A Scattershot Approach to Energy Policy

By Steve Kopperud, Policy Directions, Inc.

There ought to be a federal law stipulating candidates for the presidency of the U.S. republic cannot announce their candidacies or even begin jockeying for office until six months prior to the general election. I like the British system best: candidates may talk about standing for Parliament, but they’re restricted by law to only 30 days’ public campaigning.

This serves two purposes: First, such a restriction would be merciful, sparing the general population the election harangue, the television assault, the din that becomes just so much white noise right at the point in the pre-election cycle when people should actually be paying attention. Second, from personal and professional standpoints, such a law would remove or the very least minimize a huge political distraction from the business of congressional governance. In short, electioneering distracts from the job at hand, namely sound national policy.

The best example at the moment is the White House and Congress’ game of chasing their tails over national energy policy or a lack thereof. Instead of getting creative on how to sculpt such a policy, both administrative and legislative branches are chasing straw men, and the perennial favorite is “big oil.” Consider President Barack Obama’s soft slide into 2012 reelection mode via the Internet a few weeks ago, and the continuing back-and-forth of the 10, 12, or 14 GOP wannabes. Obama’s first shot out of the box was a call to repeal all oil company federal tax breaks. This set off a tit-for-tat among Democrats over who could smack big oil the hardest, and Republicans over how best to avoid seeming anti-corporate while feeling the pain of the common folk.

Obama didn’t try to connect the dots between gasoline pump prices and oil company profits or tax benefits – he said the “savings” should go to clean energy development – but the implicit “two-fer” is there. But all of this is political sideshow, and ignores the big monkey in the room. Namely, a scattershot approach to U.S. energy policy, and both the Republicans and Democrats continue to dodge responsibility.

At a point where U.S. elected leaders should be pow-wowing over how best to get this country off its foreign oil addiction, how best to make sure biofuels of all types are fostered and commercialized in a timely fashion and free market competition is encouraged, how best to make personal and corporate energy conservation as painless as possible, we’re listening to this nation’s highest elected leadership compete over who can best exploit big oil as the Satan of the gas pump. This has serious business implications.

The lack of a national energy policy leaves both individual companies and entire industries confused and nervous about gambling development monies when there’s no clear indication which way the country will move on energy. Consider the future of biofuels in the United States.

It’s clear the technologies exist to produce commercially viable alternative fuels from a variety of sources, but the government lacks a comprehensive, focused program to get these fuels from laboratory to fuel pump. Should the federal investment be in fuel development? Should it pay tax incentives to accelerate development? Should there be credits to “incentivize” big oil to play in the alternatives sandbox? Should the federal dollars go to commercialization once the miracle fuel is discovered? Should it be government investment in infrastructure to get the fuels from source to fuel pump?

It should be a formula where all of these options are available, but on a limited and situational basis and within a prescribed budget. The goal must be to ensure no industry or technology becomes addicted to or materially reliant upon federal payments.

These actions by the federal government are germane to nascent technologies Congress and the administration decide they wish to foster. Once the national interest is identified – in this case, energy independence – then federal government’s obligation is to level the playing field with the least amount of interference so the alternative fuels industry can flourish no matter the feedstock or the technology. But government largesse needs an end point, a point at which the support ends and it’s sink or swim in the marketplace for the new technology. This allows planning and provides the carrot. It is also, in large part, the essence of the corn-based ethanol debate and the weakness of the current biofuels tax incentive programs. At just what point in time does a technology or an industry become mature enough to go it alone?

Senators Dianne Feinstein (D-CA) and Tom Coburn (R-OK) – arguably the opposite ends of the Senate political spectrum – have jointly introduced legislation to kill the ethanol blenders tax credit and repeal the import tariff on foreign ethanol. Senators Kent Conrad (D-ND), chair of the Senate Budget Committee, and Charles Grassley (R-IA), the Senate’s biggest ethanol supporter, countered with legislation to extend the blenders credit through 2016, but reduce the level in 2012 and 2013, and then allow the credit to float based on the world price of oil, as in the higher the price of oil, the lower the tax credit. The Conrad/Grassley bill extends through 2016 tax credits for building ethanol infrastructure, including flexfuel pumps. Cellulosic ethanol continues to receive a per-gallon tax credit through 2016.

Another approach is the “open fuel standards” bill introduced by Representative John Shimkus (R-IL). The bill would require half of new vehicles produced in 2014, 80 percent in 2016, and 95 percent in 2017, to be warranted to operate on nonpetroleum fuels “in addition to or instead of” petroleum-based fuels. Virtually any fuel would qualify – ethanol blends, natural gas, hydrogen, biodiesel, electronic, or fuel cell. Shimkus said the “big three” U.S. automakers acknowledge they can make 50 percent of cars adaptable to an open fuel standard by 2012.

What should have happened – and what may still occur – is Feinstein, Conrad, Grassley, and Coburn put their staffs in a room and tell them to hammer out a broad biofuels policy on federal supports for alternative fuels, the goal being to replace the scattershot plethora of tax credits, incentives, loan guarantees, and outright federal payments with a comprehensive, affordable alternative fuel policy applicable across the board. That would be Title I. The Shimkus approach would be Title II of this omnibus energy bill dealing with how best to create the market for said alternatives. Titles III and so forth would deal with clean coal, nuclear, wind, solar, oil shale, hydrogen, and the rest of the known sources of energy generation, along with smart off-shore exploration, conservation, and so forth.

Such policy eliminates the need for companies to gaze into their respective crystal balls and/or roll the dice to decide whether they stay in the government program with no clue how long that program will last, or get out, slug it out in the free marketplace, or let other values, i.e., alternative fuels renewable identification numbers, be the incentive. Ultimately, it should be the marketplace that dictates these national energy decisions, not the federal government’s cafeteria of outlays.

View from Washington – June 2011 RENDER | back