Sunday, December 12, 2004

Ending the Energy Stalemate

I was eagerly awaiting the release of the final report of the National Commission on Energy Policy (NCEP). (Press Coverage). I am somewhat disappointed because my first impression of the report is that its recommendations have been watered down so that a consensus could be achieved on the commission. Of course, the Commission, which was co-chaired by savvy Harvard professor John Holdren attempts to preempt this type of criticism by saying:
Taken together, the Commission’s recommendations aim to achieve a gradual but nevertheless decisive shift in the nation’s energy policy. Their near-term impacts, by design, will be modest, and some will undoubtedly find them grossly inadequate to the challenges at hand. Others will criticize the same recommendations for going too far, precisely because they initiate a process of long-term change with consequences that no one can fully predict. These refrains are familiar. They characterize the stalemate in views that has too long resulted either in outright gridlock or in a piecemeal, special interest-driven approach to energy policy. These outcomes are no longer acceptable. It is time for the stalemate to end.
In the case of automobiles, one specific recommendation of the commission is to provide manufacturers incentives (a gentler word for subsidy) to convert plants to produce more fuel efficient vehicles such as Hybrids or advanced diesels. This is a suggestion that came out of Energy Future Coalition.

The commission's view on the fuel economy standards is as follows:
The Commission believes that three factors are largely responsible for the current CAFE stalemate: (1) uncertainty over the future costs of fuel-saving technologies; (2) fear that more stringent standards will lead to smaller, lighter vehicles and increased traffic fatalities; and (3) concerns that higher fuel-economy standards will put the U.S. auto industry and auto workers at a competitive disadvantage.
I should note that for the costs of various technologies projected ready for deployment in the next decade are increasingly well understood although some differences remain until these technologies are put in to production.

NCEP argues that CAFE standards should be raised, but it has no specific recommendations. It also says that trading of permits between different categories of vehicles as well as between different manufacturers should be permitted. It is well understood that under the current market conditions a trading scheme would result in a modest but positive cash flow from domestic to foreign manufacturers.

I will not go into details of other sections of the commission's proposals. It should suffice to say that they have covered all the bases. Advocating the emission trading of CO2 is a noteworthy recommendation. NCEP's focus on renewable technologies is not as strong as I would have imagined.

The commission says that various subsidies proposed by it could be covered by sale of Carbon Dioxide emissions permits. The 36 billion dollar investment, however, is needed in the next ten year period, and the projected revenue will only be generated in the decade after that.

The commission says that it will spend the coming year advocating its position at various forums. Some of these suggestions will no doubt make in to the next round of debate over the energy bill. What is needed in the policy debate, however, is a comprehensive approach such as that of NCEP. At a time when U.S. badly needs a sensible energy policy, this report is no doubt a welcome step.

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