Energy Woes
January 3, 2008
by: Elizabeth Wright

Government WasteWatch, Winter, 2008

Anyone who drove in the 1970s will not fondly remember skyrocketing gas prices and gas lines due to the Arab oil embargo, the Organization of the Petroleum Exporting Countries (OPEC) increasing the world price for a barrel of oil, and an Islamic revolution in Iran. Politicians in Washington and around the nation tried to “fix” the problem with several initiatives, such as price controls, windfall profit taxes, rationing, and regulation. In 1975, the U.S. imported 37 percent of its petroleum. Yet even with all the government incentives to wean the nation from foreign energy sources since those heady days, the country now imports more than 66 percent of its petroleum.

Even as the economy and consumers need more energy, not less, politicians are once again meddling in areas they should leave alone. Some of the so-called solutions to the nation’s energy woes that have been proposed in various pieces of legislation sitting before Congress will, if implemented, make the 1970s look like a cakewalk. Drivers who were not around in that decade may get to experience the sheer joy of sitting in a gas line for hours, being told what day of the week to purchase gas (if there is any to be had), and see their overall purchasing power diminish.

Although energy issues have been at the forefront of our national debate for the past several years, much of the current angst occurred right after Hurricanes Katrina and Rita slammed into the Gulf Coast, where about 25 percent of U.S. domestic oil production occurs, 20 percent of natural gas production is located, and more than 40 percent of the nation’s oil refining facilities are in operation. The storms severely interrupted vital energy supplies, driving up costs for gasoline and oil. It wasn’t long before the press reported on stories of rogue gas stations charging as much as $6.00 per gallon in the Gulf Coast area and consumers nationwide saw the price of gas increase to more than $3.00 per gallon for regular grade.

Prices eventually stabilized, as clean-up and repairs began in the Gulf Coast region, but Americans face another reality that continues to this day. The fast-growing economies of China and India, among others, are consuming more oil and other energy sources, keeping demand and prices high. Add to this mix a presidential campaign and the “Chicken Little” reaction to global warming and it is a perfect storm for some real mischief by big-government advocates in Congress.

There were several bills passed in Congress in 2007 with onerous provisions, such as huge tax increases on energy companies, mandates on energy production and use, pricegouging provisions, and increased corporate average fuel economy (CAFE) standards for automobiles and trucks. The House and Senate committees responsible for writing a consensus bill were unable to reach agreement, so the Democratic leadership essentially took over. With little or no bipartisan involvement, a series of proposals and bills were eventually cobbled together into one piece of legislation, H.R. 6, the Energy Independence and Security Act of 2007. Unfortunately, it provides the nation with neither independence nor security while repeating past mistakes, such as allowing Congress to pick winners and losers in energy policy.

H.R. 6 included a $21 billion tax increase on energy companies, which will be passed on to consumers, hurt investment, research and development, and cause unemployment. The nation’s energy companies directly and indirectly employ 6 million people on a full- or part-time basis, accounting for 3.5 percent of total employment nationwide. Millions of Americans’ pension and retirement funds are invested in these energy companies. Imposing onerous tax burdens on these energy companies will not solve the country’s energy needs and it will harm the economy.

H.R. 6 also mandated renewable portfolio standards on private utilities, requiring them to generate 15 percent of electricity from renewable sources, such as wind and solar by 2020. While this may sound proactive, many renewable technologies are not advanced enough to meet energy demands of the utilities and many of them are not available in many regions of the country, particularly in the South. This mandate will also raise costs to consumers.

The energy bill required that 36 billion gallons of ethanol and other biofuels be blended with gasoline by 2022, intensifying the problems created by the Energy Policy Act of 2005. That legislation required that 4 billion gallons of renewable fuel be added to the gasoline supply by 2006. This has raised the price of corn and increased the cost of food and transportation.

H.R. 6 also mandated an increase in the CAFE standard from a combined 25 miles per gallon for car and light trucks, such as SUVs, to 35 miles per gallon by 2020, stressing an already shaky U.S. auto manufacturing industry.

With barely a half day to digest the more than 1,000-page bill, the House leadership brought it up for a vote. It passed, 235-181, but without the vote margin needed to override a promised presidential veto.

From there, it went to the Senate, where it failed a cloture vote (essentially, a test to see if it could garner enough votes to avoid a filibuster). The Senate immediately began to rewrite the legislation to try to get the 60 votes needed to make it filibuster-proof.

The new version of H.R. 6 raised taxes by $22 billion, but removed the requirement on private utilities to generate 15 percent of electricity from renewable sources by 2020. That, too, failed a cloture vote. The bill was rewritten again to remove the bulk of the tax increases and it finally passed the Senate on December 13. It ping-ponged back to the House, where it is expected to pass. The president has promised to sign this new version of the bill into law, but House Speaker Nancy Pelosi (D-Calif.) has promised that some of the other controversial measures (tax increases, the utilities’ requirement, price-gouging initiatives, and restrictions on oil use) could come up again in some future legislation. Undoubtedly, the goal is to pass these proposals piece by piece.

The two areas where the president and Congress agree are for increase in CAFE standards and the imposition of a mandate for 36 billion gallons of ethanol and other biofuels to be blended into gasoline annually by 2022. These alternative fuels are fledging technologies and bring problems of their own. For example, according to an article in the July, 2007 Rolling Stone (no corporate mouthpiece), cellulosic ethanol (produced from woody plant matter such as trees, grass, and agricultural waste) faces daunting engineering hurdles. Even if those obstacles are overcome, the U.S. would have to use 13 percent of its land, seven times more than is used for corn production today, to reach the goal of replacing 50 percent of gasoline with cellulosic fuels. That will restrict growth of other farm products and further drive up the price of food supplies.

If the mandate for renewable fuels such as ethanol becomes law, the consequences are dramatic. Rolling Stone pointed out that current corn ethanol production is only 3.5 percent of gasoline production, but it gobbles up 25 percent of the total corn crop. Reaching the mandate contained in H.R. 6 will only replace seven percent of current domestic oil needs. Even if the entire corn crop was devoted to ethanol, only 12 percent of current gasoline use would be replaced.

In addition, for those concerned about greenhouse gases, a study published in the August "Atmospheric Chemistry and Physics Discussions" by P.J. Crutzen et al. pointed out that the release of nitrous oxide (N2O) in the production of biofuels could negate any savings realized from a reduction of fossil fuel CO2 emissions.

Before requiring the increased production of ethanol, members of congress should read the October 2007 report “Leaping Before They Looked: Lessons from Europe’s Experience with the 2003 Biofuels Directive” by the Clean Air Task Force, which details how a 2003 European Union mandate to increase and promote the use of biofuels “has exacerbated some of the very problems it was designed to solve, driving up food prices, leading to increased deforestation in tropical countries, worsening global warming, and increasing imports of biooils.”

Establishing domestic exploration restrictions and raising taxes on the nation’s energy companies will only make the U.S. more dependent on foreign sources for energy. According to data from the U.S. Geological Survey and the Minerals Management Service, some 69 percent of undiscovered oil resources and 51 percent of undiscovered gas resources are located on U.S. government lands. Domestic energy companies must gain access to these areas and the market must work without stifling regulations and political decrees. Real market forces will encourage private investment and research that will develop cleaner and more efficient energy for everyone.