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Excerpts from a report by Robert L. Bamberger, Congressional Research Service
Updated September 20, 2002

Energy Policy: Setting the Stage for the Current Debate


BACKGROUND AND ANALYSIS

Energy policy has been a major issue during the first session of the 107th Congress. The challenge to craft an integrated balance of energy policies to reconcile legitimate but competing policy objectives is formidable. Addressing that challenge is proving to be one of the major debates in the 107 th Congress. It has also been re-focused and diverted by the terrorist attacks upon the nation on September 11, 2001. Fresh and very broad concerns are being raised about national energy security in both the short-and long-term. Economic conditions are also likely to depress energy demand during the coming year, making the supply problem less critical. At the same time, U. S. military actions and the fragile politics among Arab, Muslim, and oil-exporting nations in the Middle East might also present unanticipated complications affecting crude production and supply.

Roots of the Current Debate The renewed focus upon energy policy was initially triggered by a rise in oil prices that began in the late spring of 1999. A crisis in some Asian and other economies in 1998, and the resumption of oil exports from Iraq, brought crude oil prices to levels below $10/ bbl in early 1999. In March 1999, OPEC agreed to reduce production. In the past, OPEC has had difficulty adhering to its quotas, but this time there was greater cooperation, at the same time that world economic recovery was shoring up demand. The price of crude oil began to rise sharply in the spring of 1999 to levels that even OPEC had not foreseen.

Mistakenly expecting that oil prices would fall, refiners drew down existing, lower-cost inventories of refined products and crude, postponing replenishment of inventories until prices softened. Problems in the Northeast during the winter of 1999-2000 put fresh pressures on supply systems. Unexpectedly severe weather disrupted waterborne transport of home heating oil to New England, leading to sharp increases in the price of home heating oil that spread to diesel fuel as well. Then, in the summer of 2000, inadequate supplies of blending components used in the manufacture of reformulated gasoline to meet clean-air objectives, among other problems, led to shortages of gasoline in the Midwest with some prices exceeding, for a time, $2.00/ gallon. 

As the nation headed into the winter of 2000-2001, anxiety remained about home heating oil price and supply until early 2001 when stocks approached and then exceeded year-earlier levels. Additionally, natural gas prices, which were relatively unaffected during the winter of 1999-2000, were 30% or more higher during the winter of 2000-2001 as the result of low inventories, limited extra production capability, and strong demand. The unfolding of California's restructuring program, its painful and complicated consequences, and the subsequent difficulty in crafting a solution agreeable to the greatest number of parties, have drawn renewed attention to this issue.

Some Historical Perspective The shakeup in fuel supplies and prices was the fourth significant episode since 1973 to jog American awareness of the extent to which the economy and our lifestyle is dependent upon inexpensive and plentiful energy. When the United States experiences a period marked by sharp increases in the price for energy and concern about the adequacy of essential supplies there is widespread belief that the nation has no energy policy. However, not only does the nation have an energy policy, it has also adopted several distinct policy approaches over the years.

In the aftermath of the Arab oil embargo in 1973, many looked to government to solve the problem, for both the short-and long-term. By 1975, refiner acquisition costs for imported crude oil had roughly tripled, rising from an average cost of $4/ bbl (barrel) in 1973 to $12.50/ barrel in 1974. However, refiner acquisition costs for domestic crude did not even double from $4/ bbl to $7/ bbl owing to a system of federal price controls that kept the price of domestic production below the market price. This insulated consumers from some of the price increase, but had the companion effect of discouraging domestic production and encouraging imports. Automobile fuel economy standards were enacted to reduce gasoline consumption in the transportation sector. Hopes were invested in government-funded research and development in conservation technologies and alternative fuels.

A second oil interruption and shortage was triggered in 1979 by the fall of the Shah of Iran and the loss of Iranian oil to world markets for several months. Refiner acquisition costs for imported oil surged from $14.50 in 1978 to $37.00 in 1981. In late 1975, Congress enacted a phased deregulation for oil in the Energy Policy and Conservation Act (P. L. 94- 163). Some policymakers contended that lingering price controls on oil carried greater liabilities than benefits. Letting the market set prices, many began to argue, would encourage the development of additional domestic supplies of oil as well as the development of alternative energy supply. Shortly after assuming office in 1981, President Reagan accelerated the schedule for price decontrol. Energy policy, in general, became more market-oriented. The government role was lessened.

Sustained high crude oil prices contributed to a reduction in U. S. petroleum consumption from 18.8 to 15.2 million barrels per day (mbd) from 1978 to 1982; there was more fuel substitution, more efficient consumption of oil, and price-induced conservation. Higher prices drew new oil production from outside the OPEC nations; the United States and other nations diversified their sources of supply. Faced with a loss of market share and revenue, OPEC sharply lowered the price for crude oil in the mid-1980s. In the course of the year from 1985 to 1986, refiner acquisition cost for imported oil fell from $27/ barrel to $14/ barrel.

Prices remained depressed until a fresh round of sharp spikes in oil prices occurred in 1990-91 following Iraq's invasion of Kuwait in early August 1990, cutting off 4.3 mbd from world markets. The price of oil, which had averaged $16/ bbl at the end of July 1990, exceeded $28 by late August, and reached $36/ bbl in September 1990. In the face of the Iraqi threat, Western and Middle Eastern nations found common ground that would have been unimaginable even a decade earlier. By the late 1980s, recognition had grown of the mutual interdependence of oil-producing and oil-consuming nations; the OPEC nations had come to recognize that long-term demand for their oil was jeopardized by any prolonged period of high oil prices. Most did not wish to repeat the cycle of the early-to mid-1980s and boosted their production to make up for some of the lost supply. Consuming nations also coordinated the release of strategic stocks of crude and products. Prices began to fall in mid-October when the U. N. approved the use of force against Iraq. Prices fell more sharply after the United States and a consortium of nations conducted an air strike on Iraq in mid-January 1991. During 1999-2000, the Clinton Administration would also underscore the mutual interests of producing and consuming nations as it urged OPEC to boost its production quotas.

During all of these episodes, importance was placed on conservation, more efficient use of energy, and development of alternative energy sources. The oil shocks of the mid-and late-1970s spurred considerable spending on alternative fuels including solar, geothermal, wind, clean coal, synthetic fuels, alcohol-based fuels and technologies to improve the efficiency of energy use. Regulations were developed to improve the efficiency of home appliances and to incorporate more energy-efficient designs in buildings. In the early 1980s, states and utilities promoted energy efficiency as one form of "demand-side management" to reduce the need for construction of new power plants. Conservation and efficiency were championed by some as a lower-cost and more appealing way of achieving greater energy security than policies to boost supply. Increasing efficiency was seen as a way of mitigating air pollution and generation of greenhouse gases without penalty to quality of life.

As suggested earlier, each episode of short supply and higher prices spurs talk that the nation lacks an energy policy and has ignored past lessons. However, it is apparent from a review of the years since the time of the Arab oil embargo and first oil price shock in 1973 that it is more accurate to see this nearly thirty-year period as one of general price and supply stability that is periodically broken with shorter episodes when price became volatile and supplies of fuel less certain. It isn't that energy policy has failed to be responsive to crises; rather, it is hard in the face of lengthy periods of stability and declining prices for conventional fuels to sustain certain policy courses that will shield the nation from the occasional episodes of instability.

An energy policy that would most effectively shield the nation and the economy from the worst effects of supply shortages would be a policy that might well deny the nation the full benefits of cheap and plentiful energy when markets are stable. The periods of relative calm and stability result in a markedly uncertain environment for investment in alternative fuels, energy efficiency technologies, and in boosting the production of conventional fuels in regions where production costs are significantly higher than in the Middle East. State and local regulations and codes further cloud the climate for investment. Many agree that certain regions of the country will need more power plants, new refineries and pipelines, but local citizens often do not want to see these facilities in their communities and challenge their necessity until shortages actually occur. 

At the same time, awareness has grown about the complexity of constructing a balanced energy policy that will not undermine other competing and equally legitimate policy goals. How to boost energy supply without exacting a toll on the environment that some find unacceptable? How, then, to reduce gasoline consumption, a commodity central to the nation's economy and lifestyle, when raising its price to achieve a meaningful reduction in demand could be economically disruptive and politically unappealing? How, then, to encourage the use of more expensive alternative fuels and technologies that heighten efficiency, when OPEC has the capacity to adjust the price of oil to keep it cheaper than its substitutes?

An Energy Policy Schematic Debate over energy policy has produced an enormous range of proposals, many of which have been adopted at one point or another over the years. In general, however, it is helpful to recognize the broad categories into which most proposals fall: Most energy policies are designed to affect either the supply or the demand for energy products and they are, at the same time, designed to have an effect either in the near-term or the longer-term.

Traditionally, debate has been the most vigorous over the balance struck between increasing supply and support for conservation, but it became apparent in the weeks preceding release of the Administration plan in mid-May that there was also concern about the degree to which policymakers were addressing current energy problems in the short-term. President Bush had advised weeks before its release that the report from the Energy Policy Development Group (EPDG) would address long-term remedies for the nation's energy problems and that there would be no immediate relief for consumers paying higher prices for gasoline, electricity, and other fuels.

This prompted criticism from those who contended that the plan offered no short-term relief. Others, including the President, suggested that by setting out an action-oriented and actionable comprehensive policy, markets and consumers should feel some short-term reassurance. The President remarked on May 16, 2001, "My plan helps people in the short term and long term by recognizing the problem and by expediting energy development." The various reactions to the plan underscored the difficulty of developing comprehensive energy policy during a period of tight supply and high prices.

It is useful to clarify the differences between short-term and long-term policy initiatives. For example, drawdown of oil from the Strategic Petroleum Reserve (which one Democratic initiative calls for) affects crude oil supply in the near-term. However, enactment of tax incentives for investment in new oil drilling technologies might add to domestic crude supply in the future. Proponents of drilling in the Arctic National Wildlife Refuge (ANWR) argue that region might yield anywhere from 300,000 to 1.4 mbd b/ d to U. S. domestic supply, but this, too, is a longer-term policy initiative.

Turning to the consumption side of the ledger, boosting the gasoline tax by $1.00/ gallon might be expected to reduce gasoline consumption in the short-term, but a rise in the corporate average fuel economy (CAFE) standards on new vehicles will not begin to introduce fuel savings until these more efficient cars are meaningfully introduced into the motor vehicle fleet, a process that would take more than a decade. 

The axis of long-term/ short-term, supply/ demand does not capture all policy options. For example, one of the major issues in energy policy is the price for fuels. Energy policy generally is designed to affect price indirectly by having price follow, or reflect current demand or supply for energy. There are a few exceptions. Tax policy may address energy price directly to the extent that excise taxes on fuel products can be raised or lowered (recognizing that these tax boosts or cuts may not be reflected penny-for-penny in the "pump" price for fuels).

Short-term policies to affect supply, such as calls for the use of strategic reserves, have been sometimes very controversial because, in the absence of a very clear-cut and widely-acknowledged physical shortage, such initiatives are perceived to be thinly disguised efforts to grant price relief. Some suggest at times that high prices left uninterfered with are the best policy of all, encouraging markets to provide more supply in due course, and that policy should address those most adversely affected by sharply higher prices. The Low Income Home Energy Assistance Program (LIHEAP) is one such program that provides direct assistance to families whose quality of life is especially burdened by high energy prices. LIHEAP is a short-term policy for addressing the impact of high prices for energy. Supply and demand may also be affected by external events including political and diplomatic dynamics between or among the producing nations. Weather, seasonal or otherwise, will affect supply and demand; policy cannot affect the weather, only its consequences. Lastly, Congress always has the option to require study and analysis of a problem before settling on a policy course. Appropriations legislation passed by the 106 th Congress required the National Academy of Sciences (NAS) to analyze and recommend an optimum new car fuel economy standard (this study was released at the end of July, 2001). Oil pipeline safety legislation passed by the Senate in early February would charge NAS with studying the causes for the rapid escalation in natural gas prices, and to evaluate the feasibility of establishing a strategic natural gas reserve.

The Current Context: What's Different? This is the fourth time since 1973 that energy policy will be debated broadly. One question is a constant: How extensive a federal role is appropriate in energy policy? Even prior to the terrorist attacks upon the nation on September 11, 2001, the context for this latest debate was distinctly different from previous episodes.

  • U. S. energy policy has been primarily market-based for nearly 20 years, but policy makers have been weighing whether problems in some sectors and with some fuels are attributable to lingering inefficiencies interfering with markets, or whether government intervention may be necessary to protect consumers and the economy from problems to which markets cannot flexibly respond.
  • Strong economic growth during the mid-and late 1990s at a time of declining real energy prices resulted in growth in consumption even though efficiency of energy use is dramatically better than during the 1970s and 1980s. Growth in petroleum consumption in the United States as domestic production declines has meant a commensurate increase in oil imports.
  • There is recognition of the interdependence of producing and consuming nations; however, the political balance among the OPEC nations is delicate and can influence oil production decisions and whether OPEC is able to exert market control at all.
  • There is growing recognition that the current difficulties have been, in large measure, caused by, or compounded by, insufficiencies in the nation's energy infrastructure refining capacity, gas and oil pipelines, transmission lines, and electric generating facilities. This has drawn major attention.
  • Problems with gasoline supply and home heating oil stocks during 2000- 2001 imply some need to develop additional refining capacity and transport systems that will add both capacity and flexibility to distribution. However, national and local environmental regulation and requirements, and local community sentiment, affect the speed and ease with which such facilities can be sited and built. Concerns about greenhouse gas emissions add an additional measure of uncertainty, as does the depth of the economic slowdown that carried into the second half of 2001.
  • The experience with deregulation of the California electric utility industry appeared to stall and certainly added uncertainty to the policy debate over restructuring. The House did not include electricity provisions in H. R. 4. The Senate bill does.

Petroleum and Natural Gas. Demand for petroleum products in the United States approaches 20 mbd. Increases in demand, as well as declining domestic production, have been offset by increased crude and product imports, which now approach an average of 10 mbd. Cuts in world crude production in March 1999 by OPEC sent domestic refiner acquisition costs for crude oil on a sharp ascent from less than $11/ bbl in February 1999 to $24.50/ bbl by December of the same year. These costs peaked at over $31/ bbl in the latter part of 2000. Subsequently, after intense lobbying by the United States, the OPEC oil ministers boosted crude production and settled upon $22-$ 28 per barrel (bbl) as a desirable "price band." In the wake of the terrorist attacks in September 2001, OPEC chose not to defend crude prices too aggressively lest OPEC appear to be tipping the global economy into recession. By late November 2001, prices had fallen below $20/ bbl, and OPEC was seeking production cuts from outside the cartel to bolster price. However, the escalation of violence in the Middle East, a month-long cessation of Iraqi oil exports, and political change in Venezuela has reintroduced instability to oil markets, and a sharp rise in prices.

The ability of the OPEC cartel to exert influence upon oil prices at critical times underscores that with respect to petroleum the problem is less that the world supply of oil is tight, than that so much of it is concentrated in a single part of the globe. U. S. dependence upon imported oil exceeds 50% of total consumption. On the one hand, absent some presently illusive technical "fix," there is little that can be done to significantly reduce that figure without incurring great economic hardship and lifestyle compromises. On the other hand, oil prices can take wide swings on the basis of modest gains or losses in total world production or from changes in demand in response to economic conditions.

Attention has also focused Clean Air Act standards that regulate the oxygen content, volatility, benzene and the sulfur content of gasoline. Refineries face state and local standards on how to achieve compliance with federal requirements. The result is a multiplicity of gasoline formulations, some using methyl tertiary butyl ether (MTBE) as an oxygenate and octane booster, while other regions require ethanol. One consequence of these regional variations is that gasoline supply has lost its fungibility; one region experiencing a shortage may no longer be able to secure additional supply from a refiner servicing a nearby locality with a different blend of gasoline. Distribution becomes more complicated because different blends sharing the same pipeline must be carefully batched to avoid contamination. Additionally, most foreign refineries have not made the investment to supply any but the most general U. S. gasoline market. Some have urged a relaxation of Clean Air Act standards that would permit a "harmonization" of U. S. gasoline standards. This would introduce flexibility into the gasoline manufacture and distribution system that would bring prices down. It would mean, however, temporarily compromising clean air objectives and, depending upon where the harmonized standard is set, might actually raise prices for fuel in regions that do not require the more exacting formulations. H. R. 4, as passed by the House, would require EPA and DOE to study the effects of local fuel requirements and report to Congress by the end of 2001.

The greater the nation's ability to produce its own fuels, the less vulnerable it is to unanticipated international developments that can reduce or threaten supply. But, the policy options on the supply side, such as opening up the Arctic National Wildlife Refuge (ANWR) for exploration, are mostly long-term. Alaskan oil production, which once touched 2 mbd, has now fallen below 1 mbd and, without new production, will continue to decline until production levels can no longer support the fixed costs of transporting it through the Trans-Alaskan Pipeline.

Proponents of exploring ANWR point to advances in exploration and drilling technology and methods that have significantly reduced the extent of surface disturbance. While opponents concede this may be so, they argue that these advances are limited to exploration and extraction, and that considerable risk to the environment remains during the production and transportation phases. Opponents also suggest that the risks are not worth bearing, especially if the resources in ANWR turn out to be at the lower range of estimates, providing only an additional 300,000 b/ d of supply. Some respond to this argument by noting that the nation has experienced periods of tight supply when even an additional few hundred thousand barrels of crude oil would have made for significantly lower prices at the pump, and for home heating oil.

It should be noted that there are some environmentalists for whom any weighing of risks and benefits are pointless because, citing the area's pristine character; they argue that its ecology and habitat should not be disturbed under any circumstances. In its Blueprint For New Beginnings, the Bush Administration indicated that the FY2002 budget would show a projected $1.2 billion in bonus bids, from the leasing of tracts in ANWR, to be applied toward R& D in alternative fuels and energy technologies. On March 21, 2000, the House Budget Committee adopted the framework of the Administration's proposed budget, but did not include revenues from ANWR leasing. H. R. 4, as passed by the House, would open ANWR to leasing. Opponents of opening ANWR made good on their promise to filibuster any attempt to include leasing in the Senate proposal. On April 18, the Senate defeated (54- 46) a procedural motion to invoke cloture on the debate. An amendment to ban Iraqi oil imports to the United States passed (88-10). (For additional information, see CRS Issue Brief IB10073, The Arctic National Wildlife Refuge: The Next Chapter.)

The broader issue raised by ANWR that of access to public lands for energy exploration and development was the subject of hearings early in the 107 th Congress, largely in response to former President Clinton's designation of 19 new national monuments, and the expansion of 3 others. There is considerable disagreement about the potential resources on federal lands, and some assessments are underway. The EPDG recommends an examination of "land status and lease stipulation impediments" with the objective to "consider modifications where appropriate." (For additional information and background, see CRS Report RS20902, National Monument Issues.)

For the past decade in the United States, natural gas consumption was encouraged, in part to fuel efficient, gas-fired combined-cycle generation plants that could provide supplemental electricity to the nation's power grid at highly competitive prices and with few environmental constraints. Plentiful supplies, and relatively low prices for several years, discouraged additions to natural gas reserves. With surges in demand for electricity and a colder winter in 2000-2001, residential and other consumers of natural gas suddenly faced sharply higher prices as competition grew for gas supplies. Natural gas prices declined sharply during the fall of 2001, underscoring the difficulty of crafting policy in volatile times.

Expansion and refurbishment of facilities to accommodate liquified natural gas (LNG) imports is underway. Additionally, there are a number of proposals for new facilities some, offshore in Mexico and the Bahamas which would receive LNG produced abroad for consumption in the United States. (For further information, See CRS Report RL30815, "Natural Gas Prices: Overview of Market Factors and Policy Options.") Both oil and gas interests are hopeful of congressional action to ease environmental regulations on refiners, lift prohibitions on leasing of certain federal lands, and amend the tax code to benefit domestic producers. H. R. 4 includes provisions to liberalize certain deductions for oil and gas production. The Senate version include provisions to boost the likelihood for construction of an Alaskan natural gas pipeline. (For additional information and background, see CRS Report RL30781, U. S. Home Heating Oil Price and Supply During Winter 2000- 2001: Policy Options, CRS Issue Brief 87050, The Strategic Petroleum Reserve, and CRS Issue Brief IB10054, Energy Tax Policy.)

Electricity restructuring. The Enron debacle raised new questions and has slowed the momentum of the electricity restructuring debate. However, it was the electric utility crisis in California in early 2001 that shifted the focus of electricity restructuring legislation away from comprehensive bills that dominated the electric utility restructuring debate in the 106th Congress. In the 107 Congress, the majority of electric utility legislation introduced relates to reliability. Regulatory functions are currently divided between the states and the federal government, and there has been considerable argument not only about which controls need to be retained, but how to redraw the respective roles of the federal government and the states to assure reliability. The House did not include language affecting electricity in its comprehensive energy bill, H. R. 4, but indicated the issue would be addressed separately.

A reliable electric system depends on adequate transmission capacity. The regulatory regime has shifted in the electricity industry to encourage competition in the generation sector but investment in transmission infrastructure has not kept up with increases in bulk power transfers and electricity demand. Additionally, transmission lines are congested in several regions of the United States. Difficulty in siting the lines and the regulatory uncertainty have dampened investor interest in the transmission system. FERC has approved one Regional Transmission Organization (RTO) and is in the process of evaluating others. H. R. 3406 would codify FERC's authority to order participation in an RTO. H. R. 2814 would give FERC authority to develop voluntary RTOs.

Some have argued that transmission and wholesale power markets cannot be competitive without additional market transparency, or access to market information. S. 1231 and S. Amdt. 2917 to S. 517 proposed to require FERC to issue rules establishing an electronic information system to provide information about the availability and price of wholesale electric energy and transmission services to FERC, state commissions, buyers and sellers of wholesale electric energy, users of transmission services, and the public. During the first full week of debate in the Senate, these proposals were significantly weakened out of concern that they usurped too much authority from the states. An attempt to eliminate most of the electricity provisions from the legislation was defeated on April 10. Subsequently, the Senate approved amendments introduced by Senator Thomas that would give the Federal Energy Regulatory Commission (FERC) additional review authority over certain electric utility mergers; require FERC to apply cost-of-service rates when market-based rates are unjust, unreasonable, unduly discriminatory or preferential; require an electric reliability organization to develop and enforce mandatory reliability standards; provide access to the transmission system for certain intermittent generators; and give states the authority to prescribe and enforce laws regarding the application of the Consumer Protection Subtitle.

The Senate also debated language in S. Amdt. 2917 to establish a renewable portfolio standard that would require that 10% of electricity generation come from non-hydro renewable energy resources by 2020. An amendment to boost this proposal to 20% was defeated on March 14; an amendment to strike the language altogether was subsequently defeated.

Concern over electricity supply has also led to some reassessment of the relative roles that natural gas, coal and nuclear energy may have in future electricity generation. In its energy policy plan, the Bush Administration indicates its objectives to remove barriers to the use of coal in electric power generation, though no new coal-fired generating capacity is currently planned. The Administration proposes establishing a consortium of companies to direct the research, and H. R. 4 would provide $2 billion in funding over a 10-year period.

Prior to the release of the its plan, the Administration indicated interest in nuclear options. On March 21, 2001, Vice President Cheney described nuclear power as a preferable means to meeting clean air goals than what he described as a "seriously flawed" Kyoto global warming treaty. (A few days later, March 27, 2001, Environmental Protection Agency Administrator Christine Todd Whitman indicated that the Bush Administration had "no interest" in any further negotiations on implementing the Kyoto Protocol.) The EPDG recommends an assessment of the potential of nuclear energy to contribute to cleaner air, and that the NRC expedite nuclear re-licensing procedures. Nuclear, however, remains very capital intensive, and it is not apparent that nuclear is poised for any immediate renaissance. The terrorist attacks in September 2001 added fresh concerns about security. (For additional information, see CRS Electronic Briefing Book: Electric Utility Restructuring [http:// www. congress. gov/ brbk/ html/ ebele1. shtml].

Conservation, Alternative Fuels, and Improvements in Efficiency. As has been noted, the energy policy debate has turned partly on perceptions of the balance between supply-oriented and conservation-oriented policies that make up an appropriate energy policy to address the current matrix of energy problems. While any final package enacted by Congress will include a range of policies, some in the debate will likely posit choices to be made between policies; e. g., why open ANWR to leasing if comparable savings can be achieved by raising fuel economy?

The Energy Policy and Conservation Act (P. L. 94-163) established new car corporate average fuel economy (CAFE) standards, beginning with model year 1978. Currently, the standards are 27.5 miles per gallon (mpg) for cars and 20.7 mpg for light-duty trucks. Proposals to stiffen the CAFE standards have been controversial. Beginning with enactment of the FY1996 Department of Transportation Appropriations, Congress forbid the expenditure of appropriated funds to make any change in the current CAFE requirements. This rider was included in the appropriation for the current year (P. L. 106-346); however, Senate conferees insisted on authorization of a study to be conducted by the National Academy of Science (NAS) to recommend "appropriate" CAFE standards, subject to approval by a Joint Resolution of Congress. In late June 2001, the Administration was reported to be receptive to an increase in CAFE standards, and a proposal to save 5 billion gallons of gasoline between MY2004-2010 passed the House in H. R. 4. An amendment to set a unified standard of 27.5 mpg for both cars and light-duty trucks was defeated.

Just before the debate on H. R. 4, the NAS study was released on July 30, 2001. While it did not recommend a specific level for CAFE, it did conclude that "significant" reductions in fuel consumption could be achieved within 15 years utilizing existing technologies. Were increases in new car fuel economy achieved by reducing vehicle weight or disproportionately encouraging the sale of small vehicles, the study allows that additional fatalities could result. However, some members of the NAS panel dissented, suggesting that the analysis of the relationship between fuel economy and vehicle safety is extremely complex. In the Senate, Senators John Kerry and John McCain had reached a compromise to call for a fleet average of 36 mpg by MY2015. However, on March 13, the Senate approved an amendment to allow the National Highway Traffic Safety Administration (NHTSA) to go through the sort of rulemaking process used in the past to set CAFE standards. The Senate also approved language to freeze "pickup trucks" yet to be defined at the current light truck standard of 20.7 miles per gallon.

There is little question that the price hikes during past episodes of tight energy supply spurred many improvements in energy efficiency. Some argue, however, that the easiest and lowest-cost efficiency gains have been achieved, and that expectations should be lowered about the additional efficiency gains that can be captured in the present price framework for energy. When the Reagan Administration redirected energy policy to a more market-oriented framework, it was argued that R& D needed to be carefully focused on areas that were promising, but unlikely to be explored by the private sector.

The Bush Administration energy policy recommended a review of the funding and performance of energy efficiency research and development for the purpose of determining appropriate funding for performance-based research in public-private partnerships. Recommendations are also made to expand the scope of appliances covered under energy efficiency standards. The Administration also proposed to apply revenue from the leasing of ANWR to development of solar and renewable energy, a proposal approved by the House in H. R. 4. Additionally, the language in S. Amdt. 2917 proposes a renewable fuel standard that would ultimately triple the use of ethanol as an oxygenate in reformulated gasoline a provision supported by the oil industry, ethanol producers and environmental groups. Critics argue that it will boost prices to consumers and create shortages. However, an amendment to soften the program was tabled April 11. (For additional discussion, see CRS Issue Brief IB10020, Energy Efficiency: Budget, Climate Change, and Electricity Restructuring Issues, and CRS Issue Brief IB90122, Automobile and Light Truck Fuel Economy: Is CAFE Up to Standards?) Readers seeking current statistics on energy production and consumption in the United States are referred to the Energy Information Administration (EIA) website, [http://www.eia.doe.gov/]

This document is not necessarily endorsed by the Almanac of Policy Issues. It is being preserved  in the Policy Archive for historic reasons.

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