When President Obama took office he said that one of his priorities as to devise a US energy policy that would reduce the country’s dependence on imported oil and launch the US on a path to severely curtail carbon dioxide emissions. The US House of Representatives, with a significant Democratic majority, passed a bill last year, known as the Waxman-Markey bill, that addressed clean energy, energy efficiency, pollution reduction, transition assistance for a move to a clean energy economy, and offsets for forest and agriculture programs that could reduce emissions.

The US Senate has eviscerated that bill, and the best that the Democratic majority could get was announced earlier this week. Faced with unanimous opposition from Senate Republicans and some Democrats, the final bill includes just three main provisions. First, the $75 million cap on economic damages from an oil spill would be lifted. Second, homeowners would get financial assistance to make energy efficiency upgrades to their houses. Third, the bill authorizes subsidies for the production and purchase of vehicles that use either natural gas or electricity. The estimated cost of the bill is $15 billion. In contrast, the Waxman-Markey bill had been estimated to cost $864 billion over ten years and provide $873 billion in new revenue, for a net gain of $9 billion.

The Senate bill would pay for itself by raising the per-barrel surcharge that oil companies pay by $0.08, to $0.49. The American Petroleum Institute said that the proposal would “kill American jobs, slow economic growth and cost billions in federal oil and natural gas revenues.” The API was most concerned with the raising of the $75 million cap on economic damages from oil spills.

The bill offers $3.8 billion in rebates to buyers of natural gas-powered vehicles. The subsidy for a passenger car would be $10,000, while a heavy truck buyer would be subsidized to the tune of $64,000. Grants for natural gas refueling stations and manufacturing plants are also included, but the $50,000 grant for a refueling station doesn’t go very far on a project that could cost $2 million.

Natural gas powered 114,000 US vehicles in 2008, and consumed the equivalent of about 4.75 million barrels of oil. US oil consumption now stands at about 19 million barrels a day.

As unhappy as the petroleum industry is with the Senate bill, renewable energy proponents are equally unhappy. The bill contains no target for renewable energy standards, and does not extend either the renewable energy production tax credit which expires at the end of 2011, or the US Treasury grant program that expires at the end of this year. The renewables industry’s position is that lacking certainty on any of these items will stifle the growth of renewable energy generation in this country.

But wait, there’s more. The Senate bill does not mention ethanol or other biofuels. The CEO of one ethanol company remarked bitterly, “Instead of spending taxpayer money on unproven technologies, policy-makers should invest in the infrastructure that would allow for the expansion of the only renewable energy source that is displacing significant volumes of foreign oil today: ethanol.” The $0.45/gallon ethanol subsidy is set to expire in December 2010, and industry players predict dire consequences if the subsidy is not renewed.

The Congressional Budget Office and ethanol producer Valero Energy Corp. (NYSE:VLO) say that losing the subsidy would not result in the loss of a single barrel of production. Losing the subsidy would surely hurt corn farmers, who capture more of the subsidy as the amount of ethanol production grows. That’s one of the important things to remember about the ethanol subsidy: it’s really a farm program, not an energy program.

Whether this watered-down version of an energy bill can make it through the Senate is not at all certain. Farm-state Democrats are not likely to sign on if the ethanol subsidy isn’t put back in, and Republicans oppose lifting the economic damages cap and just about everything else in the bill as well.

The Senate bill, unlike the Waxman-Markey bill, does not even try to set a US energy policy. And let’s face it, federal legislation that only costs $15 billion is not going to change anything very much.

Paul Ausick

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