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Report Recommends $36 Billion U.S. Energy Upgrade Program

Report Recommends $36 Billion U.S. Energy Upgrade Program

A comprehensive plan for the energy future of the United States released last week has been billed as a compromise plan that would expand supplies of conventional fuels and incentivize alternative and clean fuels at a cost of $36 billion to be paid by industrials, refiners and power generators over 10 years in the form of a cap-and-trade program for greenhouse gas emissions.

The plan, "Ending the Energy Stalemate: Bipartisan Strategy to Meet America's Energy Challenges," published by a group calling itself the National Commission on Energy Policy, is billed as a long-term U.S. energy strategy that promotes national security, economic prosperity, and environmental safety and health.

The plan was touted as a blending of support for expansion of conventional fuel sources, along with energy conservation and development of alternative fuels. It suggests diversification of U.S. overseas fuel sources and expanding a global system of strategic oil reserves, as well as doubling government investment in energy research and development and imposing mandatory curbs on greenhouse gas emissions by 2010 to head off global warming. Higher auto fuel efficiency standards, also to be installed by 2010, would be part of the campaign to reduce the use of oil and cut carbon dioxide emissions.

"Political and regional polarization has produced an energy stalemate, preventing America from adopting sensible approaches to some of our biggest energy problems," said John W. Rowe, commission co-chair and chairman and CEO of Exelon Corp. "Our Commission reached consensus on effective policies because of a willingness to take on cherished myths from both right and left. We believe that this package of recommendations can be of value to Congress and the administration in energy legislation next year and beyond."

"Taken together, the Commission's recommendations aim to achieve a gradual but decisive shift in the nation's energy policy, toward one that directly addresses our long-term oil, climate, electricity supply, and technology challenges," said William K. Reilly, former Environmental Protection Agency administrator and Commission co-chair. "Oil reliance is a fact we will face for some time. So we recommend incentives to spur global oil production, to increase domestic vehicle fuel economy, and to increase investment in alternative fuels. Our climate change plan would both limit greenhouse gas emissions and cap the costs of doing so. At the same time, it provides incentives for low- and non- carbon sources like natural gas, renewable energy, nuclear energy, and advanced coal technologies with carbon capture and sequestration, as well as for increased efficiency of energy end use. We are proposing programs that can work in the real world."

The "Strategy," funded by a group of trusts, including the William and Flora Hewlett Foundation, The Pew Charitable Trusts, the John D. and Catherine T. MacArthur Foundation, the David and Lucile Packard Foundation, and The Energy Foundation, was immediately endorsed by several consumer groups, including one sponsored by the U.S. Chamber of Commerce representing small businesses. The American Gas Association applauded the inclusion of natural gas infrastructure recommendations.

But even before it was released, it had its critics. It was immediately panned as a "blueprint for tax/consumer-funded boondoggle" by The Competitive Enterprise Institute. The business-oriented group said it consisted of "a range of anti-energy policies designed to raise energy prices, restrict consumer choices, and expand government control over energy use," put together by "an energy policy group created and funded by left-wing foundations. The commission was designed to promote taxpayer-subsidized industries and environmental extremist causes at the expense of consumers," said Myron Ebell, CEI Director of Global Warming Policy

And another group, calling itself United for Jobs, said the strategy amounted to "a backdoor energy tax focused solely on the financial gains from emission trading" that would cost jobs, hurt small businesses and the U.S. economy. United for Jobs is a project of the National Black Chamber of Commerce, the Small Business and Entrepreneurship Council and USA Next.

The criticism was an indication that the old battles will resume when Congress again brings up an energy bill in 2005.

Under the strategy, which took two years to complete, the federal government would spend a total of $12 billion on clean coal and emissions capture technology ($7 billion), advanced nuclear reactor research ($2 billion) and development of hybrid gasoline-electric cars ($3 billion). The group also recommends the government provide support for building an Alaskan natural gas pipeline and address obstacles to the siting and construction of infrastructure needed to support increased imports of LNG. It also calls for steps to protect critical energy infrastructure from "accidental failure and terrorist threats."

To enhance U.S. oil security, the Commission recommends:

  • Increasing and diversifying world oil production while expanding the global network of strategic petroleum reserves.
  • Significantly strengthening federal fuel economy standards beginning no later than 2010 for cars and light trucks, giving due consideration to vehicle performance, safety, job impacts and competitiveness concerns.
  • Reforming the 30-year-old Corporate Average Fuel Economy (CAFE) program to allow more flexibility and limit compliance costs.
  • Providing $3 billion over ten years in manufacturer and consumer incentives to encourage domestic production and boost sales of efficient hybrid and advanced diesel vehicles.
  • Developing non-petroleum transportation fuel alternatives, particularly ethanol and clean bio-diesel from waste products and biomass.

The Commission estimates its recommendations could reduce U.S. oil consumption in 2025 by 10-15% or 3-5 million barrels per day. On the oil supply side, the Commission believes the U.S. government should apply diplomatic pressure to encourage nations with significant but underdeveloped oil reserves to allow foreign investment in their energy sectors to increase and diversify global oil production.

For renewable energy the commission recommends:

  • Increasing federal support for renewable technology research and development by $360 million annually, targeted at overcoming key hurdles in cost competitiveness and early deployment.
  • Extending the federal production tax credit for a further four years (i.e., from 2006 through 2009), and expanding eligibility to all non-carbon energy sources, including solar, geothermal, new hydropower generation, next generation nuclear, and advanced fossil fuel generation with carbon capture and sequestration.
  • Supporting ongoing efforts by FERC to promote market-based approaches to integrating intermittent resources into the interstate grid system.
  • Establishing a $1.5 billion program over ten years to increase domestic production of advanced non-petroleum transportation fuels from biomass (including waste).

To strengthen energy supply infrastructure, the commission recommends:

  • Reducing barriers to the siting of critical energy infrastructure.
  • Protecting critical infrastructure from accidental failure and terrorist threats.
  • Supporting a variety of generation resources -- including both large scale power plants and small scale "distributed" and/or renewable generation -- and demand reduction (for both electricity and natural gas), to ensure affordable and reliable energy service for consumers.
  • Encouraging increased transmission investment and deployment of new technologies to enhance the availability and reliability of the grid, in part by clarifying rules for cost-recovery.
  • Enhancing consumer protections in the electricity sector and establishing an integrated, multi-pollutant program to reduce power plant emissions.

In addition to Reilly and Rowe, the Commission of 16 energy experts has a third co-chair, John Holdren, professor of environmental policy at Harvard University. It includes Republican and Democratic politicos from the first Bush administration and from the Clinton administration, as well as the president of the United Steelworkers of America and former ConocoPhillips Chairman Archie Dunham.

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