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IssueAlert for  March 12, 2001 

Bush Energy Plan Emerges, 
Cuts in Renewable Energy Spending Expected

by Will McNamara 
Director, Electric Industry Analysis

[Knight Ridder Washington Bureau, March 8] Days after telling the nation that 
there's a real energy crisis and vowing to "promote alternative energy 
sources and conservation," President Bush is proposing a budget that would 
reduce federal spending on energy efficiency and renewable energy by as much 
as a third, and increase funding for oil and natural-gas drilling. Bush 
proposes to cut the Department of Energy's renewable fuels and energy 
efficiency budget by 30 to 40 percent, according to Energy Department and 
White House officials who have briefed energy and environmental lobbyists. 
The president's proposed Energy Department budget is another indication that 
the administration will emphasize increasing oil, natural-gas and coal 
production more than cutting energy demand or developing alternatives to 
fossil fuels. 

Analysis: During his presidential campaign, President Bush was critical of 
Bill Clinton for failing to adopt a national energy policy. Facing 
unavoidable problems within the nation's energy industry*including the 
ongoing California problem, supply concerns across the country, and 
predictions of several more years of erratic electricity, natural-gas and oil 
prices*Bush has been on a fast track to develop his own comprehensive energy 
strategy. More than likely, the president is still weeks away from unveiling 
his official energy plan. However, the word circulating through Washington 
D.C. (and the energy industry as a whole) is that his plan will emphasize 
increasing oil, natural gas and coal production (by giving unique financial 
incentives to producers) and de-emphasize conservation efforts and renewable 
energies.  

Given the fact that President Bush's energy plan has not yet been released, 
analysis of the proposed plan is still based on speculation at this point. 
While many opponents of the proposed plan are quick to criticize anticipated 
cuts for energy efficiency and renewable energy, Bush has not indicated that 
these approaches will not have a role in his administration's strategy. It is 
important to keep in mind that, while funding for efficiency and renewables 
may indeed be reduced, there is still is a budget for these technologies in 
the Department of Energy. Bush may believe that the time has now come to let 
market forces support further growth of renewable energies such as wind and 
solar, while he searches for a more immediate solution to the significant 
problems facing the energy industry. 

According to the Knight Ridder report, Energy Department spokesperson Joe 
Davis expects that there will be cuts associated with the department's $19 
billion budget in an effort to deal with "belt-tightening." In fact, Bush's 
proposed $19 billion DOE budget is $700 million less than what the department 
now spends. Reportedly, the cuts are being made so that the president can 
boost spending on "clean coal" technology to make the fossil fuel more 
efficient and less harmful to the environment.  

Rumors of Bush's budget cuts for renewable energy and conservation efforts 
have sparked an immediate outcry from environmental groups and leaders within 
the Democratic Party. For instance, New Mexico Senator Jeff Bingaman, the 
ranking Democrat on the Senate Energy Committee, went on record in 
disagreement with the proposed cuts. "Clearly if we don't dedicate adequate 
resources (to research and development for energy efficiency), we lose our 
ability to benefit from this technology," Bingaman said. 

Renewable energy supporters point to the fact that the clean coal technology 
program already in place still has about $600 million in unspent funding, 
despite the fact that it has produced few usable results. In addition, 
conservation advocates refer to a report concluding that the Department of 
Energy's conservation program has already saved $30 billion and 5.55 
quadrillion Btus of energy. The overall consensus of the groups that oppose 
Bush's expected spending cuts is that, now more than ever, spending for 
renewable energy and conservation programs should be increased, not cut.  

It has already been well established that President Bush supports opening up 
federally protected lands for increased oil and natural-gas drilling. The 
president has made no secret of his intention to move forward with the 
controversial step to open the Arctic National Wildlife Refuge (ANWR) in 
Alaska. The Bush administration is pushing to open and develop for drilling 8 
percent of ANWR, which consists of 1.5 million tundra acres and spans 200 
miles along the Arctic Ocean. Throughout his campaign, President Bush 
reiterated that he would make this move, a point on which he differed sharply 
from Al Gore, who maintained that he would keep the land protected. For some 
time it was expected that Bush's energy plan would also include expanded 
conservation efforts and increased funding for alternative fuels. However, 
according to Bush's team the short answer to the electricity shortage that 
has rocked California and put fear into the rest of the country is to 
"increase domestic supplies of natural gas, coal and oil, all of which can be 
used to run power plants." 

As another action plan, President Bush has argued that the United States 
needs to become more autonomous when it comes to meeting its energy needs. 
The Bush administration has claimed that the United States has become too 
dependent on foreign sources of oil, especially when there are abundant 
reserves that can be processed domestically. Yet, it's also important to note 
that President Bush has never suggested that domestic supply of oil and 
natural gas will be sufficient. Rather, the president recognizes that access 
to an adequate supply of foreign oil and gas is strategically important to 
the United States and the global economy.  

However, instead of relying predominantly on the Middle East, Bush will work 
more closely with Canada and Mexico to increase cross-border flows of oil, 
natural gas and electricity within North America. Toward that end, Bush has 
asked Mexico's President Vincente Fox to help by allowing private U.S. 
capital to build electricity plants and transmission lines in Mexico that 
would send power north. This has been a rather contentious issue in Mexico, a 
country that has had a long-standing history of state-owned electricity. Past 
proposals to privatize or allow even minimal levels of private investment in 
Mexico have been widely denounced. Fox has responded that Mexico is having 
trouble meeting its own power needs, let alone being able to send power to 
the United States. However, Fox has agreed to work with President Bush on 
establishing a regional energy plan between the two countries with the 
objective of providing enough power to fuel their growing economies.  

Running concurrent to Bush's proposed energy plan is a comprehensive energy 
bill reportedly being developed by Senate Republicans, under the leadership 
of Senate Energy Committee Chairman Frank Murkowski, a Republican from 
Alaska. The bill appears to be a mirror image of the policies expected in 
Bush's energy plan, including drilling in the ANWR and also tax breaks 
offered to the oil industry. For instance, the measure reportedly would grant 
oil producers operating on federal lands a break on their royalty payments to 
the government, along with granting federal royalty relief for producers 
operating in deep waters and difficult formations such as tight rocks and 
coal beds. In addition, the bill would require that federal agencies such as 
the Environmental Protection Agency (EPA) and the Interior Department confirm 
with the Energy Secretary before taking any action "that would have a 
significant effect of reducing domestic energy supply."  

Of course, earlier this month the U.S. Supreme Court granted extended power 
to the EPA to regulate emissions from utility power plants, along with other 
industries. In one of the most important environmental and business decisions 
in decades, the Supreme Court rejected industry arguments that the federal 
government must consider cost and not just health benefits in setting 
national air pollution standards. Largely rejecting arguments by business 
groups, the Supreme Court said that the EPA has the power to issue new 
standards designed to reduce the levels of smog and soot in the air. Prior to 
this ruling, it was suggested that President Bush was also considering 
relaxing some environmental standards to allow electrical plants to expand 
capacity. It is unknown at this point whether or not Bush will still go in 
this direction, considering that the Supreme Court unanimously sided with the 
EPA's authority in these matters.  

Moreover, it may be premature to draw any conclusions about President Bush's 
energy plan until the official strategy is released and we can assess 
specific numbers. I have not seen anything that would indicate that the 
president does not support a significant role for renewable energies such as 
wind and solar, along with increased conservation efforts. In fact, recall 
that Bush was an active participant in the Texas restructuring legislation, 
in which the Renewables Portfolio Standard requires that approximately 5 
percent of fuel generation comes from renewable sources. In fact, the 
deregulation law in Texas is considered the most supportive of renewable 
forms of energy when compared to the 24 states that have enacted legislation 
for electric competition. Consequently, during his tenure as Governor of 
Texas, President Bush demonstrated support for alternative forms of energy. 
However, as demand continues to outpace supply on a national basis, the 
president appears to be looking for an immediate solution, which more than 
likely will give priority to large-scale production plants efforts including 
coal, natural gas and nuclear. In the next few weeks, when President Bush's 
energy plan is formally released, it may very well emerge that his 
administration proposes a more balanced approach to the nation's energy 
needs, which still includes conservation efforts and exploration of renewable 
energies. 

An archive list of previous IssueAlerts is available at
www.ConsultRCI.com


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