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| Author: | Robert McMahon, Editor |
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January 16, 2007
Democrats have signaled they will use their new majorities in the House of Representatives and Senate to focus Congress on energy issues with greater urgency this year. At the outset of the 110th Congress, House Democrats announced their first initiatives would include a tax aimed at oil and gas companies, for which revenues would be used for renewable energies. The energy issue has been framed in terms of national security, environmental sustainability, and economic health. But the most robust action from Congress on energy in the coming year could come in the new farm bill. There is bipartisan support for boosting production of biofuels such as ethanol to help ease U.S. dependence on foreign oil. Policy experts cite the need for a comprehensive energy package but the huge number of overlapping issues involved makes such legislation unlikely.
A series of developments in the past few years has buffeted world oil markets, revived interest in Washington on alternative fuel sources, and linked energy with national security. But the executive branch and Congress have faced criticism for failing to provide a coherent U.S. energy policy at a time of continued dependence on foreign sources, particularly oil. President Bush in his 2006 State of the Union address called U.S. oil dependency “an addiction” and outlined steps in his Advanced Energy Initiative to replace more than 75 percent of U.S. oil imports from the Middle East by 2025. Congress previously took some steps in this direction; in the 2005 Energy Policy Act it required that gasoline contain ethanol or another renewable fuel, expanded tax incentives for purchasing “clean-fuel” vehicles, and added research funding for hydrogen fuel. But a broad array of concerned parties spanning the U.S. political spectrum has assailed lawmakers for failing to respond to alarming signals both on the environmental and geostrategic fronts.
In 2006, Congress “careened between trance and hysteria based on the price of gasoline,” says Grumet.
An independent CFR Task Force in October 2006 warned that Washington’s lack of focus on energy issues was undermining the country’s national security. Jason S. Grumet, who directs the bipartisan National Commission on Energy Policy, says Congress in 2006 “careened between trance and hysteria based on the price of gasoline and neither position is a good one from which to legislate.”
Since oil provides about 40 percent of U.S. energy and the transportation sector is heavily reliant on it, legislative efforts are concentrated on augmenting and replacing this source. Here are some chief issues:
Democratic leaders in the House plan to introduce legislation on January 18 that would provide a fund for renewable energy and conservation steps. The money would come from amending legislation to require companies to pay royalties on deepwater production if oil or gas prices reached certain thresholds. The Government Accountability Office estimates the omission of such royalties since 1998 and 1999 has cost the government nearly $2 billion. The Democrats’ plan also involves repealing a 2004 tax break granted to oil and gas companies. That break had been intended to help domestic companies compete with importers but opponents said it was helping large firms already reaping huge profits.
The Center for American Progress says that reversing what it calls “corporate tax giveaways” (PDF) from the past few years would further increase revenue by up to $22 billion over five years. But Ben Lieberman of The Heritage Foundation writes in a recent position paper that increasing taxes on U.S. energy companies “ would only give a comparative advantage (PDF) to OPEC [ Organization of the Petroleum Exporting Countries] and other foreign suppliers that are not subject to such provisions."
Verrastro says: “It’s hard to imagine that Congress would enact any kind of tax that would make people change the way they live.”
Experts say this is unlikely. The federal tax on gasoline is about eighteen cents per gallon and efforts to increase this have met with fierce opposition. The issue of raising consumption taxes to lessen demand for oil continues to be raised in policy circles. The 2006 CFR Task Force said a gas tax should be among the recommendations considered. But the subject still is seen as politically damaging, says Yacobucci of the Congressional Research Service. A tax that would modify U.S. driving habits would have to be significant, says Verrastro of CSIS, pointing to marginal changes in consumption after prices temporarily rose above three dollars per gallon in 2006. “It’s hard to imagine that Congress would enact any kind of tax that would make people change the way they live,” he says. Adds Alice Rivlin, a senior fellow at the Brookings Institution: “There are more people talking about that [a gas tax] than used to be, but I don't think it's a groundswell. It would make a lot more sense (PDF) than all of these little subsidy things for different kinds of alternative fuels."
Aside from the main energy committees in each chamber, there is an ever-expanding group of panels with some influence on the issue. They include the tax, commerce, appropriations, foreign relations, and environment panels. The proliferation of jurisdictions on energy law “does pose a challenge for really comprehensive, thoughtful energy policy,” says Grumet. He is one of a number of experts who believe the main energy initiative from Congress this year could come from the agriculture committees overseeing the renewal of the 2002 Farm Bill. That measure included for the first time an energy section with financial incentives for developing ethanol and other biofuels. The soaring interest in ethanol, however, has raised concerns from the livestock and food sectors that incentives for ethanol will strain corn supplies. “Lawmakers will come under pressure to establish some sort of balance in the demand for corn between the energy industry on one hand, and the livestock and food industries on the other,” reported CQ Weekly in August 2006.
There are growing signs that unease over climate change linked to pollution will prompt action in Congress. Senators this year are already lining up with proposals to ease greenhouse gas emissions that will affect energy costs. The chairman of the Senate’s Energy and Natural Resources Committee, Jeff Bingaman (D-NM), is promoting a “cap-and-trade” approach that aims to lower emissions by 5 percent by 2015 and 14 percent by 2030. An analysis by the federal Energy Information Administration says this approach would have only a modest impact (PDF) on household energy prices. Sen. Barbara Boxer (D-CA), who chairs the Environment and Public Works Committee, supports tougher legislation that would be modeled on California’s. That law, passed last summer, calls for cutting statewide greenhouse gas emissions by 25 percent by 2020. Three other senators—John McCain (R-AZ), Obama, and Joseph Lieberman (ID-CN) —introduced in January 2007 a global warming measure that would curb emissions by 2 percent per year. It would include mandatory caps on emissions for oil refineries, power plants, and other industrial sources.
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