Publications

---

During the Presidential campaign, Barack Obama proposed a new direction in energy policy – primarily supporting energy efficiency, conservation, energy security and alternative energy sources and technologies. These positions are generally shared by the Democratic Congressional majority.

Most observers expect the 111th Congress to consider a comprehensive energy bill during the first session as well as to begin developing a climate change bill consistent with these new energy policies.

The Senate Energy Plan

In late November, Jeff Bingaman (D-NM), chair of the Senate Committee on Energy and Natural Resources, stated that the nation must have a balanced energy policy that looks to both the near and longer term. In his view, that policy must embody the following elements:

Clean energy technology, especially for the generation of electricity; a National Renewable Portfolio Standard (mandating the use of renewable energy to generate 15-20 percentage of electricity); and implementation of a “smart” national transmission electricity grid that addresses issues of planning, siting and cost allocation.

Improvements in energy efficiency, particularly in the transportation, building and appliance sectors.

Adequate supplies of conventional fuels while the nation transitions to cleaner fuels. This effort would involve the promotion of oil and gas production, both on and off shore, undertaken in an environmentally responsible manner.

Increased funding for new energy technologies.

More transparent energy markets and greater scrutiny of investors and traders.

A proper balance between energy and environmental issues, especially in climate change policy.

Cooperative efforts to develop a detailed and streamlined regime addressing global warming.

Senator Bingaman has already directed his assistants to begin drafting energy legislation that embodies these principles. He will most likely introduce his comprehensive draft in the next few weeks.

The House Energy Plan

The House Committee on Energy and Commerce has not yet formulated its energy proposals. For many years, that committee has been chaired by a moderate, John Dingell (D-MI). The last energy bill drafted under his direction (the Energy Independence and Security Act of 2007) included (1) an increased Renewable Fuel Standard; (2) substantial conservation and energy efficiency measures; and (3) enhanced CAFE standards.

Just before Thanksgiving last year, Congressman Henry Waxman (D-CA), then-chair of the Oversight and Investigations Committee and a senior member of the Committee on Energy and Commerce, challenged Congressman Dingell and won the chairmanship of this very powerful committee. While Waxman’s views on energy policy in general are not well known, he will likely support a more activist agenda than Chairman Dingell did, including more aggressive measures to increase the use of renewable energy and promote energy efficiency and conservation.

Conventional Fuels

In the Senate:

Offshore Drilling

As discussed above, Senator Bingaman is mindful of the need to maintain adequate supplies of conventional fuels as the nation transitions to the use of newer forms of energy. To assess how best to deal with offshore drilling, he has suggested that the federal government conduct an inventory of energy resources on the Outer Continental Shelf – an inventory provided for in the Energy Policy Act of 2005 but never funded.

Product Reserve

Senator Bingaman is also advocating the establishment of a Product Reserve (that would store gasoline and diesel fuel at refineries and terminals) to help the nation, during times of crisis, combat rising prices at the pump for these essential transportation fuels.

In the New Administration:

Secretary of the Interior Ken Salazar supported the Senate compromise last year to expand offshore drilling in federal waters along the southern Atlantic coast and generally has supported onshore development if sufficient environmental safeguards are in place. At his confirmation hearing, Secretary Salazar said that he would consider offshore drilling as a means to achieve energy independence, but only as part of a comprehensive energy plan.

In the waning days of the Bush Administration, the Department of the Interior’s Minerals Management Service announced a proposal that could potentially expand domestic production of traditional energy resources. The agency issued a preliminary proposal to hold oil and natural gas lease sales in coastal areas where drilling had been banned. The Department of the Interior will accept public comments on this proposal for 60 days, and the new Administration will then decide whether to move forward with the leasing plans, make changes to those plans or abandon those plans completely.

Thus, the new Administration must soon face the issue of offshore drilling. Consideration will include such issues as coastal buffer zones and revenue sharing between the federal government and the states. Moreover, during the transition period, Mr. Obama’s transition documents set forth his energy plan, stating that as President he would support promoting “responsible domestic production of oil and natural gas.” Notably,. the transition documents also include a “use it or lose it” approach to existing oil and gas leases.

Economic Stimulus Package

In the House of Representatives:

Appropriations

On January 15, the Democrats released a proposed economic stimulus package that will cost American taxpayers $825 billion. The package is divided into two components: $550 billion in spending projects and $275 billion in tax breaks. The bill mandates investments in energy, technology, infrastructure, health, defense and veterans programs. It specifically provides $50 billion for energy funding. Much of the spending is for programs and projects that were authorized in prior energy legislation but had never received funding.

A primary goal of the stimulus package is to create “green” jobs by promoting short, medium and long-term projects to transition the nation to green energy generation, distribution and consumption. The energy title focuses on (1) improving electricity delivery and energy reliability within the US electric grid system; (2) providing loan guarantees for the construction of new renewable energy systems and electric power transmission systems begun before September 30, 2011; (3) making direct loans for the construction of certain new transmission lines that deliver electricity generated from renewable sources in Western states; (4) providing federal matching grants for “smart grid” demonstration projects and research and development; (5) providing loan guarantees for advanced batteries and innovative technology; (6) funding demonstration projects that use carbon capture and sequestration technologies; and (7) funding numerous energy efficiency programs.

Taxes

On January 16, 2009, Charles Rangel (D-NY), chair of the House Committee on Ways and Means, issued a tax bill as part of the overall economic stimulus package. The bill provides credits and incentives for renewable and alternative energy but does not amend current law applicable to conventional fuels.

In the past, such tax credits and other incentives were “paid for” by repealing benefits or increasing taxes on the petroleum industry for exploration and production. However, at this time the Democratic leadership in the House does not believe that this tax package must be offset by tax increases; such increases or “pay fors” would undercut the stimulus effect of the legislation. The Ways and Means Committee took up the bill on January 22 and reported it out for consideration by the full House.

In the Senate:

Senior advisors from the new Administration have been meeting with key members in the Senate to discuss the scope of the stimulus package, and members of Congress and their staffs have been crafting the specific provisions. There is strong support in the Senate for increasing the funding available for energy tax credits and generally encouraging the generation and use of renewable energy. The Senate hopes to complete work by mid-February, if at all possible.

Climate Change

The new Administration and Congress are both aware that any new energy policy must take into account its impact on climate change. Despite the economic downturn, the President and the Democratic Leadership in Congress want to proceed with the development of comprehensive climate change legislation, with broad application to the entire economy. Republicans are hesitant to move forward with this effort because of the state of the economy and have, on many occasions, advocated a more gradual approach.

Last year the Senate debated a comprehensive climate change bill, but Republicans raised strong objections, largely on economic grounds. The bill was withdrawn before the Senate considered many of the difficult issues associated with climate change.

Barbara Boxer (D-CA), chair of the Senate Committee on Environment and Public Works, led that failed effort. She plans to continue work on the legislation this year and, as a first step, will soon issue a series of principles to be embodied in a new bill. Despite the primary jurisdiction of her Committee, a number of her colleagues, particularly Max Baucus (D-MT), chairman of the Committee on Finance, and Jeff Bingaman, chairman of the Energy Committee, will participate more directly in the development of any new Senate legislation.

Bingaman Plan

Senator Bingaman believes that last year’s effort failed because it was too complex and attempted to address too many issues. Therefore, he has proposed ten basic principles that he hopes will enhance adoption of new climate legislation. These include:

1. Focusing directly on reducing greenhouse gas emissions.

2. Minimizing “carve outs” for particular states, regions and industries.

3. Establishing near-term goals that can be re-evaluated as the legislation evolves.

4. Using existing departments and agencies to administer the programs.

5. Establishing ambitious, but achievable, goals for emission reductions.

6. Assessing the costs associated with the program accurately and establishing means to control costs and prevent excessive volatility.

7. Strengthening commitments to technology, such as carbon capture and sequestration, thereby allowing companies and regions to meet established goals.

8. Establishing deadlines that are achievable.

9. Establishing a national cap and trade program to reduce greenhouse gas emissions.

Waxman ’s Schedule

Chairman Waxman has already begun work in the House to move a climate change bill. He held his first hearing on January 15 and pledged that comprehensive climate change legislation will be reported out of his committee within the next four months.

In the Administration

The new Administration will likely release a series of legislative principles in the near future and will work closely with both houses of the Congress to enact a bill to reduce greenhouse gas emissions.

The Outlook

Climate change legislation is extraordinarily complex. Various regions of the country, particularly the coal, oil and gas producing states and the industrial states, have major concerns about the final outcome. In addition, the weak economy will make adoption more difficult.

While Congress may reach agreement on this transformative legislation in the next year or two, implementation is unlikely to occur until 2011 or 2012.