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Washington Watch

Senate Passes Energy Bill, Increases Fuel Mileage Standard

Compromise or Sellout?

A Little Of Both?

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.

Compared to the energy policy generated by Cheney's secret meetings a few years ago, this new bill represents a huge step forward. Still, Republicans derailed funding for $32 billion in renewable energy tax breaks by increasing taxes on oil companies, and blocked a measure requiring utilities to generate more electricity from renewable sources.

The final vote, 65-27, came after more than a week of intense debate that reflected the long-standing 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.

Prospects for the legislation as it now heads to the House of Representatives are murky. 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 increased fuel mileage standards are a step forward, but as BWC's Kicking Asphalt pointed out, still left us more than a decade behind Europe and China. 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.

Environmentalists defeated an auto industry attempt to push back a 35 mpg standard by some 15 years, but the industry was able to jettison the requirement of 4% annual increases from 2021 to 2030. The authority was given to federal regulators to increase the standards "at a maximum feasible rate", replacing the mandatory fuel standard increases. The last time regulators had this authority, the Reagan Administration actually reduced the requirements.

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.

With Republicans arguing the move would increase fuel prices, Democrats responded that the impact 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.

Proponents fell three votes short of keeping the tax package alive – and were unable to muster enough votes to include a provision that would have required U.S. utilities nationwide to obtain 15 percent of their electricity from renewable energy sources by 2020. Twenty-three states already have such mandates, still leaving a majority to defeat the proposal.

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.

In an interesting rejection of free trade, Senators also defeated an attempt by East Coast Senators to eliminate a $.54 tarrif on foreign ethanol. The Senate did respond in part to concern about the environmental impact 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.

Yet, climate change went otherwise unaddressed by the legislation. Macro-proposals to confront the issue, such as a cap-and-trade system or a carbon tax to limit carbon dioxide emissions, were ignored. An effort by Senator Amy Klobuchar of Minnesota to legislate a national reporting (“carbon counter”) system to simply measure all sources of greenhouse gas emissions, which would enable a cap-and-trade system to work if we ever passed one, also got killed by Republicans. As NY Times Columnist Tom Friedman noted, "We can’t cap and trade something we can’t measure."

While some view the bill as a reflection of the inevitable compromises of our legislative system, Friedman takes the "sellout" position. He argued in last Sunday's column that we have all the technology we need to become more energy efficient and independent--with lower emissions--and all the capital we need as well. "But because of the unique nature of the energy and climate-change issues which require incentives and regulations to build alternatives to dirty (but cheap) fossil fuels, you need public policy to connect the energy and capital in the right way," he writes. "That has what's been missing."

You are well aware that energy policy gets shaped in the halls of Congress where money is the controlling factor--whether to pay for lobbyists hired by legacy industries or to provide campaign contributions to politicians. It requires public involvement to generate any real change.

So, with the legislation now heading to the House, call your Representative, especially the Republicans and Michiganders. Otherwise, hold your breath--and in the absence of a stronger bill, we mean that literally.