Order Code IB10116
Issue Brief for Congress
Received through the CRS Web
Energy Policy:
The Continuing Debate
Updated March 17, 2003
Robert L. Bamberger
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress
CONTENTS
SUMMARY
MOST RECENT DEVELOPMENTS
BACKGROUND AND ANALYSIS
The Arctic National Wildlife Refuge (ANWR)
Other Non-Tax Energy Production Initiatives
Energy Tax Policy
Electricity Restructuring
Fuel Economy
The President’s Hydrogen Fuel Initiative
Renewable Energy and Fuels
LEGISLATION
IB10116
03-17-03
Energy Policy: The Continuing Debate
SUMMARY
At the outset of the 108th Congress, oil
tures, require the Federal Energy Regulatory
prices exceeded $30/barrel owing to continu-
Commission (FERC) to undertake a
ing prospects of armed conflict with Iraq in
rulemaking on just and reasonable rates for
the Middle East and the continuing domestic
new transmission. It would also permit the
political unrest in Venezuela, a major oil
exercise of federal eminent domain authority
supplier to the United States. Republicans
to expedite the siting of new transmission
and Democrats alike indicated that a renewal
lines. While the draft does not yet include
of debate on several energy issues was likely.
specific language, it includes a “placeholder”
for provisions establishing a renewable fuels
On February 14, 2003, Senate Republi-
standard.
cans indicated their intentions to introduce
comprehensive energy legislation. Senator
The House draft would authorize con-
Domenici, the new chair of the Senate Energy
struction of a natural gas pipeline from the
and Natural Resources Committee, scheduled
Alaskan North Slope to the lower 48 states,
a series of hearings on energy and energy
but would allow FERC – which must issue a
policy that began on February 13, 2003.
certificate of convenience and necessity for
construction of the pipeline – to do so only for
A draft version of a comprehensive bill
a southern route through Alaska, to which
was released by Representative Barton, chair-
conferees on H.R. 4 had informally agreed.
man of the House Energy and Air Quality
The bill would also authorize $1.5 billion for
Subcommittee, on February 28, 2003. Com-
expansion of the Strategic Petroleum Reserve
prehensive energy legislation (H.R. 4) in the
(SPR) to 1 billion barrels and require a study
107th Congress reached conference but was
of passenger car fuel economy by the National
not enacted. The draft House bill includes
Academy of Sciences (NAS).
provisions agreed to by the conferees in the
107th Congress related to energy efficiency
The Bush Administration issued its own
and conservation, clean coal technology, and
plan for a national energy policy on May 16,
reauthorization of the Price-Anderson Act
2001. However, like the omnibus legislation
nuclear liability system. It does not include a
(H.R. 4), the plan was controversial, charac-
provision to authorize leasing of the Arctic
terized by some as lean on conservation and
National Wildlife Refuge.
renewables and by others as being predis-
posed to trade off environmental consider-
The draft does, however, include a num-
ations to increase energy supply. The plan
ber of more controversial issues left unre-
included more recommendations than it did
solved by the 107th Congress. It includes an
initiatives requiring legislation from Congress.
electricity title that would, among other fea-
Congressional Research Service ˜ The Library of Congress
IB10116
03-17-03
MOST RECENT DEVELOPMENTS
Concern about national energy policy remains high amidst high prices for oil products
and natural gas during the winter of 2003 and oil inventory levels that have been observed
to be at historic lows. On February 28, 2003, Representative Joe Barton, chairman of the
House Energy and Air Quality Subcommittee, released a draft omnibus energy bill that
includes a number of issues debated, but left unresolved, in the 107th Congress. The Senate
has indicated its intention to introduce omnibus energy legislation as well. Further details
have yet to be announced. In the meantime, bills addressing various issues in energy policy
have also been introduced.
There is likely to be debate about provisions in the House and Senate budget resolutions
affecting the Arctic National Wildlife Refuge (ANWR). The Senate budget resolution
instructs the Senate Energy and Natural Resources Committee to report legislation that
would raise $2.1 billion in leasing from ANWR. The House budget resolution does not
name ANWR, but instructs the House Resources Committee to raise more than $1.1 billion
in revenues during the period 2004-2013.
BACKGROUND AND ANALYSIS
Since the Arab oil embargo in 1973-74, policymakers periodically have focused on
energy policy. Most of the periods when energy policy has been the object of major
legislative initiatives have been when uncertainty about the security of future energy supply
has triggered a sharp increase in the price of energy. The current focus on energy policy was
triggered by a rise in oil prices that began in the late spring of 1999. Rising prices during the
winter of 2002-2003 have many underlying causes, of which anticipation of a possible war
in the Middle East is only one factor. Another contributing cause was the general strike in
Venezuela that began in late 2002; it curtailed as much as 1.5-1.6 million barrels per day of
crude and product imports to the United States. Though the strike has ended, there are
differing opinions about how quickly Venezuelan production will return to pre-strike levels.
In the meantime, Saudi Arabia has boosted production to make up for tight supply in world
markets. However, crude oil inventory in the United States fell sharply to make up for the
shortfall from Venezuela. Refined product inventories have also fallen as a consequence of
cold winter weather that has placed particular pressure on heating oil inventories.
These developments have several implications, which suggest that prices are likely to
remain elevated even if crude supply improves in the short-term. Refiners will need to
replenish crude and product inventories while satisfying current demand. This is likely to be
a challenge. Customarily, refiners begin to shift over to the production of gasoline in the late
winter – in anticipation of summer demand. There is a similar shift in late summer to higher
production of middle distillates, such as home heating oil and diesel fuel. But, with
inventories of “in-season” fuels low to begin with, these shifts in production are likely to
occur later in the season. In all likelihood, depending upon summer demand in 2003 and
temperatures during the winter of 2003-2004, it could take months for crude supply, crude
and product inventories, and demand to be restored to some balance. This is under the best
CRS-1
IB10116
03-17-03
of circumstances. Should there be a prolonged war in the Middle East that affects supply,
the situation could worsen, depending upon consumer response to higher prices.
The fact that prices are likely to remain elevated for several months under the most
optimistic scenario will likely add to constituent demand for short-term relief. However, the
sorts of policies considered in omnibus energy legislation by the 107th Congress – and likely
to be debated again in the 108th – will be long-term in nature. (For an expanded background
discussion about energy policy, see CRS Report RL31720, Energy Policy: Historical
Overview, Conceptual Framework, and Continuing Issues. For a review of short-term energy
policy options to address a supply disruption and high energy prices, see CRS Report
RL31676, Middle East Oil Disruption: Potential Severity and Policy Options.)
On February 28, 2003, draft energy legislation was released in the House by
Representative Barton, chairman of the House Energy and Air Quality Subcommittee “ to
start a dialogue and gather input from [House members] on both sides of the aisle.”1
Introduction of comprehensive energy legislation is expected in the Senate. Hearings have
begun in both the House and Senate.
Some of the major energy issues likely to be subject to attention during the 108th
Congress are discussed briefly below.
The Arctic National Wildlife Refuge (ANWR). Domestic oil production continues
to fall. Some argue that the nation should be seizing the opportunity to develop the oil and
natural gas resources that remain untapped. The potential Alaskan resources are high on this
list, and the debate over whether or not to open ANWR for leasing continues after more than
a decade. Omnibus energy legislation passed by the House during the 107th Congress (H.R.
4) would have opened ANWR to oil and gas leasing. However, in the Senate, opponents of
opening ANWR filibustered an amendment to include leasing in the Senate version of the
bill. On April 18, 2002, the Senate defeated (54-46) a procedural motion to invoke cloture
on the debate. The FY2003 omnibus appropriations bill, P.L. 108-7, did not include any
language on ANWR.
However, there is language in both the House and Senate budget resolutions that would
promote leasing in ANWR. The Senate budget resolution instructs the Senate Energy and
Natural Resources Committee to report legislation that would raise $2.1 billion in leasing
from ANWR. The House budget resolution does not name ANWR, but instructs the House
Resources Committee to raise more than $1.1 billion in revenues during the period 2004-
2013. Debate is expected on this language when the resolutions reach the floors of their
respective chambers.
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,
1 Energy Daily, Volume 31, Number 40, Monday, March 3, 2003: p. 1.
CRS-2
IB10116
03-17-03
providing only an additional 300,000 barrels per day (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 per day 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. (For additional information, see CRS Issue Brief
IB10111, The Arctic National Wildlife Refuge: Controversies for the 108th Congress.)
Other Non-Tax Energy Production Initiatives. The Department of the Interior
has estimated that roughly a quarter of oil resources, and less than one-fifth of gas resources,
have been developed on Indian lands. Senator Bingaman has introduced legislation (S. 424)
that includes provisions agreed to last year that would facilitate energy production on Indian
lands by making it easier for tribes to lease land and rights-of-way for energy production and
transmission.
Alaska currently holds 30 trillion cubic feet of undeveloped proven natural gas reserves,
about 18% of total U.S. reserves. Because these reserves are located on Alaska’s North
Slope, they have not been developed due to the very high cost of building and operating the
transportation infrastructure to reach distant markets. There also was debate during the 107th
Congress over whether or not construction of a natural gas pipeline to carry gas to the lower
48 states would require loan guarantees and other incentives and over the most desirable
route for the pipeline. The House draft bill released on February 28, 2003, would authorize
construction of a natural gas pipeline from the Alaskan North Slope to the lower 48 states,
but would allow FERC – which must issue a certificate of convenience and necessity for
construction of the pipeline – to only consider the southern route through Alaska to which
conferees on H.R. 4 had informally agreed.
Energy Tax Policy. Policymakers often explore whether the tax system can be used
to help boost declining domestic production of oil and gas, and promote alternatives to
traditional fuels. On March 11, 2003, Senator Grassley introduced S. 597, the Energy Tax
Incentives Act of 2003. It includes a number of provisions that were agreed to during the
debate on omnibus energy legislation in the 107th Congress, and has bipartisan support from
the leadership of the Senate Finance and Energy and Natural Resources Committees. The bill
includes a total of $16 billion in tax incentives, including a number of incentives to boost
oil and gas production. It would also extend the wind production credit to 2007, extend the
tax credit for the production of biomass until 2007, and provide incentives to encourage the
use of biodiesel.
While the House draft energy bill released on February 28, 2003, does not include a tax
section, a number of bills have been introduced in the House that would address different
energy tax policies. For example, H.R. 109, introduced by Representative Hayworth, would
provide tax credits for residential solar energy installations. H.R. 465 would provide that
small ethanol producer tax credits could be allocated to members of a cooperative. (For a
broader listing of energy tax-related bills, see CRS Issue Brief IB10054, Energy Tax Policy.)
Electricity Restructuring. Historically, electric utilities have been regarded as
natural monopolies requiring regulation at the state and federal levels. The Energy Policy Act
of 1992 (EPACT, P.L. 102-486) removed a number of regulatory barriers to electricity
CRS-3
IB10116
03-17-03
generation in an effort to increase supply and introduce competition, but further legislation
has been introduced and debated to resolve remaining issues affecting transmission,
reliability, and other restructuring concerns. The House draft bill released on February 28,
2003, includes a section broadly addressing these matters. It would require the Federal
Energy Regulatory Commission (FERC) to undertake a rulemaking on just and reasonable
rates for new transmission. It would also allow the exercise of federal eminent domain
backstop authority to expedite the siting of new transmission lines. If the line would cross
federal lands, and the federal land management agency – for whatever reason – did not act
within a year, the state could act as if it were the federal agency to establish a right-of-way.
The draft bill would repeal the Public Utility Holding Company Act (PUHCA) – which was
enacted to eliminate unfair practices and other abuses by electricity and gas holding
companies – and proposes instead to add federal and state access to utility books and records.
The draft also provides that utilities would be bound to mandatory purchase requirements for
existing contracts, but would not be obligated to enter into future contracts under the Public
Utility Regulatory Policies Act (PURPA).
On February 27, 2003, Senator Craig introduced electricity legislation similar to the
Senate-passed provisions in H.R. 4 during the 107th Congress, which had provided for repeal
of PUHCA and PURPA reform. There were no electricity provisions in the version of
omnibus energy legislation (H.R. 4) passed by the House in the 107th Congress; the
understanding was that electricity would be treated separately. The conferees on H.R. 4 met
and exchanged proposals on electric utility restructuring provisions. The differences were not
resolved. On March 13, 2003, Representative Tauzin, chairman of the House Energy and
Commerce Committee, insisted to Republican colleagues that they support inclusion of an
electricity section in any comprehensive legislation the committee reports. Tauzin expressed
his opinion that the absence of a House position on electricity in the House version of H.R.
4 in the previous Congress had hobbled the work of the conferees and contributed to their
inability to finish a bill before the 107th Congress adjourned. (For additional information, see
CRS Issue Brief 10006, Electricity: The Road to Restructuring, or see the CRS Electronic
B r i e f i n g B o o k : E l e c t r i c U t i l i t y R e s t r u c t u r i n g
[http://www.congress.gov/brbk/html/ebele1.shtml].
Fuel Economy. Energy problems can be addressed on both the supply and demand
side; at issue since the Arab oil embargo in the mid-1970s is what balance should be struck
between policies affecting supply and demand. One of the first initiatives designed to have
a significant effect on supply was passage of corporate average fuel economy standards
(CAFE) in the Energy Policy and Conservation Act of 1975 (EPCA, P.L. 94-163). In the
years since, there have been periodic calls for stiffening or broadening the CAFE standards
– especially as consumer demand has turned more to light-duty trucks and sport utility
vehicles (SUVs).
The 107th Congress lifted a prohibition on expenditure of appropriated funds by the
National Highway Traffic Safety Administration (NHTSA) to undertake CAFE rulemakings.
On December 16, 2002, NHTSA issued a notice of proposed rulemaking to raise light truck
fuel economy standards 1.5 miles per gallon by FY2007. Whether fuel economy provisions
would be included in omnibus energy legislation enacted by Congress is uncertain, and may
depend upon NHTSA’s final rule. Some may argue that passenger car fuel economy
standards should be boosted, too.
CRS-4
IB10116
03-17-03
Currently, light truck fuel economy standards do not apply to vehicles above 8,500
pounds gross vehicle weight (GVW). Senator Feinstein has introduced legislation (S. 225)
that, among other provisions, would expand the applicability of fuel economy standards to
vehicles up to 10,000 pounds GVW. (For additional information, see CRS Issue Brief
IB90122, Automobile and Light Truck Fuel Economy: The Cafe Standards.)
The President’s Hydrogen Fuel Initiative. In his State of the Union Address on
January 28, 2003, President Bush announced a new $720 million research and development
(R&D) initiative for hydrogen as a transportation fuel. This program, the Hydrogen Fuel
Initiative, is intended to complement the FreedomCAR initiative, which focuses on
cooperative vehicle research between the federal government, universities, and private
industry. While these two partnerships have different goals, they do share in common the
goal of producing by 2010 hydrogen-fueled engine systems that achieve double to triple the
efficiency of today’s conventional engines at a cost competitive with conventional engines.
The Administration’s FY2004 budget request would increase overall funding for research
into hydrogen fuel, fuel cells, and vehicle technologies by about 30%. Some of this increase
would be offset by funding reductions in other programs, but the majority will be new
funding.
Critics of the Administration suggest that the hydrogen program is intended to forestall
any attempts to significantly raise vehicle CAFE standards, and that it relieves the
automotive industry of assuming more initiative in pursuing technological innovations. On
the other hand, some will argue that it is appropriate for government to become involved in
the development of technologies that are too costly to draw private sector investment. At
issue for these policymakers will be whether or not the federal initiative and level of funding
is aggressive enough. (For additional information, see CRS Report RS21442, Hydrogen and
Fuel Cell R&D: FreedomCAR and the President’s Hydrogen Fuel Initiative.)
Renewable Energy and Fuels. One of the most controversial provisions of the
energy legislation debated during the 107th Congress was the establishment of a renewable
fuel standard (RFS) intended to increase the use of ethanol as an oxygenate in reformulated
gasoline. Toward that end, the legislation also proposed the elimination of methyl tertiary
butyl ether (MTBE) as an oxygenate. The provision was supported by the oil industry,
ethanol producers, and environmental groups. However, critics argued that it would boost
prices to consumers and create shortages.
S. 385, introduced by Senator Daschle on February 13, 2003, would require the use of
5 billion gallons of renewable fuels annually by 2012; production of ethanol in 2002
exceeded 2.1 million gallons.2 The legislation would also eliminate the use of MTBE as an
oxygenate, though some states are already facing such a ban. Also controversial in the
debate in the 107th Congress was a “safe harbor” provision that provided a waiver of liability
for damages resulting from the use of renewable fuels, such as contamination of water
supply. In the House, this waiver included all renewables; the Senate version included
ethanol but did not include any of the ethers such as MTBE. Those opposed to an outright
ban of MTBE argue that marketers should be allowed to choose to use ethanol in markets
2 Inside Fuels and Vehicles, Vol. 2, No. 4, February 13, 2003, p. 9.
CRS-5
IB10116
03-17-03
that are closest to storage and blending facilities. The draft House bill includes a
“placeholder” for renewable fuels; no specific language appears in the draft.
Legislation (S. 421, H.R. 671) has also been introduced in the 108th Congress that would
reauthorize for 10 years the Renewable Energy Production Incentive (REPI) program, which
provides financial incentives to municipal utilities and rural co-ops that would not otherwise
qualify for tax credits for building renewable energy generation.
LEGISLATION
H.R. 39 (Young)
Arctic Coastal Plain Domestic Energy Security Act of 2001. Declares that it is the
policy of the United States to permit exploration, development, production, and
transportation of oil and gas resources in a designated area of the Coastal Plain Study Area
of the Arctic National Wildlife Refuge. Introduced January 3, 2003; referred to Committee
on Resources.
H.R. 238 (Boehlert)
Energy Research, Development, Demonstration and Commercial Application Act of
2003. Authorizes programs in energy efficiency, distributed energy and electric energy
systems, renewable energy, fossil energy, and nuclear energy. Introduced January 8, 2003;
referred to Committee on Science and Committee on Resources' Subcommittee on Energy
and Mineral Resources.
S. 225 (Feinstein)
Amends title 49, United States Code, to require phased increases in the fuel efficiency
standards applicable to light trucks; to require fuel economy standards for automobiles up
to 10,000 pounds gross vehicle weight; to increase the fuel economy of the Federal fleet of
vehicles, and for other purposes. Introduced January 30, 2003; referred to Committee on
Commerce, Science, and Transportation.
S. 385 (Daschle)
Amends the Clean Air Act to eliminate methyl tertiary butyl ether (MTBE) from the
United States fuel supply, to increase production and use of renewable fuel, and for other
purposes. Introduced February 13, 2003; referred to Committee on Environment and Public
Works.
S. 421 (Cantwell), H.R. 671 (Bono)
Reauthorizes and revises the Renewable Energy Production Incentive program, and for
other purposes. House bill introduced February 11, 2003; referred to Committee on Energy
and Commerce. Senate bill introduced February 14, 2003; referred to Committee on Energy
and Natural Resources.
CRS-6
IB10116
03-17-03
S. 424 (Bingaman)
Tribal Energy Self-Sufficiency Act. To establish, reauthorize and improve energy
programs relating to Indian tribes. Introduced February 14, 2003; referred to the Committee
on Indian Affairs.
S. 597 (Grassley)
Energy Tax Incentives Act of 2003. Provides a number of tax credits and incentives to
increase the production of oil and gas, and institute or extend tax credits to promote biomass,
biodiesel and wind energy. Introduced March 11, 2003; referred to the Senate Committee
on Finance.
CRS-7