Monday, June 11, 2007

Senate Energy Bill on Calendar

Senate bill S.1419 introduced by Senate Majority Leader Harry Reid (D-NV) is now on the Senate calendar for consideration. (Washington Post: The Senate's Energy Bill.) There are five key points in the bill, each of which merit discussion:

  • Require the use of 36 billion gallons of bio-fuels by 2022.
  • Raise automobile fuel standards to 35 MPG by 2020.
  • Criminalize price gouging of petroleum fuels during energy emergencies.
  • Boosting energy efficiency standards.
  • Improve international cooperation on energy.
Let me begin by saying that I do not in any way oppose the energy debate this bill will foster, nor am I opposed to the intentions of the Senate or the bill's sponsor with regards to the reformation of our energy policy and energy standards. To be sure, both our policy and standards are in serious need of reform. There are, however, some shortcomings in the bill as it currently exists that I wish to discuss.

36 billion gallons of bio-fuels by 2022

On the surface, this sounds both logical and feasible. The more we increase our use of bio-fuels, the less we rely on petroleum or petroleum byproducts for our energy needs. The problem with this approach, however, is that it introduces conflicting needs for grains (typically corn) that could be used for either food or energy. By linking food grains to energy, it creates an economic dynamic that raises the price of a low-cost food source to the much higher level of an energy source. While I agree with the spirit of the bill - find a viable alternative to petroleum products - I do not agree with the use of bio-fuels for this purpose. This section of the bill requires modification such that it does not create a relationship between food crops and energy crops.

Raise fuel standards to 35 MPG by 2020

Is there anyone in the nation that does not support this portion of the bill? Given our current technology, there is no legitimate reason not to implement these standards. In fact, there's no legitimate reason to wait until 2020 for those standards to be realized. This portion of the bill has my full support.

Criminalize price gouging

While I agree with the spirit of this clause, I'm not sure how to enforce it or even define it. Is what we are seeing today truly price gouging or is it the natural course of a free market? One of the most disturbing trends that I see today is not the upward spiral of gasoline prices. Rather, it's the lack of any corresponding downward spiral of gasoline demand. Previous logic held that gasoline consumption would decrease as the price increased. Unfortunately, for a variety of reasons, that has not held true. Some of it is our absurd propensity for over-sized vehicles under the false illusion that they are somehow safer. But that is not the whole story. The fact is, Americans are on the road longer today than they were a decade ago, even if the length of the commute (in miles) has not increased. There is much more traffic congestion today than a decade ago. There is also a significant amount of road construction along key arteries, especially in heavily populated areas. For me personally, my daily commute has gone from 30 minutes round trip to 90 minutes round trip, even though the distance remains the same. So consumption is actually flat or increasing while prices continue to rise.

The other issue with this section of the bill has to do with the composition of the price of a gallon of gas. In my home state of RI, the local gas station makes on average 8 cents per gallon of gas. That's a bit low when you consider that the station is really making a 2.7% profit on a gallon. The station is certainly not price gouging! The state, on the other hand, is making 43 cents per gallon in taxes! That's a 14.5% profit per gallon. So who is doing the actual gouging? Is it the station or the state? Some would argue that it's the oil refiner, but I'm not even sure that's true since the wholesale price is being set in free market auction at the New York Mercantile Exchange.

Don't get me wrong, I support the spirit behind this portion of the bill. I just don't know how to define gouging or how to enforce it.

Boosting energy efficiency standards

This one's a no-brainer. Improving our overall energy efficiency benefits everyone. It benefits the consumer, and it benefits the manufacturer. The challenge, however, is a conflict between energy efficiency and emissions controls. Unfortunately, the two do not work well together. Improving emissions, controlling pollution (both air and water), and adhering to ever increasing safety and environmental requirements costs energy. Now, I am not suggesting that we ignore the environmental aspects, however we either need to achieve some happy balance between the two or we must refocus our attention on more efficient forms of energy in the first place. Nuclear energy is a good example of that. One of the best ways of improving our overall energy efficiency is to revitalize our nuclear energy programs. It's by far the most efficient energy source we have given today's technology.

Improving International Cooperation on Energy

Good luck with this one. Oh, it sounds great on paper, but the reality is that there are too many competing interests for this to happen. When you look at the developing countries of China and India, their energy consumption is focused entirely on the growth of their economies. China has already stated that their first priority is economic growth, even if that flies in the face of energy efficiency or pollution control. The harsh reality, though, is that international cooperation must include China and India or the debate is pretty much a non-starter. What I have not seen anyone propose is a viable means of bringing China and India into the fold. Until that happens, International Cooperation will be a cute slogan but nothing more.

In summary, there are many aspects of this bill that I support. There are other aspects that need work as outlined above. What I am still waiting to see is a requirement from either side of the aisle that we address the real problem, that being the lack of development towards a new renewable energy source that will meet our long term needs. To date, none of the solutions proposed - bio-fuel, wind, solar, hydrogen cells, even nuclear energy - come close to fulfilling that requirement. So that challenge remains. Let's see some research funding aimed at developing a new fuel source that can bring us will into the 21st century.

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3 comments :

Silas Scarborough said...

The puppy love posts couldn't go on forever! I'm much more hard-core on this one.

Mass transit: where is it

Tax conspicuous consumers: sure you can have a Hummer but you're going to get a pig tax to go with it

All in all, the bill is meaningless as, like the immigration bill, it's just a continuation of things that didn't work the last time they tried.

Jackson said...

The fuel economy standards provision may look reasonable but the reality is that it could significantly increase the cost of new vehicles and limit the variety of models available in the market.

I'm working with the Alliance of Automobile Manufacturers and there is no doubt that increasing fuel economy and reducing carbon dioxide emissions are among the most important issues we face. However, solutions must be practical and workable. Information is available at DriveCongress.com

Kannafoot said...

Jackson,

I reviewed the site you referenced however I don't see any alternatives listed beyond what is already in the current Senate bill. To be specific, the Drive Congress site states the following:

"There is a better alternative to this extreme legislation. The alternative will also significantly increase fuel economy but will provide automakers with the flexibility they need to meet the higher standards without sacrificing cost, consumer choice and safety.

Additionally, this alternative will increase the availability of alternative fuels by mandating more gas stations offer ethanol, bio-diesel and other bio-fuels."


I have already discussed my opposition to bio-fuels including ethanol, so there's no need to repeat them here. The site mentions alternatives, but beyond the bio-fuel reference I don't see those alternatives discussed. If I have missed a link to them, I would welcome the correction. Without any details, however, I am forced to conclude that the site simply promotes the best interests of the auto industry, not the best interests of the American consumer or the overall American economy.

Silas Scarborough in his comment presents some alternatives that I would gladly support if they were included in any legislation. Mass transit initiatives and an excessive consumption tax as he proposes would go a long way towards putting a dent in our energy consumption, yet I somehow suspect the auto industry would be in opposition to those measures as well.

We have seen the direction the auto industry would take us. Remember, it wasn't so long ago (at least for some of us) that smaller four-cylinder cars reaching 40-45 MPG were increasingly commonplace. That was the fallout from gas rationing and record high gas prices in the late 1970s and early 1980s. It didn't take long, however, for the industry to revert back to the bigger is better mantra, convincing the average consumer that they need a four-wheel drive SUV to have some feeling of safety on today's roads. I may be a tad cynical, but I find myself unable to trust any initiative put forth by the auto industry when it comes to energy conservation.