Order Code IB10080
Issue Brief for Congress
Received through the CRS Web
Energy Policy:
Setting the Stage
for the Current Debate
Updated October 29, 2002
Robert L. Bamberger
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
Roots of the Current Debate
Some Historical Perspective
An Energy Policy Schematic
The Current Context: What’s Different?
Petroleum and Natural Gas
Electricity restructuring
Conservation, Alternative Fuels, and Improvements in Efficiency
Energy Policy Legislation in the 107th Congress
Conference Highlights
LEGISLATION

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Energy Policy: Setting the Stage for the Current Debate
SUMMARY
The Bush Administration issued its plan
the 10% requirement in the Democratic pro-
for a national energy policy on May 16, 2001.
posal was defeated. A package of amend-
The plan was controversial, characterized by
ments eliminated or scaled back language that
some as leaner on conservation and
would have extended Federal Energy Regula-
renewables than Democratic proposals, and
tory Commission (FERC) authorities to guar-
predisposed to trade off environmental consid-
antee reliability of the transmission system.
erations to increase supply. Comprehensive
On April 10, an amendment to strike most of
energy legislation was introduced in the Sen-
the Senate bill’s electricity provisions was
ate by both parties by late March (S. 388, S.
defeated. A cloture motion to end debate on
389, S. 596, S. 597). Bills reported by several
an amendment to give the Commodity Futures
House committees (H.R. 2436, H.R. 2460,
Trading Commission authority to regulate
H.R. 2511, and H.R. 2587) were combined in
energy derivatives trading was defeated on
a single bill, H.R. 4, passed by the House,
April 10.
August 1, 2001. The House version of H.R. 4
would require a 5 billion gallon reduction in
Language in S.Amdt. 2917 would estab-
light-duty truck and SUV fuel consumption
lish a renewable fuel standard that would
and would open the Arctic National Wildlife
increase the use of ethanol. Critics argued that
Refuge (ANWR) to leasing. The House bill
the standard will boost prices to consumers
does not include electricity provisions.
and create shortages. However, an amendment
to soften the program was tabled April 11.
Debate on comprehensive energy legisla-
tion, Amendment No. 2917 to S. 517, began
Opponents of opening ANWR filibus-
in the Senate in late February. Amendments
tered. On April 18, the Senate defeated (54-
approved during the first days of the debate
46) a procedural motion to invoke cloture on
included language to designate a southern
the debate. An amendment to ban Iraqi oil
route for the proposed Alaskan natural gas
imports to the United States passed (88-10).
pipeline, and adding the text of pipeline
The Senate passed S. 517 (88-11) on April 25,
safety reform legislation (S. 235), previously
and inserted its text into H.R. 4.
approved by the Senate last year.
In its meetings through September 19,
On March 13, the Senate approved an
2002, the conferees agreed on a number of
amendment to allow the National Highway
provisions, including CAFE, energy effi-
Traffic Safety Administration (NHTSA) to go
ciency, reauthorization of the Price-Anderson
through the sort of rulemaking process used in
Act, pipeline safety, and energy efficiency
the past to set CAFE standards. The Senate
programs. More controversial issues still
also approved language to freeze “pickup
awaiting resolution include ANWR, the re-
trucks” – yet to be defined – at the current
newable fuel standard, ethanol use, electricity
light truck standard of 20.7 miles per gallon.
and climate change. The conferees were un-
able to reach agreement on remaining issues
On March 14, the Senate rejected a
as the elections neared. Negotiations may
proposal to require that 20% of the nation’s
continue during a post-election “lame duck”
electricity generation come from renewable
session.
energy sources. An amendment to eliminate
Congressional Research Service ˜ The Library of Congress

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MOST RECENT DEVELOPMENTS
Following the release of the Bush Administration energy plan on May 16, 2001, energy
legislation reported by several House committees (H.R. 2436, H.R. 2460, H.R. 2511, and
H.R. 2587) was combined in a single bill, H.R. 4, passed by the House August 1, 2001. The
bill includes provisions that would require – compared to the Senate bill – a modest
reduction in light-duty truck and SUV fuel consumption. The House bill would open the
Arctic National Wildlife Refuge (ANWR) to leasing.
Debate in the Senate on S.Amdt. 2917, comprehensive energy policy provisions to be
added to S. 517, began in late February. The Senate passed S. 517 (88-11) on April 25, and
inserted its text into H.R. 4. The Senate bill would allow the National Highway Traffic Safety
Administration (NHTSA) to go through the sort of rulemaking process used in the past to set
CAFE standards. The final bill also included language to require that 20% of the nation’s
electricity generation come from renewable energy sources. The Senate bill would establish
a renewable fuel standard that would increase the use of ethanol. Critics argued that the
standard will boost prices to consumers and create shortages. Opponents of opening ANWR
filibustered. On April 18, the Senate defeated (54-46) a procedural motion to invoke cloture
on the debate. In its meetings through September 19, 2002, the conferees on H.R. 4 have
agreed on a number of provisions, including CAFE, energy efficiency, reauthorization of the
Price-Anderson Act, pipeline safety, and energy efficiency programs. More controversial
issues still awaiting resolution include ANWR, the renewable fuel standard, ethanol use,
electricity and climate change. The conferees were unable to reach agreement on remaining
issues as the elections neared. Negotiations may continue during a post-election “lame
duck” session.
BACKGROUND AND ANALYSIS
Energy policy has been a major issue during the first session of the 107th Congress. The
challenge to craft an integrated balance of energy policies – to reconcile legitimate but
competing policy objectives – is formidable. Addressing that challenge is proving to be one
of the major debates in the 107th Congress. It has also been re-focused and diverted by the
terrorist attacks upon the nation on September 11, 2001. Fresh and very broad concerns are
being raised about national energy security in both the short- and long-term. Economic
conditions are also likely to depress energy demand during the coming year, making the
supply problem less critical. At the same time, U.S. military actions and the fragile politics
among Arab, Muslim, and oil-exporting nations in the Middle East might also present
unanticipated complications affecting crude production and supply.
The House passed comprehensive energy legislation (H.R. 4) on August 1, 2001.
Markup had begun in the Senate when Congress, and the nation’s, attention was diverted by
the terrorist attacks. Comment by the Democratic leadership that new priorities would
postpone final action on a comprehensive bill during the session provoked Republican
criticism. Senator Inhofe proposed to amend a pending defense authorization by adding
provisions from H.R. 4, notably those to authorize opening the Arctic National Wildlife
Refuge to leasing. A unanimous cloture vote ruled out amendments to the bill; the
apprehension was that amending the defense authorization would likely stall the bill at a time
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when the nation was preparing for possible military action. A further attempt in early
December 2001 to amend energy provisions to railroad retirement legislation (H.R. 10) also
failed.
Later on October 9, 2001, Senate Energy Committee Chairman Bingaman announced
that committee action would be suspended on all energy legislation and that any decisions
on major energy legislation to be considered prior to the end of the session would be vested
with the Democratic leadership of the Senate. Bingaman noted potential jurisdictional issues
among Senate committees and the prospect that any attempt to rush the legislation through
the committee process prior to adjournment would prove divisive. Bingaman was charged
with developing comprehensive legislation that the majority leader could schedule prior to
adjournment if legislation and economic stimulus packages triggered by the September
attacks did not consume the time that remains.
Senator Murkowski was highly critical of Bingaman’s announcement, arguing that there
were sufficient votes in the committee to include provisions authorizing exploration in the
Arctic National Wildlife Refuge (ANWR) in any comprehensive bill that would be reported
to the floor. He argued that the Democratic leadership believed it might be more possible
to defeat an ANWR amendment on the Senate floor than to expunge an ANWR section from
the reported bill. The Republicans continued to criticize the Democrats for not expediting
Senate consideration of energy legislation. Though the Democratic leadership promised
consideration of energy legislation by mid-February, the Republicans proposed to amend a
railroad retirement bill (H.R. 10), scheduled for consideration on December 3 with
provisions from House-passed energy legislation, H.R. 4. A motion to invoke cloture on the
energy amendment was defeated 94-1, on December 3, 2001. Debate on the Senate
legislation began in late February 2002; during the course of the debate, ill feelings were
frequently expressed about the sequence of events and delay in bringing legislation to the
Senate floor.
Roots of the Current Debate
The renewed focus upon energy policy was initially triggered by a rise in oil prices that
began in the late spring of 1999. A crisis in some Asian and other economies in 1998, and
the resumption of oil exports from Iraq, brought crude oil prices to levels below $10/bbl in
early 1999. In March 1999, OPEC agreed to reduce production. In the past, OPEC has had
difficulty adhering to its quotas, but this time there was greater cooperation, at the same time
that world economic recovery was shoring up demand. The price of crude oil began to rise
sharply in the spring of 1999 to levels that even OPEC had not foreseen.
Mistakenly expecting that oil prices would fall, refiners drew down existing, lower-cost
inventories of refined products and crude, postponing replenishment of inventories until
prices softened. Problems in the Northeast during the winter of 1999-2000 put fresh
pressures on supply systems. Unexpectedly severe weather disrupted waterborne transport
of home heating oil to New England, leading to sharp increases in the price of home heating
oil that spread to diesel fuel as well. Then, in the summer of 2000, inadequate supplies of
blending components used in the manufacture of reformulated gasoline to meet clean-air
objectives, among other problems, led to shortages of gasoline in the Midwest with some
prices exceeding, for a time, $2.00/gallon.
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As the nation headed into the winter of 2000-2001, anxiety remained about home
heating oil price and supply until early 2001 when stocks approached and then exceeded
year-earlier levels. Additionally, natural gas prices, which were relatively unaffected during
the winter of 1999-2000, were 30% or more higher during the winter of 2000-2001 as the
result of low inventories, limited extra production capability, and strong demand. The
unfolding of California’s restructuring program, its painful and complicated consequences,
and the subsequent difficulty in crafting a solution agreeable to the greatest number of
parties, have drawn renewed attention to this issue.
Some Historical Perspective
The shakeup in fuel supplies and prices was the fourth significant episode since 1973
to jog American awareness of the extent to which the economy and our lifestyle is dependent
upon inexpensive and plentiful energy. When the United States experiences a period marked
by sharp increases in the price for energy and concern about the adequacy of essential
supplies – there is widespread belief that the nation has no energy policy. However, not
only does the nation have an energy policy, it has also adopted several distinct policy
approaches over the years.
In the aftermath of the Arab oil embargo in 1973, many looked to government to solve
the problem, for both the short- and long-term. By 1975, refiner acquisition costs for
imported crude oil had roughly tripled, rising from an average cost of $4/bbl (barrel) in 1973
to $12.50/barrel in 1974. However, refiner acquisition costs for domestic crude did not even
double – from $4/bbl to $7/bbl – owing to a system of federal price controls that kept the
price of domestic production below the market price. This insulated consumers from some
of the price increase, but had the companion effect of discouraging domestic production and
encouraging imports. Automobile fuel economy standards were enacted to reduce gasoline
consumption in the transportation sector. Hopes were invested in government-funded
research and development in conservation technologies and alternative fuels.
A second oil interruption and shortage was triggered in 1979 by the fall of the Shah of
Iran and the loss of Iranian oil to world markets for several months. Refiner acquisition costs
for imported oil surged from $14.50 in 1978 to $37.00 in 1981. In late 1975, Congress
enacted a phased deregulation for oil in the Energy Policy and Conservation Act (P.L. 94-
163). Some policymakers contended that lingering price controls on oil carried greater
liabilities than benefits. Letting the market set prices, many began to argue, would encourage
the development of additional domestic supplies of oil as well as the development of
alternative energy supply. Shortly after assuming office in 1981, President Reagan
accelerated the schedule for price decontrol. Energy policy, in general, became more market-
oriented. The government role was lessened.
Sustained high crude oil prices contributed to a reduction in U.S. petroleum
consumption from 18.8 to 15.2 million barrels per day (mbd) from 1978 to 1982; there was
more fuel substitution, more efficient consumption of oil, and price-induced conservation.
Higher prices drew new oil production from outside the OPEC nations; the United States and
other nations diversified their sources of supply. Faced with a loss of market share and
revenue, OPEC sharply lowered the price for crude oil in the mid-1980s. In the course of the
year from 1985 to 1986, refiner acquisition cost for imported oil fell from $27/barrel to
$14/barrel.
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Prices remained depressed until a fresh round of sharp spikes in oil prices occurred in
1990-91 following Iraq’s invasion of Kuwait in early August 1990, cutting off 4.3 mbd from
world markets. The price of oil, which had averaged $16/bbl at the end of July 1990,
exceeded $28 by late August, and reached $36/bbl in September 1990. In the face of the Iraqi
threat, Western and Middle Eastern nations found common ground that would have been
unimaginable even a decade earlier. By the late 1980s, recognition had grown of the mutual
interdependence of oil-producing and oil-consuming nations; the OPEC nations had come
to recognize that long-term demand for their oil was jeopardized by any prolonged period of
high oil prices. Most did not wish to repeat the cycle of the early- to mid-1980s and boosted
their production to make up for some of the lost supply. Consuming nations also coordinated
the release of strategic stocks of crude and products. Prices began to fall in mid-October
when the U.N. approved the use of force against Iraq. Prices fell more sharply after the
United States and a consortium of nations conducted an air strike on Iraq in mid-January
1991. During 1999-2000, the Clinton Administration would also underscore the mutual
interests of producing and consuming nations as it urged OPEC to boost its production
quotas.
During all of these episodes, importance was placed on conservation, more efficient use
of energy, and development of alternative energy sources. The oil shocks of the mid- and
late-1970s spurred considerable spending on alternative fuels – including solar, geothermal,
wind, clean coal, synthetic fuels, alcohol-based fuels – and technologies to improve the
efficiency of energy use. Regulations were developed to improve the efficiency of home
appliances and to incorporate more energy-efficient designs in buildings. In the early 1980s,
states and utilities promoted energy efficiency as one form of “demand-side management”
to reduce the need for construction of new power plants. Conservation and efficiency were
championed by some as a lower-cost and more appealing way of achieving greater energy
security than policies to boost supply. Increasing efficiency was seen as a way of mitigating
air pollution and generation of greenhouse gases without penalty to quality of life.
As suggested earlier, each episode of short supply and higher prices spurs talk that the
nation lacks an energy policy and has ignored past lessons. However, it is apparent from a
review of the years since the time of the Arab oil embargo and first oil price shock in 1973
that it is more accurate to see this nearly thirty-year period as one of general price and supply
stability that is periodically broken with shorter episodes when price became volatile and
supplies of fuel less certain. It isn’t that energy policy has failed to be responsive to crises;
rather, it is hard in the face of lengthy periods of stability and declining prices for
conventional fuels to sustain certain policy courses that will shield the nation from the
occasional episodes of instability.
An energy policy that would most effectively shield the nation and the economy from
the worst effects of supply shortages would be a policy that might well deny the nation the
full benefits of cheap and plentiful energy when markets are stable. The periods of relative
calm and stability result in a markedly uncertain environment for investment in alternative
fuels, energy efficiency technologies, and in boosting the production of conventional fuels
in regions where production costs are significantly higher than in the Middle East. State and
local regulations and codes further cloud the climate for investment. Many agree that certain
regions of the country will need more power plants, new refineries and pipelines, but local
citizens often do not want to see these facilities in their communities and challenge their
necessity until shortages actually occur.
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At the same time, awareness has grown about the complexity of constructing a balanced
energy policy that will not undermine other competing and equally legitimate policy goals.
How to boost energy supply without exacting a toll on the environment that some find
unacceptable? How, then, to reduce gasoline consumption, a commodity central to the
nation’s economy and lifestyle, when raising its price to achieve a meaningful reduction in
demand could be economically disruptive and politically unappealing? How, then, to
encourage the use of more expensive alternative fuels and technologies that heighten
efficiency, when OPEC has the capacity to adjust the price of oil to keep it cheaper than its
substitutes?
An Energy Policy Schematic
Debate over energy policy has produced an enormous range of proposals, many of
which have been adopted at one point or another over the years. In general, however, it is
helpful to recognize the broad categories into which most proposals fall: Most energy
policies are designed to affect either the supply or the demand for energy products and they
are, at the same time, designed to have an effect either in the near-term or the longer-term.
Traditionally, debate has been the most vigorous over the balance struck between
increasing supply and support for conservation, but it became apparent in the weeks
preceding release of the Administration plan in mid-May that there was also concern about
the degree to which policymakers were addressing current energy problems in the short-term.
President Bush had advised weeks before its release that the report from the Energy Policy
Development Group (EPDG) would address long-term remedies for the nation’s energy
problems and that there would be no immediate relief for consumers paying higher prices for
gasoline, electricity, and other fuels.
This prompted criticism from those who contended that the plan offered no short-term
relief. Others, including the President, suggested that by setting out an action-oriented and
actionable comprehensive policy, markets and consumers should feel some short-term
reassurance. The President remarked on May 16, 2001, “My plan helps people in the short
term and long term by recognizing the problem and by expediting energy development.” The
various reactions to the plan underscored the difficulty of developing comprehensive energy
policy during a period of tight supply and high prices.
It is useful to clarify the differences between short-term and long-term policy initiatives.
For example, drawdown of oil from the Strategic Petroleum Reserve (which one Democratic
initiative calls for) affects crude oil supply in the near-term. However, enactment of tax
incentives for investment in new oil drilling technologies might add to domestic crude supply
in the future. Proponents of drilling in the Arctic National Wildlife Refuge (ANWR) argue
that region might yield anywhere from 300,000 to 1.4 mbd b/d to U.S. domestic supply, but
this, too, is a longer-term policy initiative.
Turning to the consumption side of the ledger, boosting the gasoline tax by $1.00/gallon
might be expected to reduce gasoline consumption in the short-term, but a rise in the
corporate average fuel economy (CAFE) standards on new vehicles will not begin to
introduce fuel savings until these more efficient cars are meaningfully introduced into the
motor vehicle fleet, a process that would take more than a decade.
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The table below suggests a way in which many energy policies may be visualized along
these lines:
A Schematic of Energy Policies
Affecting Supply
Affecting Demand
Short-term to Mid-term
Strategic Petroleum
High energy prices due to
Reserve (SPR)
unfettered market forces or
taxation
Allowing high prices to
“Green” policies
allocate and price scarce
promoting conservation
energy
and more energy-efficient
choices
Mid- to Long-term
Tax incentives to promote
Corporate Average Fuel
production
Economy Standards
(CAFE)
Open new areas to leasing
Tax incentives to
and exploration
encourage less, or more-
efficient consumption
Research and development
Efficiency standards
Market pricing of energy
Efficiency labeling
Research and development
in efficiency technologies
The axis of long-term/short-term, supply/demand does not capture all policy options.
For example, one of the major issues in energy policy is the price for fuels. Energy policy
generally is designed to affect price indirectly – by having price follow, or reflect current
demand or supply for energy. There are a few exceptions. Tax policy may address energy
price directly to the extent that excise taxes on fuel products can be raised or lowered
(recognizing that these tax boosts or cuts may not be reflected penny-for-penny in the
“pump” price for fuels).
Short-term policies to affect supply, such as calls for the use of strategic reserves, have
been sometimes very controversial because, in the absence of a very clear-cut and widely-
acknowledged physical shortage, such initiatives are perceived to be thinly disguised efforts
to grant price relief. Some suggest at times that high prices – left uninterfered with – are the
best policy of all, encouraging markets to provide more supply in due course, and that policy
should address those most adversely affected by sharply higher prices. The Low Income
Home Energy Assistance Program (LIHEAP) is one such program that provides direct
assistance to families whose quality of life is especially burdened by high energy prices.
LIHEAP is a short-term policy for addressing the impact of high prices for energy.
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Supply and demand may also be affected by external events including political and
diplomatic dynamics between or among the producing nations. Weather, seasonal or
otherwise, will affect supply and demand; policy cannot affect the weather, only its
consequences. Lastly, Congress always has the option to require study and analysis of a
problem before settling on a policy course. Appropriations legislation passed by the 106th
Congress required the National Academy of Sciences (NAS) to analyze and recommend an
optimum new car fuel economy standard (this study was released at the end of July, 2001).
Oil pipeline safety legislation passed by the Senate in early February would charge NAS with
studying the causes for the rapid escalation in natural gas prices, and to evaluate the
feasibility of establishing a strategic natural gas reserve.
The Current Context: What’s Different?
This is the fourth time since 1973 that energy policy will be debated broadly. One
question is a constant: How extensive a federal role is appropriate in energy policy? Even
prior to the terrorist attacks upon the nation on September 11, 2001, the context for this latest
debate was distinctly different from previous episodes.
! U.S. energy policy has been primarily market-based for nearly 20 years, but
policy makers have been weighing whether problems in some sectors and
with some fuels are attributable to lingering inefficiencies interfering with
markets, or whether government intervention may be necessary to protect
consumers and the economy from problems to which markets cannot
flexibly respond.
! Strong economic growth during the mid- and late 1990s at a time of
declining real energy prices resulted in growth in consumption even though
efficiency of energy use is dramatically better than during the 1970s and
1980s. Growth in petroleum consumption in the United States as domestic
production declines has meant a commensurate increase in oil imports.
! There is recognition of the interdependence of producing and consuming
nations; however, the political balance among the OPEC nations is delicate
and can influence oil production decisions and whether OPEC is able to
exert market control at all.
! There is growing recognition that the current difficulties have been, in large
measure, caused by, or compounded by, insufficiencies in the nation’s
energy infrastructure – refining capacity, gas and oil pipelines, transmission
lines, and electric generating facilities. This has drawn major attention.
! Problems with gasoline supply and home heating oil stocks during 2000-
2001 imply some need to develop additional refining capacity and transport
systems that will add both capacity and flexibility to distribution. However,
national and local environmental regulation and requirements, and local
community sentiment, affect the speed and ease with which such facilities
can be sited and built. Concerns about greenhouse gas emissions add an
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additional measure of uncertainty, as does the depth of the economic
slowdown that carried into the second half of 2001.
! The experience with deregulation of the California electric utility industry
appeared to stall and certainly added uncertainty to the policy debate over
restructuring. The House did not include electricity provisions in H.R. 4.
The Senate bill does.
Looking now in some additional detail at a few of these developments:
Petroleum and Natural Gas. Demand for petroleum products in the United States
approaches 20 mbd. Increases in demand, as well as declining domestic production, have
been offset by increased crude and product imports, which now approach an average of 10
mbd. Cuts in world crude production in March 1999 by OPEC sent domestic refiner
acquisition costs for crude oil on a sharp ascent from less than $11/bbl in February 1999 to
$24.50/bbl by December of the same year. These costs peaked at over $31/bbl in the latter
part of 2000. Subsequently, after intense lobbying by the United States, the OPEC oil
ministers boosted crude production and settled upon $22-$28 per barrel (bbl) as a desirable
“price band.” In the wake of the terrorist attacks in September 2001, OPEC chose not to
defend crude prices too aggressively lest OPEC appear to be tipping the global economy into
recession. By late November 2001, prices had fallen below $20/bbl, and OPEC was seeking
production cuts from outside the cartel to bolster price. However, the escalation of violence
in the Middle East, a month-long cessation of Iraqi oil exports, and political change in
Venezuela has reintroduced instability to oil markets, and a sharp rise in prices.
The ability of the OPEC cartel to exert influence upon oil prices at critical times
underscores that – with respect to petroleum – the problem is less that the world supply of
oil is tight, than that so much of it is concentrated in a single part of the globe. U.S.
dependence upon imported oil exceeds 50% of total consumption. On the one hand, absent
some presently illusive technical “fix,” there is little that can be done to significantly reduce
that figure without incurring great economic hardship and lifestyle compromises. On the
other hand, oil prices can take wide swings on the basis of modest gains or losses in total
world production or from changes in demand in response to economic conditions.
Attention has also focused Clean Air Act standards that regulate the oxygen content,
volatility, benzene and the sulfur content of gasoline. Refineries face state and local
standards on how to achieve compliance with federal requirements. The result is a
multiplicity of gasoline formulations, some using methyl tertiary butyl ether (MTBE) as an
oxygenate and octane booster, while other regions require ethanol. One consequence of these
regional variations is that gasoline supply has lost its fungibility; one region experiencing a
shortage may no longer be able to secure additional supply from a refiner servicing a nearby
locality with a different blend of gasoline. Distribution becomes more complicated because
different blends sharing the same pipeline must be carefully batched to avoid contamination.
Additionally, most foreign refineries have not made the investment to supply any but the
most general U.S. gasoline market. Some have urged a relaxation of Clean Air Act standards
that would permit a “harmonization” of U.S. gasoline standards. This would introduce
flexibility into the gasoline manufacture and distribution system that would bring prices
down. It would mean, however, temporarily compromising clean air objectives and,
depending upon where the harmonized standard is set, might actually raise prices for fuel in
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regions that do not require the more exacting formulations. H.R. 4, as passed by the House,
would require EPA and DOE to study the effects of local fuel requirements and report to
Congress by the end of 2001.
The greater the nation’s ability to produce its own fuels, the less vulnerable it is to
unanticipated international developments that can reduce or threaten supply. But, the policy
options on the supply side, such as opening up the Arctic National Wildlife Refuge (ANWR)
for exploration, are mostly long-term. Alaskan oil production, which once touched 2 mbd,
has now fallen below 1 mbd and, without new production, will continue to decline until
production levels can no longer support the fixed costs of transporting it through the Trans-
Alaskan Pipeline.
Proponents of exploring ANWR point to advances in exploration and drilling
technology and methods that have significantly reduced the extent of surface disturbance.
While opponents concede this may be so, they argue that these advances are limited to
exploration and extraction, and that considerable risk to the environment remains during the
production and transportation phases. Opponents also suggest that the risks are not worth
bearing, especially if the resources in ANWR turn out to be at the lower range of estimates,
providing only an additional 300,000 b/d of supply. Some respond to this argument by
noting that the nation has experienced periods of tight supply when even an additional few
hundred thousand barrels of crude oil would have made for significantly lower prices at the
pump, and for home heating oil.
It should be noted that there are some environmentalists for whom any weighing of risks
and benefits are pointless because, citing the area’s pristine character; they argue that its
ecology and habitat should not be disturbed under any circumstances. In its Blueprint For
New Beginnings, the Bush Administration indicated that the FY2002 budget would show a
projected $1.2 billion in bonus bids, from the leasing of tracts in ANWR, to be applied
toward R&D in alternative fuels and energy technologies. On March 21, 2000, the House
Budget Committee adopted the framework of the Administration’s proposed budget, but did
not include revenues from ANWR leasing. H.R. 4, as passed by the House, would open
ANWR to leasing. Opponents of opening ANWR made good on their promise to filibuster
any attempt to include leasing in the Senate proposal. On April 18, the Senate defeated (54-
46) a procedural motion to invoke cloture on the debate. An amendment to ban Iraqi oil
imports to the United States passed (88-10). (For additional information, see CRS Issue
Brief IB10073, The Arctic National Wildlife Refuge: The Next Chapter.)
The broader issue raised by ANWR – that of access to public lands for energy
exploration and development – was the subject of hearings early in the 107th Congress,
largely in response to former President Clinton’s designation of 19 new national monuments,
and the expansion of 3 others. There is considerable disagreement about the potential
resources on federal lands, and some assessments are underway. The EPDG recommends an
examination of “land status and lease stipulation impediments” with the objective to
“consider modifications where appropriate.” (For additional information and background,
see CRS Report RS20902, National Monument Issues.)
For the past decade in the United States, natural gas consumption was encouraged, in
part to fuel efficient, gas-fired combined-cycle generation plants that could provide
supplemental electricity to the nation’s power grid at highly competitive prices and with few
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environmental constraints. Plentiful supplies, and relatively low prices for several years,
discouraged additions to natural gas reserves. With surges in demand for electricity and a
colder winter in 2000-2001, residential and other consumers of natural gas suddenly faced
sharply higher prices as competition grew for gas supplies. Natural gas prices declined
sharply during the fall of 2001, underscoring the difficulty of crafting policy in volatile times.
Expansion and refurbishment of facilities to accommodate liquified natural gas (LNG)
imports is underway. Additionally, there are a number of proposals for new facilities – some,
offshore in Mexico and the Bahamas – which would receive LNG produced abroad for
consumption in the United States. (For further information, See CRS Report RL30815,
“Natural Gas Prices: Overview of Market Factors and Policy Options.”) Both oil and gas
interests are hopeful of congressional action to ease environmental regulations on refiners,
lift prohibitions on leasing of certain federal lands, and amend the tax code to benefit
domestic producers. H.R. 4 includes provisions to liberalize certain deductions for oil and
gas production. The Senate version include provisions to boost the likelihood for
construction of an Alaskan natural gas pipeline. (For additional information and background,
see CRS Report RL30781, U.S. Home Heating Oil Price and Supply During Winter 2000-
2001: Policy Options, CRS Issue Brief 87050, The Strategic Petroleum Reserve, and CRS
Issue Brief IB10054, Energy Tax Policy.)
Electricity restructuring. The Enron debacle raised new questions and has slowed
the momentum of the electricity restructuring debate. However, it was the electric utility
crisis in California in early 2001 that shifted the focus of electricity restructuring legislation
away from comprehensive bills that dominated the electric utility restructuring debate in the
106th Congress. In the 107 Congress, the majority of electric utility legislation introduced
relates to reliability. Regulatory functions are currently divided between the states and the
federal government, and there has been considerable argument not only about which controls
need to be retained, but how to redraw the respective roles of the federal government and the
states to assure reliability. The House did not include language affecting electricity in its
comprehensive energy bill, H.R. 4, but indicated the issue would be addressed separately.
A reliable electric system depends on adequate transmission capacity. The regulatory
regime has shifted in the electricity industry to encourage competition in the generation
sector but investment in transmission infrastructure has not kept up with increases in bulk
power transfers and electricity demand. Additionally, transmission lines are congested in
several regions of the United States. Difficulty in siting the lines and the regulatory
uncertainty have dampened investor interest in the transmission system. FERC has approved
one Regional Transmission Organization (RTO) and is in the process of evaluating others.
H.R. 3406 would codify FERC’s authority to order participation in an RTO. H. R. 2814
would give FERC authority to develop voluntary RTOs.
Some have argued that transmission and wholesale power markets cannot be
competitive without additional market transparency, or access to market information. S.
1231 and S.Amdt. 2917 to S. 517 proposed to require FERC to issue rules establishing an
electronic information system to provide information about the availability and price of
wholesale electric energy and transmission services to FERC, state commissions, buyers and
sellers of wholesale electric energy, users of transmission services, and the public. During
the first full week of debate in the Senate, these proposals were significantly weakened out
of concern that they usurped too much authority from the states. An attempt to eliminate
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most of the electricity provisions from the legislation was defeated on April 10.
Subsequently, the Senate approved amendments introduced by Senator Thomas that would
give the Federal Energy Regulatory Commission (FERC) additional review authority over
certain electric utility mergers; require FERC to apply cost-of-service rates when market-
based rates are unjust, unreasonable, unduly discriminatory or preferential; require an electric
reliability organization to develop and enforce mandatory reliability standards; provide
access to the transmission system for certain intermittent generators; and give states the
authority to prescribe and enforce laws regarding the application of the Consumer Protection
Subtitle.
The Senate also debated language in S.Amdt. 2917 to establish a renewable portfolio
standard that would require that 10% of electricity generation come from non-hydro
renewable energy resources by 2020. An amendment to boost this proposal to 20% was
defeated on March 14; an amendment to strike the language altogether was subsequently
defeated.
Concern over electricity supply has also led to some reassessment of the relative roles
that natural gas, coal and nuclear energy may have in future electricity generation. In its
energy policy plan, the Bush Administration indicates its objectives to remove barriers to the
use of coal in electric power generation, though no new coal-fired generating capacity is
currently planned. The Administration proposes establishing a consortium of companies to
direct the research, and H.R. 4 would provide $2 billion in funding over a 10-year period.
Prior to the release of the its plan, the Administration indicated interest in nuclear
options. On March 21, 2001, Vice President Cheney described nuclear power as a preferable
means to meeting clean air goals than what he described as a “seriously flawed” Kyoto global
warming treaty. (A few days later, March 27, 2001, Environmental Protection Agency
Administrator Christine Todd Whitman indicated that the Bush Administration had “no
interest” in any further negotiations on implementing the Kyoto Protocol.) The EPDG
recommends an assessment of the potential of nuclear energy to contribute to cleaner air, and
that the NRC expedite nuclear re-licensing procedures. Nuclear, however, remains very
capital intensive, and it is not apparent that nuclear is poised for any immediate renaissance.
The terrorist attacks in September 2001 added fresh concerns about security. (For additional
information, see CRS Electronic Briefing Book: Electric Utility Restructuring
[http://www.congress.gov/brbk/html/ebele1.shtml].
Conservation, Alternative Fuels, and Improvements in Efficiency. As has
been noted, the energy policy debate has turned partly on perceptions of the balance between
supply-oriented and conservation-oriented policies that make up an appropriate energy policy
to address the current matrix of energy problems. While any final package enacted by
Congress will include a range of policies, some in the debate will likely posit choices to be
made between policies; e.g., why open ANWR to leasing if comparable savings can be
achieved by raising fuel economy?
The Energy Policy and Conservation Act (P.L. 94-163) established new car corporate
average fuel economy (CAFE) standards, beginning with model year 1978. Currently, the
standards are 27.5 miles per gallon (mpg) for cars and 20.7 mpg for light-duty trucks.
Proposals to stiffen the CAFE standards have been controversial. Beginning with enactment
of the FY1996 Department of Transportation Appropriations, Congress forbid the
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expenditure of appropriated funds to make any change in the current CAFE requirements.
This rider was included in the appropriation for the current year (P.L. 106-346); however,
Senate conferees insisted on authorization of a study to be conducted by the National
Academy of Science (NAS) to recommend “appropriate” CAFE standards, subject to
approval by a Joint Resolution of Congress. In late June 2001, the Administration was
reported to be receptive to an increase in CAFE standards, and a proposal to save 5 billion
gallons of gasoline between MY2004-2010 passed the House in H.R. 4. An amendment to
set a unified standard of 27.5 mpg for both cars and light-duty trucks was defeated.
Just before the debate on H.R. 4, the NAS study was released on July 30, 2001. While
it did not recommend a specific level for CAFE, it did conclude that “significant” reductions
in fuel consumption could be achieved within 15 years utilizing existing technologies. Were
increases in new car fuel economy achieved by reducing vehicle weight or disproportionately
encouraging the sale of small vehicles, the study allows that additional fatalities could result.
However, some members of the NAS panel dissented, suggesting that the analysis of the
relationship between fuel economy and vehicle safety is extremely complex. In the Senate,
Senators John Kerry and John McCain had reached a compromise to call for a fleet average
of 36 mpg by MY2015. However, on March 13, the Senate approved an amendment to allow
the National Highway Traffic Safety Administration (NHTSA) to go through the sort of
rulemaking process used in the past to set CAFE standards. The Senate also approved
language to freeze “pickup trucks” – yet to be defined – at the current light truck standard
of 20.7 miles per gallon.
There is little question that the price hikes during past episodes of tight energy supply
spurred many improvements in energy efficiency. Some argue, however, that the easiest and
lowest-cost efficiency gains have been achieved, and that expectations should be lowered
about the additional efficiency gains that can be captured in the present price framework for
energy. When the Reagan Administration redirected energy policy to a more market-oriented
framework, it was argued that R&D needed to be carefully focused on areas that were
promising, but unlikely to be explored by the private sector.
The Bush Administration energy policy recommended a review of the funding and
performance of energy efficiency research and development for the purpose of determining
appropriate funding for performance-based research in public-private partnerships.
Recommendations are also made to expand the scope of appliances covered under energy
efficiency standards. The Administration also proposed to apply revenue from the leasing
of ANWR to development of solar and renewable energy, a proposal approved by the House
in H.R. 4. Additionally, the language in S.Amdt. 2917 proposes a renewable fuel standard
that would ultimately triple the use of ethanol as an oxygenate in reformulated gasoline – a
provision supported by the oil industry, ethanol producers and environmental groups. Critics
argue that it will boost prices to consumers and create shortages. However, an amendment
to soften the program was tabled April 11. (For additional discussion, see CRS Issue Brief
IB10020, Energy Efficiency: Budget, Climate Change, and Electricity Restructuring Issues,
and CRS Issue Brief IB90122, Automobile and Light Truck Fuel Economy: Is CAFE Up to
Standards?) Readers seeking current statistics on energy production and consumption in the
United States are referred to the Energy Information Administration (EIA) website,
[http://www.eia.doe.gov/.]
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Energy Policy Legislation in the 107th Congress
Many of the problems described here do not lend themselves to fast or easy fixes. The
very volatility of energy prices complicates the investment environment. Modest changes in
world economic growth can create overhangs and “bubbles” in supply that can just as quickly
evaporate. High prices, on the one hand, should encourage investment in exploration for
fossil fuels and development of downstream facilities to refine and transport products. At
the same time, if high energy prices are one of many conditions that may contribute to a
slowing of economic growth, it is possible that markets will not profitably support new
supplies and infrastructure when they become available. Whether public policy at the
national level can eliminate some of the uncertainty in energy investment is likely to be an
issue in the forthcoming debate.
While a number of narrowly focused bills have been introduced in the 107th Congress,
omnibus energy bills were introduced by both parties. A comprehensive proposal backed by
several Senate Republicans, the National Energy Security Act of 2001 (S. 388), was
introduced on February 26, 2001, as was a companion measure, which also included energy
tax provisions (S. 389). A Democratic measure, the Comprehensive and Balanced Energy
Policy Act of 2001 (S. 597), was introduced on March 22. The accompanying tax measure
was titled the Energy Security and Tax Incentive Policy Act of 2001 (S. 596).
The Republican proposal set as its goal a reduction of U.S. energy dependence to less
than 50% by 2011, and would require annual reports on progress toward that goal. The
Senate Republican proposal was characterized as having its greatest emphasis on boosting
production of conventional fuels. It did propose to lease ANWR, but a portion of bid bonuses
would be earmarked toward funding research into renewable energy research and
development. The use of coal would be encouraged, with credits available for emissions
reductions and efficiency improvements. The legislation would require an improvement of
3 mpg in the fuel efficiency of the federal motor vehicle fleet. Other provisions would
provide support for renewable fuels, alternative technologies, residential energy efficiencies,
and new nuclear reactor designs.
The Senate Democratic legislation proposed to integrate energy and environmental
policy to identify energy policy options consistent with stabilizing greenhouse gas emissions.
A commission would be established to study and recommend appropriate measures. The
Democratic proposal did not embrace opening up ANWR, but the tax portion of the
legislation would establish incentives that would hasten development of pipeline capacity
to transport Alaskan natural gas. The Democratic legislation also did not include an increase
in CAFE, but proposed to cap automobile and light truck fuel consumption in 2008 at no
more than 5% above consumption in 2000.
In the face of a lessening sense of urgency and flagging momentum for consideration
of comprehensive energy legislation, House Majority Whip Tom DeLay established a House
energy action team at the end of June 2001 and instructed committees to approve their
respective contributions to comprehensive legislation by early July. Four bills emerged from
the House committees and provisions from the four were consolidated into H.R. 4,
introduced on July 27, 2001, and passed by the House on August 2, 2001.
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On July 18, 2001, the House Science Committee reported out the Comprehensive
Energy Research and Technology Act (H.R. 2460). It would authorize $6 billion during
FY2002 for a number of different programs, including $2 billion over 10 years for the
Administration’s Clean Coal Initiative. Additional spending ranging from $172-$186 million
is authorized during FYs2002-2004 for research in other coal technologies, including
integrated gasification combined cycle and pressurized fluidized bed systems. The bill
would provide $200 million in grants for the development and demonstration of commercial
applications for alternative fuel vehicle (AFV) use. The committee approved $600 million
for FY2002 and an additional $1.5 billion for FYs2003-2004 for energy conservation
programs within the committee’s jurisdiction, including fuel cells, advanced internal
combustion engine generators, and combined heat and power systems. Renewable energy
programs would receive roughly $1.5 billion over the next three fiscal years as well.
On July 18, 2001 the House Ways and Means Committee approved legislation
(H.R.2511) authorizing new energy tax credits and conservation incentives. The oil and gas
industry would be able to expense more of the costs associated with marginal wells. Credits
would be provided for the use of energy-efficient appliances in homes and commercial
buildings, and to promote use of alternative-fueled vehicles, as well as solar and fuel cells.
Committee Democrats argued that there was no money in the budget to pay for these credits.
Amendments offered to raise the funds by raising income tax brackets, or making the bill’s
tax benefits contingent upon adequate surpluses outside the Social Security and Medicare
trust funds were defeated.
The House Energy and Commerce Committee approved a legislative package (H.R.
2587) on July 19, 2001, that included, among other provisions, language to achieve a 5
billion gallon savings in fuel consumption by light-truck passenger vehicles; to prohibit
approval of any natural gas pipeline from Alaska that traverses a route through northern
Canada; to improve the energy efficiency of air conditioners by 20%; and to increase annual
funding for the Low Income Home Energy Assistance Program (LIHEAP) to $3.4 billion
annually through FY2005. The provision to save 5 billion gallons of gasoline over a six-year
period does not specify how the savings shall be achieved, though some increase in the
corporate average fuel economy (CAFE) for light-duty trucks is presumed. How much of
an increase depends, in part, upon how much of the savings is captured at the beginning of
the period, or postponed until the end. Critics of the proposal argued that an increase only
in the range of 1.0 mpg would be required, though it could be higher if the savings are
“backloaded.” The full committee rejected two amendments to specifically raise CAFE
standards. An amendment to increase light duty truck fuel economy to 29.0 mpg by MY2011
was defeated (43-11) as was a proposal to combine auto and truck standards and boost them
to 40 mpg by MY2016.
Lastly, the House Resources Committee, on July 17, 2001, reported the Energy Security
Act (H.R. 2436). Its most controversial provision was language that would open the Arctic
National Wildlife Refuge (ANWR) to leasing. An amendment that would have banned oil
and gas leasing in ANWR was defeated, 30-19. The legislation would also expedite federal
action on geothermal energy leases and would expedite a review of barriers to onshore oil
and gas leases. The bill would require that an inventory be made of coal and renewable
energy resources on federal lands that are not parks or wilderness areas. The legislation also
includes royalty incentives for onshore and offshore development.
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Major provisions of these bills were included in H.R. 4, introduced on July 27, 2001,
and approved by the House on August 1, 2001 (240-189). The Senate took up comprehensive
energy legislation, S. 517, in late February 2002 and passed its own version of H.R. 4 on
April 25, 2002 (88-11). For a CRS-prepared side-by-side of the House and Senate versions
of H.R. 4, see CRS Report RL31427.
On July 5, 2002, the Administration sent a letter expressing its positions on features of
the House and Senate bills. The Administration opposes Senate language mandating utility
use of renewable fuels in electricity generation, but supports the renewable fuels standard to
increase automotive use of ethanol blends and biodiesel fuels. The Administration also
opposes Senate language to encourage routing a natural gas pipeline through Alaska; the
Administration would prefer that market forces set the pipeline route.
Conference Highlights
House Energy and Commerce Committee Chairman Billy Tauzin (R-La.) was
designated the chair of the conference committee. At the committee’s first meetings prior
to the August recess, the chair set a deadline of completing work on the bill by September
30 to allow time for floor consideration. At a meeting on July 25, the conferees agreed to
less controversial elements in the legislation. Among these were reauthorization of assistance
to the poor to pay electricity bills, permanent authorization for the Strategic Petroleum
Reserve (SPR), a program to encourage energy production on tribal lands, and incentives to
promote residential energy efficiency.
On September 12, conferees agreed to provisions that would set goals for, and report
on, clean coal projects. Agreement was also reached on pipeline safety, requiring an initial
inspection of all pipelines by ten years after enactment. Additional appliances would be
subject to energy efficiency standards. The conferees agreed to a 15-year reauthorization of
the Price-Anderson Act nuclear liability system. However, House amendments that would
have required assessments of the vulnerability of nuclear power plants and greater security
were dropped in the face of firm Senate opposition.
.
On September 19, the conferees agreed essentially to the House language on CAFE that
would require a 5 billion gallon savings in light truck fuel economy over the period of
MY2006-MY2012. The CAFE credit for the manufacture of dual-fueled vehicles was
extended through MY2008. The conferees also began to discuss electricity, provisions for
which were included in the Senate, but not the House, bill. However, efforts to reach a
compromise on electricity have been unsuccessful to date. Other contentious issues still
await resolution, including ANWR, the renewable portfolio standard, ethanol use, and
climate change. The conferees were unable to reach agreement on these issues as the
elections neared. Negotiations may continue during a post-election “lame duck” session.
LEGISLATION
H.R. 4 (Tauzin)
Securing America’s Future Energy Act. Includes major provisions of H.R. 2436, H.R.
2460, H.R. 2511, H.R. 2587, described below. Introduced July 27, 2001. Approved by the
House, August 2, 2001 (240-189). Passed by the Senate, amended, April 25, 2002 (88-11).
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H.R. 2436 (Hansen)
Energy Security Act. Would open ANWR to leasing, and includes royalty incentives
for onshore and offshore development. Requires that an inventory be made of coal and
renewable energy resources on federal lands that are not parks or wilderness areas.
Introduced July 10, 2001; reported from Committee on Resources July 17, 2001.
H.R. 2460 (Boehlert)
Authorizes $6 billion during FY2002 for several programs, including $2 billion over
10 years for the Administration’s Clean Coal Initiative. Provides $200 million in grants for
the development and demonstration of commercial applications for alternative fuel vehicle
(AFV) use; renewable energy programs would receive roughly $1.5 billion over three fiscal
years. Introduced July 11, 2001; ordered reported by voice vote, July 18, 2001.
H.R. 2511 (McCrery)
Provides tax incentives to encourage energy conservation, energy reliability, and energy
production. Reported (amended) by the Committee on Ways and Means (H.Rept. 107-157).
H.R. 2587 (Tauzin)
Enhances energy conservation, provides for security and diversity in the energy supply
for the American people, and for other purposes. Requires the Secretary of Transportation
to prescribe fuel economy standards that would require the light-duty truck portion of the
new vehicle fleet to achieve an aggregate savings of 5 billion gallons during the period of
MYs2004-2010 from the base level of consumption were the standards left unchanged.
Introduced July 23, 2001. Reported (amended) by the Committee on Energy and Commerce.
H.Rept. 107-162, Part I..
S. 388, S. 389 (Murkowski)
National Energy Security Act of 2001. Decreases America’s dependency on foreign oil
sources to 50% by the year 2011 by enhancing the use of renewable energy resources
conserving energy resources, improving energy efficiencies, and increasing domestic energy
supplies; improves environmental quality by reducing emissions of air pollutants and
greenhouse gases; mitigates the effect of increases in energy prices on the American
consumer, including the poor and the elderly; and for other purposes. Introduced February
26, 2001; referred to Committee on Energy and Natural Resources. (S. 389 also included the
Energy Security Tax Policy Act of 2001.) Introduced February 26, 2001; referred to
Committee on Finance.
S. 517 (Bingaman)
Originally the National Laboratories Partnership Improvement Act of 2001, it is now
the comprehensive energy bill on which debate in the Senate began in late February 2002.
Among other provisions, would significantly increase CAFE standards, provide $2 billion
in credits for ethanol and other renewable fuels; includes incentives for power generation
from clean coal technologies. Would require electric generators to provide 10 percent of
output from renewable resources by 2020.Tax provisions expected to be added as an
additional amendment.
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