At one time it seemed the USA’s two legislative bodies, the House and Senate, would never agree on an energy bill. But after four years they finally reached agreement – and it seems that the bill will please some of the people, some of the time.

Just two months after the US finally produced an energy bill that Senate, House and administration could all agree on, hurricanes Katrina and Rita sent legislators back to pick over the bones of discarded provisions that had brought work on the bill to a full stop more than once in the last two years. At issue is energy security and how best to ensure it – a debate that is far more urgent in the US than whether man-made CO2 emissions are causing irreversible climate change, and if so asking – along with Europe – how the process should be stopped.

The security debate is well illustrated by the contentious provisions that were eventually left out of the bill signed on 8 August.

Opening the Arctic National Wildlife Refuge (ANWR) in Alaska to allow its oil resources to be exploited was perhaps the single most publicised provision. Proponents argued that most of the refuge would be untouched by the drilling; opponents said the entire refuge was important for migratory herds and, in any case, the oil resources would barely provide the US with six months fuel and the environmental price was too high. The provision had been passed by both House and Senate, and was removed when Democrats threatened to use a filibuster to block the bill.

The reprieve was temporary: the provision was due to be presented again this autumn as part of a budget bill, and was raised yet again, as were new measures to encourage construction of new refineries, in a new bill written by the Energy and Commerce Committee immediately after the vulnerability of US primary energy supplies was once more exposed by the summer’s two hurricanes. That new bill would also relax parts of the New Source Review, a provision of the Clean Air Act that requires refineries and coal fired power plants to install new pollution control equipment when they expand. At the moment, it is on hold.

Energy efficiency

Ironically, another of the provisions lost as senate and house struggled to agree on August’s energy bill was an increase in the CAFE (Corporate Average Fuel Economy) vehicle efficiency standards. The measure was introduced after the 1973 Arab Oil Embargo but has not been revisited in the Committee’s new bill, even though the Bush administration has recently called for consumers to be more efficient in their energy use. Whether consumers will respond remains to be seen, but the most likely impetus will be as the high price of primary fuels works its way to the consumer and that will happen as the country moves into the winter season. Gasoline prices have already been increasing but the effect has been gradual. Now many US consumers will be taking delivery of stocks of gas or propane to heat their homes and they are likely to be faced with huge price rises.

August’s energy bill does not entirely ignore energy efficiency measures. There are tax breaks for home improvements that include energy conservation, a change to the start and end of daylight saving time and more tax breaks for hybrid vehicles, along with requirements to increase the efficiency of domestic appliances. Experience from Europe has suggested there are large energy efficiency gains to be made from domestic appliances – if manufacturers and consumers are incentivised to choose a more efficient option.

However, most of the bill’s major provisions offer subsidies, grants, guarantees and tax breaks for almost the entire portfolio of energy sources, leading the Washington Post to describe the bill as a “broad collection of subsidies for energy companies”.

Although the ANWR decision is effectively on hold, the bill opens other areas to oil and gas exploration. It authorises a comprehensive inventory of oil and gas deposits near the Atlantic and Pacific coasts, over the objections of the coastal states. Those states had been able to veto near-shore drilling but the bill opens the way to begin exploiting the resource.

Elsewhere, oil companies win more rights to look for deposits on public land (the extent of coal resources on government land outside national parks will also be assessed) while those carrying out deep drilling in the Gulf of Mexico get tax breaks.

Winners and winners

Perhaps the biggest winner is the nuclear industry. The industry has been working for several years to license two ‘evolutionary’ reactors based on very familiar designs already operating in the US, along with potential sites where they could be built. Both projects have involved an impressive roster of utilities and manufacturers but there is still a way to go before either is ready to be constructed, not least because both carry the ‘first of a kind’ burden of potential cost and time overruns. The energy bill aims to remove that uncertainty, by providing a production tax credit of 1.8 cents per kWh for the first 6000 MWh from new nuclear power plants for the first eight years of their operation, subject to a $125 million annual limit. In addition it provides financial support to offset the impact of delays in constructing and starting up the new reactors. The guarantee would offer up to $500 million to cover delays for each of the first two new reactors, and half the delay costs (to $250 million) for each of the next four reactors.

A new generation of less-familiar reactor designs that could come on stream in the next decade or two get upfront grants. There is $1.25 billion for research into a so-called ‘next generation nuclear plant’ that could be used to generate electricity and hydrogen. That project is currently whittling a half dozen initial designs into two or three that will move on to the detailed design phase. Further funding is available for the Advanced Fuel Cycle Initiative, a related programme that will investigate another generation of plants using different fuel cycles.

The level of wind energy development supported by the energy bill is well above the USA’s wind turbine manufacturing capacity
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Nuclear can also benefit from a measure that allows the secretary of state for energy to give loan guarantees for ‘innovative technologies’ that ‘avoid, reduce or sequester air pollutants or anthropogenic emissions of greenhouse gases’. The other beneficiaries of that measure are clean coal and renewables – two other winners in the bill.

The government had already committed to a clean coal project in FutureGen, a zero-emissions coal fired power plant that produces hydrogen and electricity while using carbon dioxide sequestration. The $870 million cost of the plant will be shared by the Department of Energy and a large consortium of coal mining and power industry companies. Now the energy bill also provides tax incentives for clean coal investments. This year research and development grants of around $100 million were announced for projects investigating the storage of carbon dioxide in depleted oil and gas reservoirs.

There were investments in renewables for both power generation and transport. Refineries are already mixing 4 billion gallons (15 billion l) of ethanol made from corn and other vegetable sources with US gasoline; that will grow to 7.5 billion gallons (28 billion l) annually under a new renewable fuels portfolio standard. The measure is not unopposed: some regard it as a straight subsidy for the corn industry, while others argue that more discrimination is required on the source of the ethanol: suppliers using fossil fuel in growing and processing the crop can reduce the fuel’s carbon savings to just a quarter of the potential.

For electricity generation from renewables, the bill has $1.7 billion to spend. It extends a renewable portfolio standard for wind generation that could support construction levels as high as 4000 MW per year – a rate that has suppliers around the world gearing up, as it far exceeds fabrication capacity in the USA. Along with wind, biomass is supported by a $50 million annual grant fund, while marine renewables – wave and tidal – are recognized for the first time.

Return on investment

For many years, attempts to make the US energy system more robust have been stymied by a general reluctance – not unique to the US – to allow development, and by infighting between states and the federal government in trying to plan cross-state resources like gas pipelines and power transmission lines. Weaknesses in the power grid were made very clear two years ago when a blackout left most of the northeast US in darkness for several hours. The energy bill breaks this stalemate by granting the Federal government the right to set performance and reliability standards that will regulate electricity networks across the country. In addition, the Federal Energy Regulatory Commission won the authority to approve new liquefied natural gas terminals at the coast, over states’ objections.

Neither measure can entirely solve the US’s problems in getting energy from the point of production to the point of use. But they are among the most important of the bill’s provisions if the US is to get the best return from the huge financial investment represented by the energy bill, and make the most effective use of the new energy resources that should be developed as a result.

The drive for efficiency: energy efficiency and conservation measures under the US energy bill

  • Consumers can receive a credit of up to 30 per cent of the cost, or up to $2000, for installing solar-powered hot water systems used for purposes other than swimming pools and hot tubs
  • Consumers can receive tax credits up to $500 on the amount they spend to upgrade thermostats
  • Consumers can receive up to $200 credit for installation of new exterior windows
  • Consumers can receive up to $300 credit for purchases of a highly efficient central air conditioner, heat pump or water heater
  • Consumers can receive up to $150 for installation of a highly efficient furnace or boiler
  • A new provision provides a 10 per cent investment tax credit for expenditures with respect to improvements to building envelope
  • Allows credits for purchases of advanced main air circulating fans, natural gas, propane, or oil furnaces or hot water boilers, and other qualified energy efficient property
  • Tax credits for contractors who build energy efficient homes and manufacturers who make energy efficient appliances could lower prices for consumers