Sorry, WaPo, but the CES may be third best, but that doesn’t make it a good idea.  Senator Lisa Murkowski (R-AK), expressed it well during a hearing on the proposal last week:

 “First and foremost, we have been reminded of the importance of affordable energy.  Most of the focus is on gasoline, but electricity costs are also going up. Bringing energy prices down should be our objective – not driving them up today, or in the future, as some analyses have projected a CES would do.

“I recognize that affordability is not the only goal, and that most folks support cleaner energy. Federal mandates are just one of many tools at our disposal and, as it turns out, they can be fairly blunt instruments.  In the energy space in particular, federal mandates make it difficult to account for regional differences, consumer preferences, and international competitiveness. Hanging over all of this is our more recent experience in healthcare, which shows just how unpopular mandates are right now.

“What we should remember is that we’re not limited to one policy, or one option, for addressing our energy challenges. My preference would be to increase funding for energy innovation with the revenues we generate from increased domestic production of oil, gas, coal and other resources. If we plan ahead, we could develop a long-term policy that allows those resources to work themselves out of a job by paying for the commercialization of newer, cleaner alternatives – and we would protect families and businesses from added costs and burdens in the meantime.”

That’s exactly right.  And unfortunately during the hearing there was some serious misinformation peddled, in the category of true but misleading, that was then dutifully reported by E&E as “electricity bills will fall under a CES.”

It’s true that bills will go down under the CES — but only because consumers will choose to purchase less of now more expensive electricity.  As the EIA testified:

“Projected national average electricity prices start to rise after 2020 . . .by 2035 they are 18 percent above the Reference case level.  Increasing the dispatch of existing natural gas plants provides a quick, low-cost route for early compliance efforts, but the value of natural gas as a compliance option is significantly reduced as the clean energy target share starts to exceed the credit value for this resource.”

With abundant natural gas finally making the US a competitive manufacturing location again, now is not the time to artificially raise electricity prices with a misguided “clean energy” mandate.

Some hoped that the House would take up the version passed by the Senate two weeks ago, although critics argue that as a two year bill, it is not much more than an extension itself. The Senate’s version included a number of provisions we praised—the first being establishment of a national strategy  of which one of the objectives would  include a reduction of  transportation-related fuel consumption. The others being provisions that authorize electric vehicle charging stations and programs that shift traffic demand to non-peak hours to be eligible for funding.

There has been predictable finger pointing on which party is to blame. Politico reports that although Democrats—who attempted to block the extension multiple times this week—are criticizing Republicans for “kicking the can down the road,” the GOP counters that Democrats have been perfectly happy to pass extensions in the past. It has been 912 days since Congress last passed a long-term surface transportation authorization, according to E&E. Politico also speculates we can expect another short-term extension in 90 days, due not only to the size and scope of transportation legislation, but recent lack of agreement within the House, and that within the next three months the House will be in session for only 31 legislative days, the Senate for 45.

In other news this week; yesterday Senator Lisa Murkowski (R-AK) invited the President and First Lady for a “milkshake summit” to discuss tapping Arctic National Wildlife Refuge (ANWR) petroleum resources through horizontal drilling techniques. The milkshake references a scene in the 2007 academy award winning drama, There Will Be Blood, in which eccentric oilman Daniel Plainview explains to a landowner than he “drank his milkshake” (tapped the property’s oil resources through adjacent wells). The directional drilling endorsed by Murkowski (and SAFE in a policy statement from November of last year) would enable the United States to access ANWR’s oil without establishing a surface presence within the wildlife refuge.

The Senate version is a two year, $109 billion reauthorization bill which would support mass transit, bridge and road projects. Two provisions were of particular interest to energy security. The first is the establishment of a national policy which would include an objective of reducing transportation-related fuel consumption, and the second was an electric vehicle charging station program designed to shift traffic demand to nonpeak hours. If the House does decide to start fresh on their own version, we strongly support inclusion of these items. The highway bill expires at the end of this month.

Also this week, the International Energy Agency warned on Wednesday that oil markets are in danger as global supply fell by 200,000 barrels a day in February. The supply decrease is largely a result of the sanctions imposed on Iran’s central bank. Some—but not all—of the loss of supply from Iran can likely be offset by production increases from the remainder of OPEC, and Saudi Arabia has already begin increasing production. Additional supply can be provided by Iraq, Libya, and Nigeria, a “trio of unstable countries” according to Samuel Ciszuk of Energy Economics. Consequently, consumers can expect a continued high risk premium.

A strategic deployment mechanism first advocated by the Electrification Coalition in its 2009 Electrification Roadmap, a deployment community is defined as “a region in which each of the elements necessary for the successful deployment of grid-enabled vehicles is deployed nearly simultaneously in high concentrations.” Why? “By ensuring that vehicles, infrastructure, and the full network of support services and technologies arrive in well-defined markets together, [deployment communities] will provide an invaluable demonstration of the benefits of integrated electrification architecture.” The importance of the deployment community approach cannot be understated: strategically concentrating electrification resources in specific regions—as opposed to spreading resources evenly around the country—optimizes those resources by not only accelerating the electrification process, but facilitating information gathering by serving as real-world laboratories. Furthermore, accelerated deployment expedites technological improvements and cost decreases by helping manufacturers achieve economies of scale.

The President’s $1 billion National Community Deployment Challenge was announced at a Daimler AG manufacturing plant in Mount Holly, N.C. The program is designed to support 10 to 15 cities or towns as they invest in advanced vehicles and fueling infrastructure, including biofuels and natural gas in addition to electricity. In an additional provision, the President aims to increase the federal electric vehicle tax credit from its current $7,500 to $10,000.

The Energy Security Leadership Council lauded President Obama for his leadership in reducing our dependence on foreign oil. Energy Security Leadership Council Co-Chairs Fred Smith, CEO of FedEx, and retired general P.X. Kelley (former commandant of the Marine Corps) hailed the moves as “critical.” They urged, “There is a clear national security imperative in advancing a durable bipartisan energy security strategy that includes producing more domestic oil by opening new off-limit areas and expediting permitting, continuing to improve fuel economy standards, and transitioning to alternatives like electric vehicles and natural gas in heavy-duty trucks.”

We hope reporters are paying attention, particularly those who have been writing that Senate procedure “requires” 60 votes.  No, 60 votes are required to invoke cloture and shut off a filibuster.  In recent years, cloture has been used as a tool by the Senate majority to limit debate and prevent debate and voting on difficult amendments.  To be sure, the Senate minority has also often threatened filibuster to force a supermajority, but when was the last time we really saw a filibuster?  Instead, cloture has become the norm because it serves the political purposes of both parties — the minority gets to enhance its strength by forcing supermajorities, and the majority party gets to protect its vulnerable members from controversial votes.

But enough about that.  The good news is that there is now a path forward, and there will be votes and debate on a series of amendments, some directly related to the transportation bill and some less so.  In the less so category — but not so less so as might first appear — is an amendent from Senator Jim DeMint (R-SC).  Senator DeMint filed, and the leaders agreed to allow debate on, an amendment to end all energy-related subsidies.  An important issue, worthy of extended and thoughtful debate — as well as committee hearings and a full legislative process — which is among the reasons opponents will give for killing it.

What makes that amendment so interesting is that it brings energy security into the transportation debate, something that rarely happens but should always be a dominant theme.  Why?  Because our transportation sector is 95%+ dependent on oil and 2/3ds of all the oil we use in America goes to the transportation sector.  In other words, you can’t talk about energy security without talking about transportation.  Kudos to Senator DeMint for recognizing that.

And that linkage is precisely why another DeMint amendment to be debated is equally problematic.  Senator DeMint proposes to “devolve federal highway and mass transit projects and their funding sources to states, allowing each state to determine their own transportation priorities.”

That’s an interesting idea, but misguided.   States do determine their own transportation priorities today, except when Congress earmarks — DeMint and others are right in their opposition to that practice.  But in general, construction priorities aren’t dictated to the states — but national needs and priorities are given additional national funding that the states then spend in accordance with those needs.  And while Senator DeMint is correct when he says that the system “is plagued by thousands of wasteful earmarks, bureaucratic red tape, and outdated funding formulas that pick winners and losers,” that’s a good reason to reform the system, not throw up our hands and just let individual states decide our national transportation policy through 50+ disparate and uncoordinated efforts.

This is especially the case given the huge macro and microeconomic toll inflicted by our transportation-driven dependence on petroleum.  While there are others, that’s reason enough for a national transportation policy and reason enough to be wary of seductive calls for devolution.

Once gas prices spike, there are little to no immediate options available to policymakers. Furthermore, rising gas prices have serious economic implications. Every economic recession within the past four decades has been preceded by or occurred concurrently with an oil price spike. The current spike has effectively consumed the entire stimulus intended by the payroll tax cut. As SAFE CEO Robbie Diamond said on Wednesday, “The payroll tax cut enacted by Congress and the President gave American families an extra $108.6 billion in take-home pay in 2011 compared to 2010. However, increased gasoline prices cost U.S. households $104.4 billion in 2011. Consumers were essentially given a tax cut that was put into one pocket, but then taken from another to pay for higher gas prices instead of spurring economic activity.”

These economic threats—in addition to the constraints on foreign policy due to oil geopolitics—are well known and established. The solutions are clear: increase domestic supply, reduce oil demand, and diversify the nation’s energy portfolio. However, despite the consensus on the rhetoric, there has been a continued lack of progress. “The President and bipartisan members of Congress both have called for an all-of-the-above energy strategy,” said Diamond. “Rising gas prices and the geopolitical threats in the Middle East have once again created a wake-up call to improve our energy security for the long-term. All that is needed now is action.”

Meanwhile, the House GOP are back to the drawing board with the transportation and infrastructure reauthorization bill. The original bill—threatened by veto, and unpopular with both transit advocates and fiscal conservatives alike—will be revised to cover a shorter duration (two years), cost less, and reverse the plan to separate federal transit funding from the Highway Trust Fund. Speaker Boehner’s spokesman Michael Steel has stated that the vision of linking infrastructure developments to expanded American energy production will remain.

The 17 hour markup, which included over 90 amendments, was described as “record-breaking” by Chairman John Mica (R-FL), who also “praised the committee for persevering and passing the bill, which he said would create jobs and keep the transportation system solvent for several more years,” E&E news reports.

Emotions were running high on this particular markup. Secretary of Transportation Ray LaHood has called the bill “the worst transportation bill” he has seen in decades, a sentiment echoed by T&I committee member, Rep. Corrine Brown (D-FL) who also added that the markup itself was “the worst day of [her] life.” Not all conservatives are pleased either; the conservative Club for Growth issued a Key Vote Alert to vote “no” on the legislation due to lack of spending cuts.  Representative Steve LaTourette (R-OH) described the bill as containing “divisive” provisions such as anti-labor provisions, and ending the Transportation Enhancement program which supports infrastructure development for bikers and pedestrians.

General P.X. Kelley of SAFE’s Energy Security Leadership council urged members to incorporate language into the bill based on SAFE’s February 2011 report, Transportation Policies for America’s Future. The amendment, offered by Representative Steve Cohen (D-TN), which was voted down, would have required the Secretary of Transportation to:

• Use the reduction of transportation related oil consumption as a criterion  for selecting projects to be included in the national transportation strategy;
• Encourage states and metropolitan planning organizations to prioritize oil reduction projects in transportation improvement programs in order to enhance our national and economic security by reducing our dependence on petroleum; and
• Encourage metropolitan planning organizations to develop a strategic oil savings plan that includes a target for reduction of surface transportation related oil consumption.

It is disappointing that the committee failed to take this opportunity to include bipartisan oil-saving metrics. Representative Cohen will seek to pass the amendment on the house floor. The full bill is set to see floor action the week of February 13^th.

The major news this week has been President Obama’s “all of the above” energy strategy, one which encompasses renewables and alternatives as well as expanded production of oil and gas. The most notable part of the President’s plan is a strong emphasis for natural gas as a transportation fuel, supported by tax credits to offset part of the cost of upgrading medium and heavy duty trucks to run on natural gas, federal help to spur creation of natural gas corridors on heavy duty trucking routes, and incentives for conversion of city bus and truck fleets. A 2009 report from the Massachusetts Institute of Technology indicated that an optimal application of natural gas in transportation could be to replace diesel as the primary fuel for heavy-duty vehicles.

In the Senate, Jeff Merkley (D-OR) announced on Thursday at the Washington Auto Show that he will be introducing a bill to encourage fleet purchases of electric vehicles. So far, it is understood that the bill will include incentives for public and private purchases, creating a larger market for EVs enabling automakers to produce the cars less expensively.  We will be staying tuned for news about this important legislation.

Additionally, both chambers are preparing for the renewal of the nation’s surface transportation bill, which expires in March. Senate Environment and Public Works Chairman Barbara Boxer (D-CA) and top Republican Jim Inhofe (R-OK) have developed a bipartisan, 2-year bill which was voted out of committee 18-0. Politico reports Transportation Secretary Ray LaHood has praised “extraordinary leadership” of the committee, and described the unanimous committee vote as “unheard of in the halls of congress.” The House Transportation and Infrastructure Committee is also working on a less bipartisan bill, partially paid for through opening the Arctic National Wildlife Refuge (ANWR) to oil exploration. This provision is a non-starter for Obama and most Democrats. Nonetheless, we are optimistic for longer-term, surface transportation legislation with the essential fuel savings provisions necessary to improve energy security and reduce fuel waste. Some ideas can be found in SAFE’s report, Congestion in America: A growing Challenge to U.S. Energy Security, released earlier this week.

The legislative and executive branches are off to a running start this year, but actions speak louder than words, and we are eager for some legislative achievements. As SAFE President and CEO Robbie Diamond was quoted in the Wall Street Journal earlier this week, “Now that President Obama and Republicans say they are on the same page with an all of the above energy strategy, let’s get something done.”

Energy has played a prominent role in politics during the Obama presidency, and as notable as what he mentioned is what he omitted: Keystone and Solyndra. Conservatives have already responded with criticisms of Obama’s record on oil and gas drilling, continuing to push for the Keystone XL Pipeline, and it is safe to assume these issues will remain forefront as the race for the White House continues. Today is the perfect opportunity to look back at the major energy stories of Obama’s Presidency, and what some of their implications might be for his reelection campaign.

5) Cap and Trade

On Obama’s election night, he famously said “this was the moment when the rise of the oceans began to slow and our planet began to heal,” raising environmentalists’ hopes that a domestic cap and trade policy would be passed. In 2010, with Democrats holding the executive branch as well as both chambers of Congress, proponents of the environmental policy hoped the carbon mitigation mechanism they had been promoting for  more than a decade would finally come to fruition. However, with the growth of the Tea Party movement, worries about excessive government spending, sluggish economic growth in the wake of the financial crisis, strong industry opposition and the complexity of the policy mechanism itself, cap and trade slowly died.

Campaign liability: Very low. Environmental economists disagree about the best implementation of cap and trade, not to mention inconclusive levels of public support for government action to reduce carbon emissions in general.

4) The Macondo Well Explosion

The catastrophic oil spill which lasted from April through July of 2010 was the worst open-water oil spill in American history, and devastated the Gulf coast region in addition to killing a number of oil field workers. The spill was a huge wake-up call to the potentially devastating consequences of reckless drilling practices, and caused a temporary moratorium on drilling in the Gulf.

Campaign liability: Low. The Obama Administration took a number of steps to restore confidence that the cleanup was effective, most notably by Obama himself taking a dip on the Florida coast with his daughter Malia. Although the spill caused a temporary moratorium on drilling in the Gulf, the White House claims overall oil and gas production has increased during Obama’s presidency. That said, oil and gas leasing on federal land is likely to be subject of extensive debate.

3) CAFE Standards

In summer of 2011, the Obama Administration announced it was increasing the fuel economy standards announced by the Bush Administration in the Energy Independence and Security Act of 2007. By 2025, cars and (for the first time) light duty trucks will have to reach an average of 54.4 miles per gallon (mpg). The rules will account for 90 percent of all vehicles sold within the United States, and was a substantial increase over the 35 mpg by 2020 established by Bush.

Campaign liability: Negligible. The New York Times reported this week that the proposed rules are a win across virtually all stakeholders, as they “create jobs, reduce oil consumption, create cleaner air and save drivers money, all while helping automakers increase their profits.”

2) Keystone XL

Obama rejected TransCanada’s application to build the Keystone XL pipeline earlier this week. The long-awaited decision was a divisive one: protests waged outside the White House for weeks, Congressional Republicans forced Obama to expedite his decision with language attached to the tax bill at the end of 2011, and the American Petroleum Institute (API) launched a national ad campaign in support of the pipeline earlier this month, just to name a few events from the drawn out pipeline battle (which, according to some sources, is far from over).

Campaign liability: Unclear. The Keystone issue is a touchy one, as it has been perceived as a polarizing decision between jobs and the environment. For some, the decision was in direct conflict with the recommendations of the Presidential Jobs Council, and Republicans are unified in opposition against rejecting the opportunity to create domestic construction jobs. However, in the words of one expert, “No one who was planning on voting against the president would have been won over simply because of the approval of Keystone.”

1) Solyndra

Solyndra, the solar panel manufacturer and recipient of a $500 million Department of Energy loan, went bankrupt in fall of 2011. Occurring in the immediate wake of the last-minute debt ceiling negotiations, when government spending was front and center, what was at first a source of pride for the Obama Administration has become a PR nightmare, as well as sparking a debate over the legitimacy of the Department of Energy’s entire Loan Guarantee Program.

Campaign liability: Potentially high. The first Obama 2012 ad released by the reelection campaign has focused on green energy, and some are speculating it’s a preemptive strike against Solyndra-based attacks. Critics have argued that DOE’s loans are an example of “government playing venture capitalist,” while others argue it’s important for the federal government to encourage technologies in support of the public good. We fully expect this issue to be used as a symbol for Republican’s opposition to the Obama “Green Jobs” agenda, and it will remain on the opposition’s talking points throughout the campaign cycle.

Congestion in America highlights inefficiency in the surface transportation system, and particularly the challenge of urban congestion, as a growing cause of wasted time and fuel. Total fuel wasted from urban congestion has fallen between 100,000 and 150,000 barrels of oil per day over the past ten years, and in 2010 alone drivers in U.S. metropolitan areas wasted over 1.9 billion gallons of fuel. Furthermore, in 20 of the nation’s largest cities, annual costs of congestion exceed $1 billion. In the absence of substantial policy intervention, estimates suggest that these costs in fuel waste and travel delays will increase by 30 percent by 2015 and 65 percent by 2030.

Source: Texas Transportation Institute

Source: Texas Transportation Institute

SAFE urges a comprehensive and balanced approach to increasing traveler mobility and reducing congestion related fuel waste. The report outlines the range of options available to policymakers to alleviate the costs of congestion, grouped into the following categories:

• Pricing and other flow management techniques to reduce or eliminate recurring congestion
• Accident/Incident management for mitigating the likelihood and effect of non-recurring congestion
• Improved public transit service and other alternatives to single-occupancy vehicle travel
• Strengthened long-term urban planning and development initiatives

Current federal surface transportation legislation, funding over $50 billion annually in highway and transit programs, expires on March 31 of this year. The policies outlined in Congestion in America present market-based mechanisms to cut oil consumption and increase the efficiency of surface transportation infrastructure while improving energy security. As Congress seeks to pass long-term transportation legislation, it is imperative that these instruments are incorporated, and energy security remains forefront as a key policy priority.

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