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Taking Measure of U.S. Energy Policy: A Review of the Energy Policy Act of 2005
RFF First Wednesday
November 2, 2005

The Energy Policy Act of 2005, signed into law in August 2005, is the first major piece of energy legislation passed in a decade. Resources for the Future, GLOBE USA and the Henry M. Jackson Foundation present a day-long seminar to examine the act and assess how well it addresses the key drivers of contemporary energy policy: national security, climate change, and technology development and deployment. This seminar is the culmination of the Energy 2050 series of Congressional briefings that explore policy options and strategies to address America's energy needs to the year 2050. RFF President Phil Sharp convenes the session, setting the stage for discussion on the new energy bill with an historical overview of energy legislation in the United States.

 

Opening Remarks


Philip Sharp
President, Resources for the Future

Phil Sharp, a member of the U.S. House of Representatives from Indiana from 1975 to 1995 and a prominent authority on energy and environmental policy, was appointed president of Resources for the Future on September 1, 2005. Sharp's career combines extensive academic and political experience. Following his decision not to seek an eleventh consecutive term in the House, Sharp joined Harvard's John F. Kennedy School of Government, where he was a Lecturer in Public Policy from 1995 to 2001. He served as Director of Harvard's Institute of Politics from 1995 to 1998 and again from 2004 until his appointment at RFF.

Sharp was Congressional chair of the National Commission on Energy Policy, a panel established by the Hewlett Foundation and other major foundations to make energy policy recommendations to the federal government. In Congress, he took a key leadership role in the development of major energy legislation. He was a driving force behind the Energy Policy Act of 1992, which led to the restructuring of the wholesale electricity market, promoted renewable energy, established more rigorous energy-efficiency standards, and encouraged use of alternative fuels. He also helped to develop a critical part of the 1990 Clean Air Act Amendments, providing for a market-based emissions allowance trading system.
Sharp served on the House Energy and Commerce Committee, where he chaired the Fossil and Synthetic Fuels Subcommittee from 1981 to 1987 and the Energy and Power Subcommittee from 1987 to 1995. He also was a member of the House Interior and Insular Affairs Committee, where he was a member of the Energy and Environment Subcommittee and the Water and Power Resources Subcommittee. 
 

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Panel One: National Security

The rise of terrorism, regional political unrest, and natural disasters such as Hurricanes Katrina and Rita have drawn growing attention to the economic and security risks associated with disruptions to global oil supply and to our energy infrastructure. This panel considers whether the Energy Policy Act addresses the national security risks associated with imported oil and, to the extent that it does not, what policy options might have traction in Congress' future deliberations over this issue.


Frank J. Gaffney, Jr.
President and CEO, The Center for Security Policy

Prior to joining the Center for Security Policy, Frank Gaffney was the assistant secretary of Defense for International Security Policy during the Reagan Administration, following four years of service as the deputy assistant secretary of Defense for Nuclear Forces and Arms Control Policy. Previously, he was a professional staff member on the Senate Armed Services Committee under the chairmanship of the late Senator John Tower, and a national security legislative aide to the late Senator Henry M. Jackson.


Joel Darmstadter
Senior Fellow, Resources for the Future

In his nearly four decades at RFF, Joel Darmstadter has conducted research centered on energy resources and policy. His recent work addresses issues of productivity in natural resource industries, energy and climate change, and renewable resources.

Darmstadter has served on National Research Council bodies and has contributed to their studies. He also was part of a team that evaluated the performance of the U.S. Department of Energy's National Institute for Global Environmental Change. His career includes serving as an adjunct faculty member of the School of Advanced International Studies at Johns Hopkins University, an editorial committee member of the Annual Review of Energy, and a contributing editor of Environment magazine.

Darmstadter has appeared as an expert before congressional committees, presented papers at numerous international conferences, and given a series of lectures in Argentina under the auspices of the U.S. Information Agency.

 

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Joseph Aldy
Fellow, Resources for the Future
Download Presentation (PDF)

Joe Aldy's research addresses questions about climate change policy, mortality risk valuation, energy subsidies to low-income households, and energy policy. He has studied the design of international climate change policy architectures; the costs, effectiveness, and principles of emissions trading programs and other mitigation policies; and the relationship between economic development and greenhouse gas emissions. His research on mortality risk valuation focuses on how individuals' willingness to pay to reduce such risk varies over their lifetime. He has also evaluated how heating subsidies to low-income households can mitigate the effects of wintertime weather and energy price shocks on mortality among the elderly.

Aldy served on the staff of the President's Council of Economic Advisers from 1997 to 2000, where he was responsible for an array of environmental and resource issues. While there, he focused on climate change policy, air quality regulations, petroleum markets, electricity restructuring, hazardous waste policy, environmental issues in China, and sustainable development.

 

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Robert Weiner
Gilbert F. White Postdoctoral Fellow, Resources for the Future
Download Presentation (PDF)

Rob Weiner joined RFF in September as the 2005-2006 Gilbert F. White Fellow. In this capacity, Weiner will focus on understanding why oil prices are so high and so volatile, examining the role of speculators and speculation in oil trading. He comes to RFF from George Washington University, where he is Professor of International Business and International Affairs at the School of Business and Public Management. From 2001 to 2005, he was chairman of the GW Department of International Business. He concurrently serves as Membre Associé, GREEN (Groupe de Recherche en Économie de l'Énergie et des Ressources Naturelles), Département d'économique, Université Laval, Québec.

Weiner received his Bachelor's degree in Applied Mathematics and Master's and Doctoral Degrees in Business Economics, all from Harvard University. He has authored or coauthored numerous articles and four books on environmental and natural resource economics, focusing on contracting, risk management, and the oil and gas industry. His research interests and projects have focused on a wide range of issues, including oil price volatility, oil and gas trading and derivative markets, national income accounting for sustainable development, and privatization and the behavior of state-owned enterprises in the world petroleum market.

 

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Question & Answer​



Panel Summary

The rise of terrorism, regional political unrest, and natural disasters such as Hurricanes Katrina and Rita have drawn growing attention to the economic and security risks associated with disruptions to global oil supply and to American energy infrastructure.

In the first of three panels examining the Energy Policy Act of 2005, Frank Gaffney, president and CEO of the Center for Security Policy, warned about the dangers of dependence on unstable or unfriendly foreign sources of oil. He argued that not only does this unreliable situation place the U.S. economy in a perilous position, but it also serves to feed the very instability the United States should be wary of, pumping millions of dollars into these countries each day. He urged that, among other things, the United States should capitalize on existing technologies to reduce dependence on foreign oil.

Joel Darmstadter, RFF senior fellow, followed, asking whether oil import dependence matters most when crafting an energy policy.

"A dramatic switch to oil self-sufficiency wouldn’t keep the U.S. from feeling shocks" to the international oil market, he stated. "The key to insulating ourselves is simply using less oil." Unfortunately, he continued, policies that would encourage this, including increasing the federal fuel tax and implementing stronger Corporate Average Fuel Economy standards, are unappealing to lawmakers. Initiatives laid out in the new energy bill, he said, offer no quick fixes.

One frequently sited possible insulator from global oil market shocks is the Strategic Petroleum Reserve (SPR). The Energy Policy Act of 2005 calls for the SPR to be increased from 700 million barrels of oil to one billion barrels, but does not address criteria for tapping into the reserve. Joe Aldy, an RFF fellow, raised several questions surrounding the SPR. "Should there be more explicit use criteria? What is the optimal size (of the reserve)? Does the SPR deter the use of oil as a weapon?," he asked. He noted that it took nearly two months for oil released from the reserve following Hurricane Katrina to reach the market. Such a lag time following a domestic supply disruption indicates that the SPR does not insulate the U.S. economy from the volatile international oil market. "There is not much swing capacity in world oil stocks," he said. "Demand shocks in other countries can affect the U.S. economy."

Rob Weiner, Gilbert F. White postdoctoral fellow at RFF, continued the discussion, noting that "uncertainty and volatility – not high or low prices – determine energy security." He pointed out that policymakers should consider price volatility, not price level, when considering how secure the U.S. energy supply is. He felt that the effects of oil shocks will likely be permanent, and lamented that, when trying to determine energy policy or plan for energy security, "we don’t know where we’re headed and we have no way to forecast it."

When asked by the audience what policy options might have traction in Congress, Darmstadter suggested that Congress first needs to clear out old and irrelevant programs, while Weiner and Aldy added that changing or clarifying rules governing the SPR would be an important step. "In the end," Gaffney said, "I think we’re going to have to get the country oriented toward reduced consumption of oil, not simply trying to find more of it or process it more efficiently."


Panel Two: Climate Change

Climate change was a significant consideration in the Senate's deliberations over its version of the act. The final product that resulted from the Senate/House conference reconciliation of the bill did yield a title addressing greenhouse gas-reducing technology development and deployment, but took no action on limiting GHG emissions. Congressional inaction notwithstanding, there is growing sense that emissions limits in the United States are inevitable. This panel assesses the climate provisions of the Energy Policy Act and the potential impact that emissions limits could have on key sectors of the U.S. economy.

Nikki Roy
Director of Congressional Affairs, Pew Center on Global Climate Change

In his capacity as Director of Congressional Affairs, Manik (Nikki) Roy manages communication between the Pew Center and the U.S. Congress, Federal agencies, and state governments. He comes to the Center with eighteen years of experience in environmental policy, working most recently for Senator Frank R. Lautenberg and Representative Henry A. Waxman. Prior to working in Congress, Roy was the director of the pollution prevention policy staff of the U.S. Environmental Protection Agency, and a pollution prevention specialist with the Massachusetts Department of Environmental Protection and the Environmental Defense Fund. Roy holds a Ph.D. in public policy from Harvard University. He also holds a Master of Science degree in environmental engineering and a Bachelor of Science degree in civil engineering, both from Stanford University.
 

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Richard Morgenstern
Senior Fellow, Resources for the Future

Dick Morgenstern is an expert analyst on the economics of environmental issues and on the use of economic incentives to address global climate change and air pollution. He studies cost-benefit issues related to the design of pollution regulation policies and develops and analyzes alternative mechanisms to reduce the emissions of greenhouse gases in the United States and abroad. He has worked in China on establishing an emissions trading system and has advised the Colombian government on reforming environmental management systems related to air and water pollution.

Morgenstern’s career includes service at the U.S. Environmental Protection Agency, where he directed the agency’s policy office for more than a decade, and at the U.S. Department of State, where he was senior economic counselor to the undersecretary for global affairs and participated in negotiations for the Kyoto Protocol.

 

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William Pizer
Fellow, Resources for the Future

Billy Pizer is widely recognized for his research into the design of policies to ad­dress climate change risks caused by man-made emissions of greenhouse gases. His work assesses how various features of environmental policy in an economic context can influence a policy’s efficacy under different circumstances, including uncertainty, technical advances, and changing costs of environmental regulation. In addition to his work at RFF, he is a senior economist at the National Com­mission on Energy Policy, where he provides analysis and policy options on en­vironmental and energy security issues.

A fellow at RFF since 1996, Pizer also has served as a senior staff economist at the Council of Economic Advisers in 2001–2002, where he worked on energy, environment, and climate change issues; been a visiting scholar at Stanford University’s Center for Environmental Science and Policy in 2000–2001; and taught at Johns Hopkins University from 1997 to 1999.

 

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Question & Answer
 

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Panel Summary

Climate change was a significant consideration in the Senate's deliberations over its version of the Energy Policy Act of 2005. The final product that resulted from the Senate/House conference reconciliation of the bill did yield a title addressing greenhouse gas (GHG)-reducing technology development and deployment, but which took no action on limiting GHG emissions. Congressional inaction notwithstanding, there is growing sense that emissions limits in the United States are inevitable. According to Nikki Roy, congressional affairs director at the Pew Center of Global Climate Change, "Whenever you're writing an energy bill, you're also writing a climate change bill, whether you intend to or not. The issues of energy supply, energy security, and climate change are almost inextricably linked." However, he said, "the Energy Policy Act of 2005 was largely about energy supply."

Roy and fellow panelists Dick Morgenstern, an RFF senior fellow, and Billy Pizer, an RFF fellow, provided the audience with an overview of the links between energy policy issues and options, GHG emissions, technologies, and climate change. Morgenstern highlighted the impact economics has had on climate policies, making reduction targets more realistic, considering costs of policy options, and acting as a driving force in domestic climate policy.

Morgenstern also noted that recent legislation calling for a slow-stop-reverse approach to emissions reductions "represents a major change from the earlier preoccupation with near-term emission cuts as the only measure of success," he said. "This logic is based, in turn, on the recognition that the environmental damages associated with greenhouse gas emissions are not caused by short-term emissions reductions, but rather by the long-term accumulation in the atmosphere." He called for flexibility in emissions targets to allow for uncertainties about the economy and technological development, suggesting that the "safety valve" approach would allow for this flexibility.

Pizer pointed out that recent policy discussion indicates "something like a consensus on a climate change approach is emerging." He mentioned that the Sense of the Senate resolution calling for mandatory action on climate change, which while nonbinding, marked "[a fundamental change in] the way people look at climate change policy vis-a-vis the U.S. Senate." With the resolution, he explained, policymakers for the first time called for action that might cause some harm to the U.S. economy (previous legislation indicated that no harm was acceptable) and also did not require action on the part of developing countries, as the case had been before. Pizer went on to stress that domestic action should precede international action, rather than be driven by it.

 

Panel Three: Technology Development and Deployment

As RFF Visiting Scholar Bob Fri noted in his recent commentary on the act, "Energy policy increasingly relies on the confidence that technology will find a way to ameliorate our energy problems, now and for some time to come." This panel considers the strengths and limitations of technology policy in addressing this country's key energy needs.


Linda R. Cohen
Professor of Economics, University of California, Irvine

On the faculty of UC - Irvine's Department of Economics for nearly twenty years, Linda Cohen has extensive experience in public policy, government regulation, and political economy. She has served as chair of the Department of Economics, and has also been a professor of Social Science and Law at the University of Southern California Law School. Her research focuses on political economy, social choice, government regulation, and government policy toward research and development.

Cohen's career includes service on editorial boards, advisory panels and councils. In 2001, she served on the California Council for Science and Technology, and in 2003, she became a member of the National Research Council Committee on the Prospective Benefits of DOE Research and Development on Energy Efficiency and Fossil Energy. Cohen is the author of numerous journal articles and book chapters. She holds a PhD from the California Institute of Technology.

 

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Brian Castelli
EVP & COO, Alliance to Save Energy

Brian Castelli has nearly 30 years of national and international experience in the energy field, including expertise in energy efficiency, renewables, emission reductions, and electricity demand reduction. Prior to joining the Alliance, Castelli ran his own energy consulting firm. He has also served as federal energy liaison for the California Energy Commission; a principal with the Center for Energy and Climate Solutions; and a consultant to the Electric Power Research Institute.

As a presidential appointee, Castelli served as chief of staff to the U.S. Department of Energy's assistant secretary for energy efficiency and renewable energy from 1994 to 2001. He led and participated in missions to Western Hemisphere, European, and former Soviet Union countries and was also deeply involved in developing energy-efficiency measures for the eventual closure of the nuclear reactors in Chornobyl, Ukraine. He has authored many articles, studies, and reports on energy-related issues, served on various boards of directors, and made presentations in numerous state, national, and international forums and conferences.

 

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Karen Palmer
Darius Gaskins Senior Fellow, Resources for the Future

With RFF for more than 15 years, Karen Palmer is an expert on the environmental and economic consequences of deregulation and restructuring of the electricity industry. Her work focuses on providing information to help improve the design of incentive-based environmental regulations and other regulations that face the electric utility sector. To this end, she looks to identify the most cost-effective ap­proach to allocating emissions allowances, key geographic dimensions of efficient emissions cap-and-trade programs within the electricity sector, and optimal emis­sions reduction targets for different air pollutants.

Palmer’s work has direct links to debates on the Clean Air Interstate Rule, which focuses on the eastern United States as a whole, and the Regional Green­house Gas Initiative, concentrated in the Northeast.

Before joining RFF in 1989, Palmer was a teaching fellow at Boston College and a staff economist at Data Resources, Inc. In 1996–1997, she spent six months as a visiting economist at the Federal Energy Regulatory Commission. Her other work relates to recycling and producer responsibility for products after they are used by consumers.


Robert Fri
Visiting Scholar, Resources for the Future

Bob Fri is the former president of Resources for the Future. He has also served as director of the National Museum of Natural History and deputy administrator of both the U.S. Environmental Protection Agency and the Energy Research and Development Administration. Currently, Fri is a member of the board of directors of the American Electric Power Company. He is an expert on climate change, particularly issues related to international business.


Question & Answer

Panel Summary

In opening a discussion on the strengths and limitations of technology policy in addressing projected energy demand, Brian Castelli, executive vice president of the Alliance to Save Energy, noted that the United States holds only 2 percent of global energy reserves but consumes 25 percent of energy used. Increased efficiency in appliances and vehicles has curbed per-capita energy consumption in recent years, he noted, but new competition for fuels and electricity - particularly from developing nations like China and India - has put increasing emphasis on finding new technologies to reduce dependency on foreign sources of oil. The 2005 Energy Act will help spur technical developments by providing tax incentives for fuel-efficient appliances and tax credits for energy-saving building design, Castelli said, but "it does virtually nothing to promote conservation technologies in cars and trucks as well as manufacturing."

Other panelists reviewed factors that have limited innovation in energy technologies in recent years. Linda Cohen, economics professor at the University of California at Irvine, said indirect costs of research, lack of incentives, poor patent policies, and outsourcing of new product development have resulted in fewer energy-saving technologies coming on the market.

Karen Palmer, Darius Gaskins Senior Fellow at RFF, enumerated prospects for such processes as clean coal technology, coal gasification, and renewable energy sources including wind and biomass. "While there has not been much commercial adoption of many of these technical advances over the last two decades," she said, "higher energy prices and greenhouse gas emission standards may spur these technologies into marketable products."

RFF Visiting Scholar Robert Fri looked at the problems facing a revived U.S. nuclear power industry, and pointed to provisions in the new Energy Act designed to encourage building of the first new nuclear power plant in the United States since the 1970s. However, even a restored nuclear power industry won't dramatically change the U.S. energy picture for the better, he predicted.

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