions against spending money for onshore and offshore leasing and pre-leasing activities. Leasing within 25 miles of a state's coastline would be banned, but coastal states could authorize production from 25 to 50 miles offshore within one year of the bill's passage.

The 125-mile oil and gas leasing buffer zone in the eastern Gulf of Mexico and appropriations bans on oil shale development would be repealed, but the Interior secretary would have to consult with the Defense secretary to coordinate any leasing. Unresolved issues could be referred to the president, the bill says.

It also would repeal a moratorium on oil shale leasing and prohibitions on federal agencies from entering into contracts for an alternative or synthetic fuel while allowing the use of woody biomass from federal lands for alternative fuel.

The House group's bill specifically allocates shares of the $2.6 trillion it estimates new offshore leasing would produce: 30%, or $780 billion, would go to the US Treasury; 30%, or $780 billion, would go to the affected states; 8%, or $208 billion, would go to a conservation reserve; 10%, or $260 billion, would go to an environmental restoration reserve; 15%, or $390 billion, would go to a renewable energy reserve; 5%, or $130 billion, would go to a reserve for nuclear waste and for carbon capture and sequestration, and 2%, or $52 billion, would go to the Low Income Home Energy Assistance Program (LIHEAP).

Other provisions

HR 6709's two other titles deal with cleaner energy production and conservation incentives, and with Strategic Petroleum Reserve modifications and dedication of revenues to existing conservation and energy research programs.

The first of these titles would amend the federal tax code to provide at least five years of tax deductions and incentives for conservation and renewable energy projects including facilities, alternative fuel vehicles and vehicle refueling property, energy efficient appliances, non-business energy property, residential energy efficient property, a new energy efficient home credit, energy efficient commercial buildings, solar energy-fuel cell and micro-turbine properties, clean renewable energy bonds, biodiesel and renewable diesel, and plug-in hybrid cars.

The other title would modify the SPR's supply by exchange 10%, or 70 million bbl, of its content for lower quality grades which are used in a growing share of US refinery throughput. The estimated $1.4 billion of revenue which would result would be directed to existing conservation, energy R&D and conservation programs including $385 million for carbon capture and sequestration, $170 million for electricity storage and transmission, $110 million for industrial energy efficiency R&D, $100 million for advanced energy research projects, $100 million for LIHEAP and $65 million for unconventional gas production and environmental research.

The bill was referred to the House Natural Resources Committee where one of its cosponsors, Rep. Jim Costa (D-Calif.), chairs the Energy and Mineral Resources Subcommittee. "I believe this combination of increasing supply and reducing demand, which this bill does, will reduce our energy costs, along with creating new jobs. Even more important, this bill provides a framework for moving us toward cleaner and renewable sources of energy, and toward energy independence," he said at a July 30 press conference with other cosponsors.

"Now, there is a bipartisan solution on the table. This bill gives voice to the beleaguered American public which has said 'enough' and is calling for a comprehensive solution to the energy crisis. It is my sincere hope that the House will take up this bill and allow a vote on the bipartisan energy solution that the American people are demanding," added Rep. Thelma Drake (R-Va.).

Contact Nick Snow at nicks@pennwell.com

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