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Heating Up at Last? by Staff The Economist - December 9, 2003

The Bush administration may yet oversee a proper debate about energy policy

Even though he was once a Texas oilman, energy has so far been something of a disaster for George Bush. It has brought him nothing but grief from virtually every side of the debate. Even world oil markets have turned against the president: prices have soared in his first term.

Mr Bush's best known energy decision remains brusquely pulling out of the Kyoto protocol—a deeply flawed climate-change treaty that the Senate would never have accepted. But most of the administration's attention has centred on something else Mr Bush announced soon after taking office: America's supposed “energy crisis”.

The idea that America can ever strive for any form of energy independence is bogus: though it sits on just 3% of the world's oil reserves, it consumes a quarter of global oil production. But Mr Bush asked Dick Cheney to come up with a new energy policy. The task-force the vice-president set up, what with his ties to Halliburton and his unnecessary secrecy, soon turned into a public-relations fiasco.

Mr Cheney's final plan called for massive subsidies and tax breaks for the oil, gas and nuclear industries and, most controversially, for oil drilling in Alaska's Arctic National Wildlife Refuge. This thrilled the energy industry, but an absurdly pork-laden $100-billion energy bill failed to get through Congress.

As for climate-control policy, this is another fine mess. Having rejected Kyoto, Mr Bush proposed a toothless combination of voluntary programmes and “emissions-intensities” targets (where the carbon content is measured in relation to the economic output of the company or industry concerned). The absence of federal policy has left states to set their own standards, and industry with a growing number of conflicting rules.

This sham prompted Senator John McCain to offer up a climate bill with real teeth. His joint effort with Senator Joe Lieberman, a Democrat, called for a mandatory carbon-emissions cap and a flexible trading system. The bill won the support of 44 senators this year—but the cost of implementing it scared the energy lobby and it also failed to pass.

This has left neither side of the energy debate particularly happy. The “on your bike” crowd is still fuming about Kyoto; the “keep on pumping” group is depressed by the chaos. As Lee Raymond, the chairman of Exxon Mobil, scoffed recently, America has no national energy policy. By international standards, the United States still remains unusually dependent on dirty forms of energy (especially coal) and its cars and trucks still have distressingly low fuel-efficiency levels (see charts).

Mr Bush, however, emboldened by the stronger Republican majority in the Senate since the election, is now keen to have another go. The controversial proposal to drill in the ANWR will be tacked into a special “budget resolution” bill in February. That loophole would allow the provision to pass with just 50 votes, not the usual 60 (insiders reckon they have 53 votes). Meanwhile, a slimmer energy bill will be pushed through later in the spring.

Will that bill end up being just as larded with bacon as the current version? Possibly not. First, the administration seems far keener on reining in spending after its re-election. And second, serious debate is beginning about energy policy in general and climate change in particular.

This week saw the publication of the final report from the National Commission on Energy Policy (NCEP), a bipartisan group of heavyweights from business, government, environmental groups and academia. It is arguably the first serious practical attempt to deal with the various problems America faces.

• On energy independence, the report tilts towards the industry position. It calls for an expansion of global strategic petroleum reserves, which would ease the impact of oil disruptions. And it agrees that the government should help to pay for a pipeline to bring Alaska's vast (and clean) natural-gas reserves to market.
• On fuel efficiency, the NCEP tilts toward the greens. It wants the current Corporate Average Fuel Economy (CAFE) law that Detroit detests to be strengthened. But it also calls for $3 billion in government incentives to help hybrid-electric and advanced-diesel vehicles.
• On coal, the NCEP accepts the political reality that America will continue to rely on the stuff unduly; but it wants government money to be focused on “clean coal” technologies, such as coal gasification and carbon sequestration.
• On the thorniest issue of all, climate change, the NCEP boffins' solution is a compromise between Messrs Bush and McCain. They agree with Mr McCain that carbon curbs must be mandatory and must be linked to a trading of permits; but they suggest targeting emissions intensities, as Mr Bush wants, on the basis that anything broader might slow down the economy. And the NCEP plan calls for a “safety valve” to ensure that the costs of the permits never rise above a predetermined level (the boffins suggest a starting-price ceiling of $7 per tonne of carbon).

The truth is that nobody knows how much the cost of cleaning up would be. Bill Reilly, a co-chairman of the NCEP and head of the Environmental Protection Agency under George Bush senior, points out that, if the safety valve proved too low, it could simply be raised over time. Besides, greens often claim that the American economy is so energy-inefficient that it is littered with cheap carbon savings.

The Bush administration's response to the report has been lukewarm, but there is more political momentum behind the NCEP's ideas than you might think. America's divisions on energy policy are often more regional than partisan. For instance, it is coastal Republican governors such as Arnold Schwarzenegger, George Pataki and Mitt Romney who are leading the way on placing mandatory curbs on carbon emissions from cars and power plants.

There is also now a celestial voice in energy policy. Conservative religious groups are increasingly concerned about the issue. Christianity Today, the magazine of Billy Graham's evangelical movement, has just run an editorial arguing the moral case for action on climate change. As Mr Lieberman says with a smile, “The earth is, after all, a faith-based initiative.”

Mr Bush's religiosity is well known; however, he also frequently talks about himself as an environmentalist. That position is much mocked. But he now has a chance to start changing American attitudes towards energy. The NCEP report is a much better starting point than that old pork-laden energy bill.