Energy bill not focused

Sept. 19, 2005
The Energy Policy Act of 2005 is getting mixed reviews from the critics. Signed into law by President George W.

The Energy Policy Act of 2005 is getting mixed reviews from the critics. Signed into law by President George W. Bush on Aug. 8, the massive 1,724-page energy bill seems to have something for everyone, or as our Louisiana friends like to say, “lagniappe”-a little something extra (OGJ, Aug. 8, 2005, Newsletter; p. 28). One clever wag was quick to dub it the “No Lobbyist Left Behind Act.”

Here are a few of the hundreds of provisions:

• Provides a tax credit of up to $3,400 for owners of hybrid vehicles.

• Triples the amount of biofuel (usually ethanol) that must be mixed with gasoline sold in the US by 2012.

• Authorizes $200 million/year for clean coal initiatives intended to increase use of the abundant US coal supply.

• Authorizes subsidies for wind energy and other alternative energy producers.

• Adds such ocean energy resources as wave and tidal power as identifiable renewable technologies.

• Authorizes $50 million/year for a biomass grant program.

• Provides tax breaks for home- owners making energy conservation improvements.

• Extends Daylight Savings Time by about 4 weeks beginning in 2007.

Chief criticism

Individually and collectively, these incentives may be worthwhile. However, the chief criticism is that the act is not focused and is too fragmented to be useful.

Ronald R. Cooke, author of Oil, Jihad and Destiny, called the act a “patchwork of legislative micromanagement and vague directives [that] throws taxpayer money at multiple projects.”

He added that, “Worthwhile research has been intermixed with legislative pork in a tome of bewildering complexity.”

The Heritage Foundation, a conservative think-tank, has condemned provisions of the act related to ethanol as “corporate welfare” for the agricultural industry. The legislation requires that 7.5 billion gal/year of ethanol be added to gasoline.

“This ethanol mandate is good news for Midwestern corn producers and big ethanol producers but will raise the price of gasoline at the pump,” said Ben Lieberman, a senior policy analyst at the Heritage Foundation.

The petroleum industry has also come under attack because the act provides subsidies for drilling in the Gulf of Mexico.

“The [act] even includes new incentives for oil drilling, as if $59/bbl isn’t incentive enough,” said Lieberman.

Actually, only about $1.6 billion of the $11.5 billion in subsidies is earmarked for the oil and gas industry. Much of that is intended to encourage unconventional methods of extraction and to develop new technologies for deepwater drilling. The act provides royalty relief for both deepwater drilling and deep gas drilling in the shallow shelf. Enhanced oil recovery also got a boost, with the authorization of incentives for injecting carbon dioxide into old wells to increase production.

With regard to the incentives for deepwater drilling, the American Petroleum Institute’s chief economist, John Felmy, noted that the start-up costs are too massive without some form of tax relief and that E&P companies would choose to drill elsewhere without these incentives.

Although America has not built a single nuclear power plant since the 1970s, the energy act provides $4.3 billion in incentives for expansion of nuclear power. In signing the bill, Bush noted that nuclear power plants can generate massive amounts of electricity without emitting air pollution or greenhouse gases.

To coordinate the ordering of new nuclear plants, the bill provides for a government-subsidized form of federal risk insurance for the first six builders of new nuclear power plants. Bush stated that US utilities will begin building nuclear power plants again by the end of the decade.

Challenges remain

There is no doubt the energy bill has some good provisions, and I would like to remain as positive as the president. However, it’s difficult.

Not even the biggest optimist among us thinks the bill will solve all US energy challenges. It does little to promote the building of new refineries or derail not-in-my-back-yard activism. It does not address vehicle fuel economy standards. It surely will not stabilize or lower fuel prices. It does not free the US from dependency on imported oil. And it does not provide an effective framework for energy independence.

In this sense, the bill is a disappointment. The US could have done better.

Oil & Gas Financial Journal is a monthly affiliate of Oil & Gas Journal.