Gang-of-10, Part 3: More good stuff, some ugly
Part 2 began an analysis of the bipartisan compromise proposed by the Gang-of-10 Senators, suggesting that deal isn’t so bad. The other evidence the deal isn’t so bad is that the House GOP is threatening to refuse to vote for it (see “Part 2.5“).
The good of the 5-year extension of the renewable tax credits certainly beats the “bad” of doubly de minimis drilling. But what about the rest of the deal?
MORE GOOD
Offsets
The $84 billion in investments in conservation and efficiency in the New Era bill will be fully offset with loophole closers and other revenues. Approximately $30 billion will come from new revenues from the oil and gas industry through such measures as modifying the Section 199 manufacturing deduction for oil and natural gas production and other appropriate measures to ensure that the federal government receives its fair share of revenue from Gulf of Mexico leases. Remaining offsets will be finalized in consultation with the Finance Committee after accounting for interaction effects with other pending legislation.
Pretty amazing, really. This bill is going to be paid for in part by “Repealing a tax break for oil companies that Democrats have long called for,” as CNN put it. This is probably a deal killer for those taking millions of dollars in contributions from Big Oil, like McCain.
And there is even more pretty good stuff, depending on exactly how the final bill is written:
Converting Cars and Trucks to Non-Oil Fuel Sources to Regain Energy Independence
The New Era legislation funds a $20 billion “Apollo Project” like effort to support the goal of transitioning 85% of America’s new motor vehicles to non- petroleum-based fuels within 20 years. To accelerate this transition, the legislation includes:
• $7.5 billion for R&D focused on the major technological barriers to alternative fuel vehicles, such as advanced batteries;
• $7.5 billion to help U.S. automakers and parts makers re-tool and re-equip to become the world leader in making alternative fuel vehicles;
• Consumer tax credits of up to $7,500 per vehicle to incentivize Americans to purchase advanced alternative fuel vehicles (those that run primarily on non-petroleum fuels) and up to $2,500 to retrofit existing vehicles with advanced alternative fuel engines….
This is real money. The R&D is certainly useful, though I don’t think we need to spend most of it on advanced battery research, since the private sector is probably spending $1 billion a year on that already. The money for bribing subsidizing automakers to retool is harmless, and might actually do some good if it were specifically targeted on plug-in hybrids.
The most important piece here is the consumer tax credit — if it is clearly targeted primarily for plug-in hybrids, which I suspect it would be. After all, $7500 isn’t enough to make a dent in the price of a hydrogen fuel cell car, which currently costs several hundred thousand dollars to produce (see “The Last Car You Would Ever Buy — Literally“). But it would cover a great deal of the incremental cost of a plug in — and would go most of the way to achieving Obama’s goal of one million plug ins by 2015 (see “A real energy plan for America: Efficiency now, 10% renewables by 2012, and one million plug-in hybrids by 2015“).
• New consumer tax credits of up to $2,500 to purchase highly fuel efficient vehicles, to help Americans reduce their annual gas costs and reduce oil imports;
• Extending and expanding the $2,500 tax credit for hybrid electric vehicles;
These two would have no impact whatsoever on oil consumption — unless it were clearly specified that vehicles getting such a tax credit were not included in the fleet average for purposes of calculating whether a car company meets corporate average fuel economy standards. That means the primary purpose of these tax credits should be to help the lower income people get fuel-efficient cars. So I would put a sliding scale of income restrictions on these credits.
• $500 million for R&D into new materials and other innovations to improve vehicle fuel efficiency
Can’t hurt. Hard to cordone this off from the current clean energy budget, but that’s what you would have to do if you want to make sure R&D in this area actually goes up and doesn’t just lead to cuts elsewhere.
• $2.5 billion in R,D&D on next generation biofuels and infrastructure;
Ditto.
• Tax incentives for the installation of alternative fueling stations, pipelines and other infrastructure;
I fear Pickens may try to gobble this up for his (pointless) natural gas infrastructure (see “Memo to T. Boone Pickens: Your energy plan is half-brilliant, half-dumb“).
• Expanding transmission capacity for power from renewable sources;
Potentially a very big deal, depending on exactly what the final legislation actually says.
• New dedicated funding for the weatherization assistance program.
This would be superfluous for any other administration but that of the most uncompassionate unconservative (see Bodman as Orwell: DOE erases “most successful” weatherization program from website).
Hmm. It seems like there’s an awful lot of good stuff in here. The bad stuff is really just the de minimis coastal drilling. Here’s what’s ugly.
THE UGLY
• Provides grants and loan guarantees for the development of coal-to-liquid fuel plants with carbon capture capability. Plants must have lifecycle greenhouse gas emissions below those of the petroleum fuels they are replacing.
Nothing, of course, is worse than CTL (see “Coal-to-Liquid Is a Dead End” and “Congress should say NO to coal-to-diesel“). That said, liquid coal with life-cycle GHGs below petroleum fuels is exceedingly difficult to do in practice, so if this law actually has teeth, it probably won’t actually boost CTL. It has been pointed out to me that the second sentence above makes no sense as writte, since it compares the life cycle GHGs of the plant with those of the petrol it replaces. I’m going to assume that is just sloppy writing. The devil will be in the details of this provision.
• Supports nuclear energy by increasing staff at the NRC, providing workforce training, accelerating depreciation for nuclear plants, and supporting R&D on spent fuel recycling to reduce nuclear waste.
Just what we need, more nuclear pork (see “Nuclear Pork — Enough is Enough“). Sure, this is money down the toilet, but at least it is money down the toilet for relatively carbon-free power.
• Provides a CO2 sequestration credit for use in enhanced oil recovery to increase production from existing oil wells while reducing greenhouse gas emissions.
Stop the presses! No, I mean it. I’m going to stop the presses here and address this abomination of a provision in Part 4.
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August 20th, 2008 at 1:19 pm
Joe wrote, “These two would have no impact whatsoever on oil consumption”
Good point. Let’s suggest to our Congress critters that they make this money available to any automaker who meets the California AB 1493 standards instead of the DOT standards.
August 21st, 2008 at 1:09 am
Joe: “These two would have no impact whatsoever on oil consumption … So I would put a sliding scale of income restrictions on these credits.”
There are a number of questions/points I’d bring up about this. One Joe already mentioned - the possibility of excluding cars sold with the tax credits from CAFE calculations (or perhaps reducing the “weight” of such a sale).
Another is the possibility that it turns out to be incorrect, because the auto makers wind up exceeding the CAFE standards (because of consumer demand brought by higher gas prices, the tax credits themselves, or any number of other possible factors). Such a scenario might play out for particular auto manufacturers that emphasize fuel efficiency more than others.
In the opposite scenario, where consumer demand for fuel efficiency is lower, and auto manufacturers just make the fuel efficient cars to get by with the CAFE standards, the tax credits might still be helpful in encouraging the auto manufacturers to not lobby to reduce the standards.
There are some problems with devoting the tax credits to low income car buyers. First, doing so would alienate the middle class, and make the whole compromise harder to pull off politically. Second, doing so would add more accounting complexity and overhead to the car purchasing transaction, indirectly lowering the value of the tax credit. Finally, getting these cars in the hands of one income level or another isn’t, or shouldn’t, be the point of the tax credit. The point should be to encourage the manufacturers to make the fuel efficient vehicles, and to encourage consumers to buy them if they’re going to buy a car. The point shouldn’t be to reward people for having a low income (whether that’s because their circumstances were unfair, they were lazy, they made bad decisions, etc) or punishing people for having somewhat higher incomes (whether that’s because they had some lucky breaks, studied and worked hard, made better decisions, etc). There are a lot of cases where a low income person deserves a break to get that tax rebate and a more fuel efficient car, but there are plenty of other cases where a higher income person deserves that break more.