The Energy Policy Act of 2003 -- A Missed Opportunity

November 18, 2003 4 min read

Charli Coon

Visiting Fellow in Russian and Eurasian Studies and International Energy Policy

House and Senate conferees have reconciled their differences and approved the long-awaited energy bill, the Energy Policy Act of 2003 (H.R. 6).

Though the bill has some good provisions it fails to adequately enhance domestic energy supplies, a major missed opportunity to ensure reliable and affordable energy for American families and businesses.

The good news: the bill includes provisions that strengthen the nation's electricity system and, at the margins, narrows the gap between supply and demand. The bad news: it is also loaded with costly and unnecessary new program authorizations, costly pork-barrel projects, and over $23 billion in special interest tax subsidies.

Despite numerous policy flaws, Congress will likely pass this bill and get President Bush's signature.

What is Good About the Bill

Of particular significance are energy-suppressing measures not contained in the bill which would pick energy winners and losers, add costs to consumers and increase regulation.

There are no:

Mandatory renewable portfolio standards;
Climate change initiatives;
Statutory increase in corporate average fuel economy (CAFE) standards; and
Mandatory regional transmission organizations (RTOs).

The bill does contain provisions which will strengthen our energy infrastructure:

Grants FERC limited "backstop" authority to issue permits for interstate electricity lines in bottleneck areas; and
Repeals the Public Utility Holding Company Act, an antiquated law that prohibited power companies from investing in unrelated businesses; and
Delays a Federal Energy Regulatory Commission (FERC) plan to create a "standard market design" for the sale of electricity on the wholesale market;
Allows Indian tribes, acting as sovereign nations, to set up their own regulatory systems for energy projects.

What is Bad About the Bill

Lawmakers could have advanced policies to enhance the nation's energy security in the long-term, but instead took the easy way out and give generous tax breaks to special interest groups for only marginal increases in supply for the short-run.

Long-term thinking would have prompted:

Opening access to or taking an inventory of energy-rich areas currently "off-limits" for exploration of oil and gas resources off-shore and in the Outer Continental Shelf,
Authorizing use of a mere 2,000 acres in the Artic National Wildlife Refuge (ANWR) for exploration -- an area whose mean estimate of economically recoverable oil is 10.3 billion barrels. More then twice the proven reserves in all of Texas.

The tax breaks -- so-called "incentives" -- total over $23 billion and include:

Over $11 billion in giveaways for the oil and gas industry;
About $3 billion in tax credits for the use of renewable fuels to produce electricity;
$2.5 billion for investment and production credits for clean coal technology;
Over $2 billion for alternative motor vehicles incentives; and
Almost $2 billion in tax breaks for the electric power industry and other businesses.

Congress also creates an artificial market for ethanol with a mandate that more than doubles the use of renewable fuels in gasoline, primarily corn-based ethanol, to 5 billion gallons a year by 2012 increasing costs to families and businesses. Congress should not be choosing the nation's fuel winners and losers, and instead let the free market and consumers make those determinations.

Congress is also generous with taxpayers' money for pork-barrel projects in the name of energy. For example, members provide $350 million in tax-exempt bonds for four so-called "green" development projects, in:

Colorado,
Georgia,
Louisiana, and
New York.

Likewise, the bill provides $18 billion in loan guarantees for construction of a 3,500-mile pipeline pumping natural gas from Alaska's North Slope to Chicago, Illinois. While providing additional supplies of natural gas to the lower 48-states is needed, funding for this project should stand on its own and be borne by the companies interested in building the structure-not guaranteed with taxpayers hard-earned money.

Another taxpayer giveaway hidden in the bill involves an $800 million loan guarantee to build a coal gasification power plant in Minnesota which benefits one single company. Taxpayer money should be used only for programs that benefit the general public interest-not to advance the bottom-line of one specific company.

Not only is the bill loaded with multi-billion tax breaks, it also includes hundreds of millions of dollars in new authorizations for federal spending including $2.1 billion from fiscal year 2004 through 2008 for hydrogen fuel cell research, $300 million in research and development for photovoltaic and renewable resources, and $50 million for each fiscal year from 2004-2014 for a grant program to improve biomass use. While these may represent laudable projects, the private sector-not taxpayers-should bear these costs.

Long-Term Shortcomings

Certainly, the conference report includes some needed energy enhancing provisions. Nevertheless, the report fails to provide long-term solutions to the nation's growing demand for energy. Given the plethora of policy shortcomings in this bill and its failure to sufficiently enhance domestic energy supplies, Congress has regrettably missed an opportunity to truly ensure reliable, affordable, and abundant supplies of energy for families and businesses now and into the future.