House Energy Bill Principles Are a Victory for Households and the Environment

Dec. 5, 2007

House Energy Bill Principles Are a Victory for Households and the Environment

Statement of Joan Claybrook, President of Public Citizen

Congressional leadership’s backroom negotiations on the energy bill are finally coming to an end, and the House of Representatives is poised to vote tomorrow. We cannot formally endorse the legislation until the text is released to the public, but I can say that the general principles that have been agreed to are laudable as a first step to effective energy policy for America.

If the final bill does embody these principles, then the energy bill will be an enormous gift to American families and consumers, ultimately helping to spare us all so much needless pain when we open our electric bills and stop at the pump.

For that reason, Public Citizen calls on the Senate and president to drop their opposition to commonsense solutions to high prices and climate change.

In contrast with energy legislation signed by President Bush in 2004 and 2005 that gave billions of taxpayer dollars to the oil, coal and nuclear industries, this bill would right some of those wrongs by repealing many of these recently awarded subsidies to Big Oil in order to finance the investments we need in clean energy and efficiency.

Importantly, the legislation addresses America’s oil addiction by significantly raising fuel economy standards for cars and trucks – the single best solution to reducing our dependence on foreign oil and one that ultimately will save motorists money at the pump and cut the greenhouse gas emissions that contribute to global warming. The bill will require the combined car and light truck/SUV fleets to attain 35 miles per gallon (mpg) by 2020. Detroit has defeated fuel economy increases at every turn for the past 20 years. But this time automakers faced Speaker Nancy Pelosi – and lost. Now the public wins, with guaranteed improvements in fuel economy. (The only real downside is that the public needs – and the industry is capable of providing – much more than 35 mpg.)

In addition, the legislation would implement the first-ever federal renewable electricity standard, requiring utilities to produce or procure 15 percent of their power needs from wind, solar and other clean energies by 2020. This follows the lead of 27 states that have such standards. Such a mandate is essential to providing existing clean technologies the platform they need to compete with dirty fossil fuels and fatally flawed nuclear power.

In the seven years since Vice President Dick Cheney’s energy task force report, America’s energy policy has been controlled by the oil, coal and nuclear power industries. It is therefore no coincidence that during Bush’s presidency, we have been importing far more oil (67 percent in 2006 compared to 61 percent in 2001), prices at the gas pump have increased more than 110 percent (from $1.45 per gallon in January 2001 to $3.08 in November 2007) and energy corporations have enjoyed the biggest profits in history. This energy legislation is the first step to stop the fleecing by energy companies and a start to a sustainable energy future. Unfortunately, President Bush has threatened to veto the legislation because of its renewable energy requirements and tax increases on Big Oil.

Below are details of the proposed legislation:

1. Motor vehicle fuel economy: an historic increase in fuel economy standards to 35 mpg for cars and trucks combined by 2020. Unlike the bill passed by the Senate this summer, the principles for the final energy bill call for a true mandate with no loophole to allow the Bush administration to set lower standards by manufacturing a cost-benefit rationale. The 35 mpg target isn’t as bold as the public needs – after all, current best-in-class fuel economy performers already average 29 mpg, and the industry could so easily be doing so much better with the technology available but unused today – but this mandate is a breakthrough nonetheless. Finally, after decades of dithering and auto industry obstruction, Congress is going to save consumers billions at the pump.  Speaker Pelosi is to be credited for fighting back the formidable auto industry to secure this very important win for the driving public.

2. Energy subsidies: a $13.8 billion clean energy and energy efficiency investment package financed by repealing subsidies to the oil industry. This legislation targets for repeal only recently enacted oil industry subsidies. Motorists will not pay higher prices at the pump for repealing Big Oil subsidies because increased taxes on corporate income are paid by shareholders, not consumers. And with crude oil hovering around $90 to $100 a barrel, the market is providing all the incentive the oil industry needs to increase production. A mature, profitable industry governed by a market that sets prices has no need whatsoever for public subsidies.

    a. Repealing oil industry subsidies: Details of the proposed tax package are as follows:

(i) Denies the oil industry a $10 billion tax break over the next decade. This subsidy came as a result of 2004 legislation that created a sweeping new deduction for domestic manufacturing. As a result, for the first time, oil and natural gas production was classified as a manufactured good, treating it the same as domestically produced cars or other items made in a factory. This legislation would repeal the deduction for all large, integrated oil companies, while still retaining the 6 percent deduction for smaller ones.

(ii) Extends from five to seven years the period of time over which oil companies can claim a tax deduction for geological and geophysical expenses. Deducting the expenses more slowly will save Americans $100 million over the next decade. This alters the tax break granted to Big Oil in the 2005 energy bill.

(iii) Limits the ability of oil companies drilling in foreign countries to manipulate their drilling income in ways to reduce U.S. tax liability. Closing this loophole will save Americans $3.2 billion over the next 10 years.

(iv) Extends from 15 to 20 years the period of time over which owners of natural gas distribution lines can deduct the depreciation of their pipelines. Deducting the expenses more slowly will save Americans $500 million over the next decade.

b.  Investing in America’s energy independence: Repealing these oil company subsidies will pay for needed public investments in renewable energy:

(i) Expands the non-refundable tax credit for households to install solar panels. Current law caps the credit at $2,000 – this provision would double it to $4,000. Also, the current tax credit is set to expire in 2009, and this would extend it through 2014. While this is an improvement, it still falls far short of the amount necessary to encourage more households to install on-site solar systems that can cost tens of thousands of dollars. Expanding this benefit for families will cost only $317 million over 10 years.

(ii) Expands the renewable energy production tax credit and extend it to 2012. By providing financial assistance to wind, solar and tidal/wave energy, this tax credit ensures the continued development of the clean energy technologies America needs to become energy independent and combat climate change. Expanding this tax credit will cost $6.6 billion over the next decade.

(iii) Provides $2 billion in bond authority to invest in wind and other clean energy projects.

(iv) Provides a $3,000 tax credit to motorists that purchase a plug-in hybrid vehicle. Scheduled to cost nearly $1 billion over the next decade, the credit is unavailable a year after a manufacturer sells 60,000 vehicles, thereby punishing successful manufacturers.

(v) Extends, for only one year, the $300 tax credit for households making energy-efficient improvements to their home. This will cost $400 million over 10 years.

3.  Giveaways to industry:  There are some questionable giveaways, however. For example, the legislation would give $1.8 billion over the next decade in subsidies to the coal industry in the form of tax credits for carbon sequestration projects – the controversial plan to stuff millions of tons of carbon dioxide from new coal-fired facilities underground in an effort to combat climate change.

Automakers would get an unnecessary subsidy in the form of the extension of the dual fuel loophole. The dual fuel loophole allows automakers to count their flex-fuel vehicles (designed to run on either gasoline or E-85, a high ethanol blend of 85 percent ethanol and 15 percent gasoline) as though they are run 50 percent of the time on gasoline – when in fact they aren’t. The FFV credit will now extend not just to E-85 capable vehicles but also to vehicles capable of operating on B20 biodiesel. The FFV credit will allow up to 1.2 mpg reduction in CAFE targets for 2011 to 2014, tapering down the credit by 0.2 mpg per year until 2020, when it would end. The National Highway Traffic Safety Administration (NHTSA) will have to enforce this loophole more carefully than it has in the past; in October 2006, Public Citizen exposed the failure of 2003-2005 Ford Taurus and Mercury Sable FFVs to function when E-85 is pumped into them, with the result that Ford has avoided as much as $135 million in fines. NHTSA thus far has failed to even acknowledge Public Citizen’s findings.

Further, electric utilities win big by receiving $1.2 billion in tax credits to install so-called “smart meters,” even though most state proposals for smart meters have households – not utilities – paying for their installation. In addition, leadership retained language essentially requiring states to implement such “smart meter” programs, which are scheduled to cost households billions of dollars, without determining whether “smart meters” are the most efficient way for consumers to reduce their energy consumption (rather than, say, if billions of dollars instead was spent on incentives to make energy-efficient appliance purchases, eco-friendly renovations or on-site solar installation).

In addition, a small handful of electric utilities would benefit from a $350 million tax break for selling their transmission lines to regional transmission organizations, which are consumer-unfriendly, private operators of deregulated wholesale markets.