The EISA effect

March 10, 2008
A champion of last year’s energy bill reads too much into a revision by the Energy Information Administration of its long-term outlook for US energy.

A champion of last year’s energy bill reads too much into a revision by the Energy Information Administration of its long-term outlook for US energy. The Energy Independence and Security Act of 2007 (EISA) is still a bad law.

Whatever benefits EISA might achieve by toughening fuel-economy standards for new vehicles it will more than offset by hiking the renewable fuel standard to high, possibly unfeasible levels. Expanding the costly mandate for ethanol and biodiesel was a mistake for which Americans who don’t grow or distill corn for a living will pay for many years. Maybe that’s why lawmakers feel compelled to cheer anything that seems to make EISA look otherwise.

Celebratory statement

Sen. Jeff Bingaman (D-NM), chairman of the Senate Energy and Natural Resources Committee, issued a celebratory statement Mar. 4 after hearing EIA’s revision to the “early-release” Annual Energy Outlook it published in December, just as Congress was passing EISA. The revision accounts for EISA’s provisions not requiring appropriations. It also accounts for changes other than the new law, including, according to EIA Administrator Guy Caruso, “a more current economic outlook.”

By themselves, new economic assumptions explain some of the moderation in projected demand growth. Economic expectations have deteriorated since December, while oil prices have zoomed. In testimony to Bingaman’s committee, Caruso did credit EISA for influencing market indicators. But the effects are mostly adjustments to rates of change in trends under way when EISA was passed. They’re not attributable solely to the new law.

“The increased use of biofuels resulting from EISA2007, much of which is domestically produced, and the reduction in transportation fuel demand due to the new fuel economy standards both serve to moderate growth in energy imports,” Caruso said in prepared testimony. But he added: “Higher fuel prices over the projection period also spur increased domestic energy production and moderate energy demand growth, also tempering growth in imports.”

Bingaman ignored the market influences mentioned by the EIA chief, among which, it might be argued, higher fuel prices result partly from inefficiencies introduced by the new law. “Caruso noted,” Bingaman’s statement says, “that because of EISA: Net imports of crude oil and refined petroleum products are expected to decline from 60% in 2006 to 51% in 2022; inflation-adjusted prices for oil, natural gas, and coal are expected to be lower in 2030 than they are domestic energy demand is expected to increase by about 24% through 2030, but the pre-EISA figure was closer to 31%; and energy-related emissions of CO2 are forecast to grow by 25% from 2006 to 2030, down from pre-EISA’s prediction of a 35% increase.”

The statement implies that EISA by itself accounts for the drop in the net import share of something it doesn’t specify, which a check of Caruso’s testimony shows to be net liquids use. Not so. EIA’s December early-release projection, which didn’t reflect EISA, indicated a drop, too, but to 55% in 2010-20 rather than 51%. As Caruso points out, the lower demand and higher domestic production that come with elevated prices account for some of that change.

Similarly, inflation-adjusted prices for oil and gas aren’t expected to be lower in 2030 than they are now “because of EISA,” as Bingaman suggests. The December (pre-EISA) outlook projected a 2030 crude price of $72/bbl. The revision trims that to $70/bbl.

Emissions growth

And, to keep the record straight: EIA’s new projection puts growth in total energy use at 19% during 2006-30, not the 21% asserted by Bingaman’s statement. That figure comes from EIA’s December projection. The 31% growth figure in Bingaman’s statement appeared in the long-term outlook EIA made early last year. The senator’s statement makes a similar mistake with CO2 emissions: the revised number for 2006-30 growth is 16%.

Expectations for emissions, of course, will abate further if projected growth in energy use slows even more, which it will if Congress keeps imposing costs such as those of mandates for taxpayer-subsidized fuels. But lawmakers eager to take credit for that part of the EISA effect will be hard to find.