The Energy Marathon: What Has Congress Wrought?

Robert Fri

Energy has been a persistent topic of national policy debate for the past five years. Early in its first term, the Bush administration advanced its own energy plan and more recently the nonpartisan National Commission on Energy Policy produced another. Countless symposia have been held and an avalanche of op-ed pieces written. Three Congresses considered comprehensive energy legislation, culminating in the massive Energy Bill that the President signed into law on August 8. Has all this activity produced national energy policy worthy of the name?

Not quite. But four key elements of the overall shape of an emerging U.S. energy policy -- not all of them reflected in Congress's recent bill -- do seem fairly clear at this point.

First, national security and climate change have emerged as critical drivers of energy policy, changing the focus of policy in a fundamental way.

The rise of terrorism has exacerbated the longstanding concern about the security implications of imported oil. Not only do terrorists make a supply interruption more likely, oil revenues are alleged to be a source of funding for terrorist activity. For these reasons, a bipartisan corps of national security experts has now joined with more traditional energy analysts to urge policies that would reduce our dependence on imported oil.

The expectation that climate change is a problem that will sooner or later require limits on greenhouse gas emission is also now broadly accepted in the United States. Scientists have been largely united on this point for some time, of course. More recently, a number of U.S. companies have arrived at the same conclusion, and the Senate adopted a resolution that embodied this view. While the climate change debate is by no means over, the confident expectation of greenhouse gas controls is now shared by enough observers to drive energy policy.

These two developments tend to direct the energy debate in new ways. Unlike some past concerns, they are not based on a fear of running out of energy supplies (although questions about the peaking of oil production have had a modest revival). Rather, the consequences of energy use for security and the environment have become the driving forces for policy -- and these are reasons to act that are grounded outside the energy system itself. These exogenous drivers sharpen the goals of energy policy, for they clearly require a fundamental change in the use of fossil fuels, especially oil. The combustion of all fossil fuels produces carbon dioxide, the most prevalent of greenhouse gases. And oil is the energy source most closely associated with national security risks.

Second, because fossil fuels supply more than 85 percent of U.S. energy, any energy policy aimed at significantly reducing their use would face formidable challenges. For that reason alone, the president and Congress are not yet prepared directly to limit the use of fossil fuels.

One reason for this reluctance is that such a policy clearly would raise prices to consumers, a risk that deters elected officials unless consumers equally feel the pain of not raising prices. The public case for pain has yet to be made, despite the spreading consensus among policy makers that the case is getting stronger. A second reason for avoiding direct controls is that designing the necessary policy instruments is hard and controversial work. Economists have developed market-based policies that in principle would be the most efficient and effective way to cap the use of these fuels, but reducing economic theory to practical policy is a tricky business that creates winners and losers. Thus, there are both political and practical considerations for approaching the implementation of market-based energy policy with considerable care.

Third, energy policy increasingly relies on the confidence that technology will find a way to ameliorate our energy problems, now and probably for some time to come. The hope is that technology can provide the energy services that consumers want without the pain of higher prices or greater inconvenience.

For example, the administration has advocated major research programs to create zero-emission coal-fired power plants and to develop hydrogen-powered automobiles as the answer to excessive oil use. Ethanol produced from cellulose (as opposed to grain) burned in hybrid vehicles is another possible alternative to the use of oil in the transportation sector. Other options for electric power production are renewable sources of energy, such as solar, wind, and geothermal. The prospect of climate change also lends weight to the deployment of advanced nuclear power plants, despite the issues of waste and proliferation that accompany this option.

The nation has had considerable experience with pursuing technology as the solution to energy problems -- enough to know that this policy raises issues that require careful thought. For example, to what extent is government funding of research an effective source of innovation? How can research programs be structured to avoid government-chosen technology winners and losers? What policies would nudge private sector innovation toward reducing risks associated with climate change and national security?

Fourth, reliance on technology does not mean that policy makers will wait passively for technology to mature. Rather, activist governments at all levels are pursuing a variety of initiatives that will decisively shape our emergent energy policy.

Because of its focus on new technology, the federal government will invest reasonably heavily in research and development. Additionally, both the Administration and Congress have proposed a variety of incentives intended to accelerate the adoption of new technology. These include financial support for first time deployment of new technology, incentives for greater efficiency in energy use, and even revisiting the structure of Corporate Average Fuel Economy standards to close some of the loopholes in the present regulations.

States have been willing be more aggressive, a condition that may well persist. Twenty states already have imposed minimum requirements for renewable fuels and are likely to support other policies that would encourage deployment of new technology. Unlike the federal government, however, some states are ready to tackle the fossil fuel problem more directly, especially to reduce the emission of greenhouse gases. Nine northeastern states are establishing their own system for capping these emissions, including a program for trading emission allowances. The governor of California has set a long-term goal for reducing greenhouse gas emissions in that state, although implementing mechanisms are yet to be developed.

In sum, the shape of U.S. energy policy seems reasonably clear in several important respects -- arguably clearer that it has been for some years. Many questions remain, of course, but two stand out as the major obstacles to further policy clarity.

First, when will the United States impose national limits on the use of fossil fuels? Such a policy would cap the use of oil or greenhouse gas emissions, preferably coupled with some form of market-based signal that would allow consumers and companies to allocate resources efficiently. For the foreseeable future, the activist policies noted above will have some effect on fossil fuel use and emissions. But this policy framework is fragmented, largely indirect in its effect, and probably less efficient than a coherent national policy.

Second, what role will the United States play in international negotiations on the development of a global greenhouse gas control regime? The Kyoto Protocol envisions a new round of negotiations on greenhouse gas limitations to start soon. The United States declined to ratify the original treaty on the grounds that it was poorly conceived. But if greenhouse gas controls are now thought to be essentially inevitable, then the design of the successor to Kyoto becomes an important issue.

Both issues involve a familiar and perfectly reasonable tension between effective policy and political feasibility. And that is a tension unlikely to be resolved anytime soon. Because the recent Energy Bill does not directly address either of these issues, it lags the national debate --- as legislation often does. The bill is a measure of the distance that U.S. energy policy still must travel before it can bring the country's needs into balance with reliable resources.

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Robert Fri is a visiting scholar at Resources for the Future.

RFF is home to a diverse community of scholars dedicated to improving environmental policy and natural resource management through social science research. Resources for the Future provides objective and independent analysis and encourages scholars to express their individual opinions, which may differ from those of other RFF scholars, officers, and directors.

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