The Good and Bad in the United States’ Energy and Farm Bills

About a month ago I was asked to contribute to the next issue of Subsidy Watch regarding the recently passed energy bill. The issue was just published:

Subsidy Watch, Issue 16, September 2007

My comments:

The 2007 U.S. Energy Bill

The recently passed energy bill from the U.S. House of Representatives signals a commitment to renewable energy. The Renewable Energy Standard mandates that by 2020, 15% of the electricity produced by investor-owned utilities is produced from renewable sources. The bill also contains an important incentive for plug-in hybrid electric vehicles (PHEVs), which should accelerate adoption of these vehicles by consumers. However, special interests succeeded in torpedoing several measures, including an increase in fuel efficiency standards, and a tax credit designed to boost second-generation renewable diesel technologies.

The oil industry was put on notice with this bill. The definition of renewable diesel was modified to exclude “any fuel derived from co-processing biomass with a feedstock which is not biomass”, a moved aimed at refiners who might wish to utilize existing refineries for biofuel production. Eligibility for the full renewable diesel credit was also modified by striking language that allowed for production of renewable diesel “using a thermal depolymerization process.” These changes appear to be in response to recent announcements that some oil companies would begin producing renewable diesel in existing refineries. However, unless Congress wishes oil companies to remain entirely focused on petroleum, this is exactly the wrong signal to send to the industry.

The bill also singled out the oil industry for punitive measures. In a section entitled “Denial of Oil and Gas Tax Benefits”, the industry was singled out for revocation of a tax credit that had been available for companies engaged in “manufacturing based in the United States.” The bill has created an exception for companies engaged in “the sale, exchange, or other disposition of oil, natural gas.”

The House bill differs in many important respects from the Senate version. The next step is to reconcile those differences and put forth a unified bill. Preliminary comments from the Executive Branch indicate that a presidential veto looms. Regardless of whether the bill passes, the exercise demonstrates the difficulty of developing a consistent, long-term energy policy. Each new election cycle brings a brand new direction in energy policy, which makes the planning and execution of long-term projects – from wind projects to deep-water oil platforms – exceptionally risky.