A Most Profitable Farce

By

I hope you’re watching the debate right now over the sprawling S.1419/H.R.6,12 ball of energy legislation in Congress, because if you aren’t, you’re missing some real comedy.

You can almost figure out which state a Congressman is from just by reading what he or she is saying.

Bashing wind power? Clearly from a coal state. Probably Illinois or West Virginia.

Bashing coal? Clearly from a solar state. Probably California or Nevada.

And so on. Those bills are already encumbered by some 20 amendments, and the debate only started Tuesday. It’s real-life comedy in earnest.

We’ll get to the “profit” part in a minute. But first we need “broad satire and improbable situations” to make it a true farce.

We don’t have to look too hard for that.

Take the battle over CAFE standards. They haven’t been updated since 1983, leaving America still grinding away with 210 million inefficient guzzlers. We set standards of 27.5 mpg for cars and 24 mpg for light trucks, and wound up with a fleet that gets about 20.4 mpg on average, while European cars are getting an average 40+ mpg and Japanese cars 45 mpg.

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So the Democratic leadership in the Senate has brought forth a bill that would raise the automobile fuel economy standard to 35 mpg by 2020--approximately a 40% increase, but still lower than the current average enjoyed by Europeans.

Naturally, the auto industry quickly came crying to Carl Levin (D-MI), saying that they didn’t think that target was achievable. We must assume that the Europeans and the Japanese have some secret magic that eludes the Big Three.

Levin proposed an alternative, mandating 36 mpg for cars by 2022 and 30 mpg for trucks by 2025, for an average 33 mpg for cars and trucks. That’s 2 mpg and five years short of the proposed CAFE standard.

And yet the auto industry claims that the slightly higher proposed standard would “destroy the domestic auto industry.” Clearly we’re not talking about technical possibilities here. We’re talking about the automakers’ will to drag their feet on improving fuel economy.

Then there is the renewable fuel standard, which would essentially quintuple the amount of renewable motor fuels we produce, to 36 billion gallons per year by 2020.

Sounds like a good idea at first, right? After all, we’d all like to reduce our dependency on foreign oil, which accounts for two thirds of our consumption.

But guess who’s opposed to that? Beef producers, and the food and beverage industry!

“[I]f our country produces anything short of a record corn crop, the changes proposed in [the bill] could deal a detrimental blow to livestock producers,” said a letter from 15 food and drink producers, including Heinz, Kellogg and Coca-Cola, noting that food prices rose by 7.3% in the first three months of the year.

I’ve been watching the corn ethanol vs. food issue for a while now, and it’s a thorny one. We will use about 27% of this year’s corn crop to make about 5.9 billion gallons of ethanol, which will account for just 4% of the 145.2 billion gallons of fuel we will consume this year.

Let’s see now . . . if that scales linearly, and we continue to produce almost all of the ethanol from corn, as we do now, then we would need 162% of this year’s corn crop to meet that 36-billion-gallon-per-year target, which would offset only one quarter of our current gasoline usage. And we would have less than nothing to eat. Not a very likely scenario.

And just to highlight for a moment the fuzziness of the numbers that are being thrown around, a recent Iowa State University study projected that producing 30 billion gallons by 2012 would consume more than half of U.S. corn, wheat and coarse grains. And the GAO just issued a warning that producing 11.2 billion gallons of ethanol by 2012 would require about 30% of the corn crop. I can’t imagine how either one arrived at their calculations.

But the GAO agreed with the food producers, saying “Using more corn for energy production will likely exert additional upward pressure on corn prices, potentially influencing livestock feed markets and meat prices.”

In any case, the Senators pushing for the radical upscaling of ethanol production must be either very optimistic about future advances in corn-growing productivity, or very optimistic about large-scale cellulosic ethanol becoming a reality soon.

In the meantime, I suspect we’ll be hearing more from the food and beverage lobby, not to mention consumers who want to know why food and beverage costs are going up so fast.

Moving on, there is Jeff Bingaman’s (D-N.M.) amendment, which would set a renewable portfolio standard (RPS) for utilities, requiring them to produce at least 15% of their electricity from renewables by 2020.

Again, it sounds like a great idea. Since about half the states in the nation have their own RPS now, it points up the need for a federal standard.

Bingaman’s approach is well and good for New Mexico, where wind and solar are easily done, but opposed by utilities such as Southern Company, one of the largest producers of electricity in the United States. In their territory of the Southeast, the RPS would raise utility rates, which are now nice and low because most of their power comes from dirty coal-burning plants.

Or maybe it isn’t about locality so much as loyalty. Bingaman’s amendment will be countered by Senator Pete Domenici, also from New Mexico but a Republican, who is submitting an amendment defining coal and nuclear as clean energy, making them eligible for renewable credits. (I just love that one.)

As I have written previously, coal ain’t clean by any stretch of the imagination, and coal-to-liquids is a greenhouse gas nightmare. This is purely a sleight-of-hand maneuver to appear to be supportive of clean energy while doing essentially nothing more than promising that “clean coal” technology will eventually materialize. But, having seen Domenici’s shepherding of the Energy Act of 2005, we should all be quite familiar with his disingenuousness by now.

On a related note, a newly approved amendment offered by Senator Evan Bayh (D-IN) would require the president to establish policies to cut petroleum use by 10 million barrels a day by 2031.

Sounds good, right? Make that ol’ president start working on real solutions to our oil dependence, instead of just talking about it.

But then you realize that Bayh is from Indiana, a top coal-producing state, and is undoubtedly offering this amendment in order to ensure a market for their coal-to-liquid (CTL) fuels, once the massive federal subsidies are in place along with the new “clean” label.

Then there is Senator Maria Cantwell’s (D-WA) provision that would enable the FTC to investigate allegations of price-gouging in the oil markets. I can understand how she would want to stand up for her constituents that way. But the fact is, the oil industry has been investigated many, many times for price fixing and gouging, and no wrongdoing was ever found. I have to agree with Sen. Larry Craig (R-ID) on that one, who called the provision “a feel-good vote” that wouldn’t bring prices down one bit.

May I suggest that Sen. Cantwell might be more helpful by telling the folks back home to reduce their consumption instead?

Nah, she’d never go for that. Nor would anybody else in Congress. They remember all too well what happened to Jimmy Carter for having the temerity to suggest voluntary cutbacks. I guess we’ll have to let them learn about supply and demand in the school of hard knocks.

But my personal favorite remains the battle between the EPA and California over who should have the authority to limit CO2 emissions. To be precise, California, along with a coalition of eleven other states, is waiting for the EPA to grant it a waiver that would permit the state to set its own CO2 regulations. The EPA has stalled it for 18 months, and now California Governor Schwarzenegger has indicated that he will sue EPA for the waiver in October, after a required 180-day waiting period.

On one side of the debate are House Speaker Nancy Pelosi (D-CA), Senator Dianne Feinstein (D-CA), governors and other supporters from the eleven-state coalition.

On the other side are John D. Dingell (D-MI) and Rick Boucher (D-VA) and the auto industry, saying they are worried about a proliferation of standards.

“How many different regulators are we going to be confronted with?” Dingell asked. He said multiple regulations would create “vast gridlock.”

“This industry cannot survive with 50 different standards or a dozen different standards or five different standards,” said Dave McCurdy, president of the Alliance of Automobile Manufacturers. “The United States needs a consistent national policy that avoids the marketplace chaos that would surely arise from a patchwork quilt of conflicting state fuel economy/carbon dioxide mandates.”

Except that Dingell, Boucher, and McCurdy all know that’s a canard.

If the EPA were to grant California a waiver, there would be two standards, not 50. There would be the federal standard and the California standard, with the other eleven states following the latter.

What is Boucher’s solution? He submitted a bill that would explicitly prohibit the EPA from granting a waiver to a state for the purpose of controlling greenhouse gas emissions.

In response, the Governator and the governors of seven other states issued a letter asserting “Congress must not deny states the right to pursue solutions in the absence of federal policy.”

The argument that it’s a states’ rights versus federal rights issue is patently silly anyway: Boucher and Dingell are essentially arguing that it’s more important to ensure that America’s vehicles befoul the air consistently than it is to make automakers improve their products.

After all, it’s unthinkable that vehicles clean enough to protect the asthmatic children of California might also be welcome in other parts of the country.

Or maybe it’s just because the auto and coal industries have been whispering in Dingell and Boucher’s ears.

What’s hardly ever mentioned in this debate is that California has always led the way in air quality standards for the nation, and the EPA merely followed in its footsteps. More than 40 times in the last 30 years, the EPA has granted California a federal waiver to set its own, more stringent emissions regulations, so there is clearly ample legal precedent. But now the EPA has essentially become a tool in the White House’s resistance against greenhouse gas controls, using technical arguments to stymie California’s effort.

I’m sure all the children who can’t breathe due to auto exhaust are impressed with EPA’s diligence in protecting its legal stature. Now all we need is an agency to actually protect air quality. Oh . . . right.

What’s worse, Heideh Shahmoradi, the special assistant for governmental affairs at the Department of Transportation, has apparently been making calls to Congressional staffers urging them to drum up support for Boucher’s resolution. Rep. Henry Waxman (D-CA) has launched an investigation, saying the calls were “highly inappropriate and would be considered by some to be illegal.”

At the same time, auto industry representatives have taken their case directly to the Vice President’s office, looking to gain support from the White House.

Watching energy policy being crafted is, as the old saw goes, not unlike watching sausage being made. It’s unfortunate that our elected representatives can’t just concentrate on what’s good for the health of the country and support energy technologies that make sense in each locale without having to squelch them elsewhere. But lobbying money remains the prime mover.

The debate over the energy bills is expected to take several weeks, but that’s probably very optimistic, considering that it took four years to develop the Energy Policy Act of 2005. One suspects that at least some of the proposed amendments in these bills are cynically put there to guarantee a presidential veto.

At the very least, I’m sure the ensuing energy debates will continue to provide us with mirth and merriment. The “NOPEC” bill is still alive, and that’s always good for a belly-laugh.

In the meantime, the profit opportunities in this farce are clear: all kinds of renewable energy technologies, to be sure, but also coal-to-liquids technology, ethanol producers, carbon credit traders, “clean coal” technologies and every kind of efficiency technology--all of which we regularly cover in Green Chip Stocks.

Until next time,


--Chris

 




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