Key elements of the energy policy bill and auxiliary tax package passed by the U.S. House of Representatives over the weekend — notably a mandatory 15% renewable portfolio standard (RPS), increased taxes on the oil and gas industry, and the lack of increased fuel efficiency standards for autos — spell trouble for a conference committee attempting to reconcile the House bill with a U.S. Senate bill passed earlier this summer (see Daily GPI, June 25).

The split on the critical issues is basically between newly empowered Democrats, attempting to rewrite portions of the Energy Policy Act of 2005 which had been passed by a Republican-led congress, and business-backed Republicans, attempting to hold onto the recent gains for the oil, gas, coal and nuclear industries. The Democrats are pushing for conservation and development of renewable fuels to combat greenhouse gases and move the nation away from fossil energy.

The Senate version, put together with the help of Republicans, is lacking the mandatory RPS standard, while the House version, which passed 241-172 in a special Saturday session, is missing the higher miles per gallon standards for autos present in the Senate bill. Also, the Senate has yet to pass a tax package, while a $16 billion tax package, providing incentives for renewable energy and higher taxes for the oil and gas industry, passed the House 221-189.

The differences highlight other divisions besides the Republican-Democratic split. The powerful chairman of the House Energy and Commerce Committee, John Dingell, representing the auto-manufacturing state of Michigan, succeeded in diverting his fellow House Democrats from stricter auto efficiency standards and increased ethanol requirements. The Senate bill would hike auto fuel economy standards by 30%, with a 35 miles per gallon car and light truck fleet average by 2020.

And a regional division shows up on the RPS standard between wind-rich states and those in the Midwest and Southeast which rely heavily on coal-fired power.

There also is the possibility of a presidential veto, which the administration threatened during the last days of debate on the House bill, saying the higher taxes on oil and gas production would undermine energy security (see Daily GPI, Aug. 6). Citing restrictions on the oil and natural gas industry leading to less production and potential for even higher energy prices, senior Bush administration advisors will recommend a presidential veto if the combined House-Senate measure includes the tax measures, a statement issued Friday by the Office of Management and Budget said.

Energy Secretary Samuel Bodman commented following passage of the House measure that it “does little to increase our nation’s energy security or reduce greenhouse gas emissions. In fact, the bills will actually lead to less domestic oil and gas production and increased dependence on imported oil. As the full Congress considers this legislation, I urge them to implement President Bush’s Twenty in Ten Initiative that will reduce gasoline usage 20% in ten years and put America on a path towards a stronger, cleaner energy future.”

The oil and gas industry has lobbied heavily against the tax provisions, estimated to cost them $16 billion, which will go to pay for the development of renewable fuels. The measure includes tax and loan incentives for the development of wind, solar and geothermal power, while stripping incentives approved just two years ago for fossil fuels.

While the electric power industry lobbied hard to keep a mandatory RPS standard out of the Senate bill, the House bill installs a 15% standard to be achieved by all utilities by 2020.

In addition, the House measure calls for the recovery of billions of dollars in royalties on production from the flawed deepwater leases that were issued by the Department of Interior in 1998 and 1999. It would force holders of the 1998-1999 Gulf leases to renegotiate their contracts with Interior or pay a “conservation of resources fee” in order to bid on future government leases.

The question going forward is whether the political conferees can find a middle ground on the most contentious issues — for instance, damping down the RPS standard. Currently U.S. utilities get just a little over 2% of their electric power from renewables (minus hydropower), which makes 15% by 2020 a huge leap. Regarding auto efficiency, most congressmen would have a hard time selling their constituents on a clean, green energy bill that fails to do something to rein in gas-guzzlers. And, possibly, there is a balancing point where incentives for renewables and fossil fuels can mesh to provide affordable, secure energy for the nation.

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