FAQ: New Energy Act gets green light

Fuel efficiency mandates are raised for first time since 1975, but tax incentives for renewable power get cut.

President Bush on Thursday morning signed into law legislation that sets higher fuel efficiency standards and boosts production of domestic biofuels.

Known officially as the Renewable Fuels, Consumer Protection, and Energy Efficiency Act of 2007, it introduces the first increase in mileage standards since 1975, when mandates were first instituted.

It calls for ethanol production--both from corn and other sources, such as woodchips and switchgrass--to increase nearly fivefold over the next 15 years. And it sets higher standards for efficiency of lighting and household appliances, with a goal of phasing out incandescent bulbs in 10 years.

What didn't make the legislation is notable as well. Tax incentives and utility mandates for renewable power generation were cut by the Senate under the threat of a White House veto.

Here's a look at the new law and how it could affect consumers and the energy industry.

What are the highlights in numbers?
• The Corporate Average Fuel Economy, or CAFE, standards are increased to a fleet-wide average of 35 miles per gallon by 2020. Beginning with 2011 models, the National Highway Traffic Safety Administration will increase the CAFE standard annually for cars and light trucks.

• The mandate for U.S.-grown biofuels is 36 million gallons per year by 2022, with 20 billion coming from non-corn-based, or "advanced," biofuels. The requirement is 9 billion gallons for 2008 and 15.2 billion gallons in 2011, up from the current level of about 6 billion gallons. Ethanol is used primarily as an additive to gasoline.

• The law calls for higher efficiency standards for consumer appliances, from lighting to home heating and cooling systems. There are also research and development funds earmarked for lighting efficiency, smart grid technologies, and advanced transportation and batteries.

For more details, click here.

What got cut?
The Senate stripped out an extension to an investment tax credit for renewable power generation from solar, wind, and biomass. Also taken out was a renewable portfolio standard that would have mandated that utilities get 15 percent of their power from renewable sources.

Representatives from the solar and wind industries said losing the investment tax credit will delay growth of the renewable energy industry. When Congress resumes next year, expect lobbyists to push for an extension to the tax investment incentives, which are set to conclude at the end of 2008.

The oil industry opposed the renewable energy provisions. That's because they would have been paid for by taking away existing tax incentives for oil companies, according to John Felmy, the chief economist for the American Petroleum Institute. If the tax package had gone through, consumers would have paid higher prices for transportation fuels, he argued.

How will the new law affect consumers?
There are provisions meant to protect consumers from price gouging of oil-based products sold at "unconscionably excessive prices" during a period of energy emergency declared by the president.

The efficiency standards and research should yield more energy-efficient appliances, lighting, and heating and cooling. Those changes will save consumers $400 billion through 2030, according to the law's sponsors. Dishwashers will have to cut water usage by 20 percent and clothes washers by 40 percent, saving consumers money.

But in the near term, the major facets of the law won't likely have immediate impact on average consumers. The fuel efficiency mandates for cars and trucks will start to be phased in over the coming years. And because those standards are measured fleetwide, there could be a wide range of fuel efficiency available from a given manufacturer, including cars and trucks with low gas mileage. Detractors argue that the higher CAFE standards will mean higher prices for cars and trucks. Efficiency advocates point out consumers already have options for buying fuel-efficient cars and trucks.

In theory, consumers also stand to benefit from research and development grants (if they are in fact funded) into solar, wind, geothermal, and other renewable sources. But these changes, like the efficiency mandates, could take years to make their way into commercial products.

How will the Energy Act impact the clean-tech industry?
The area of biofuels has been one of the most active in clean-tech investments over the past two years and the increased mandates pave the way for more. In particular, the act calls for increased production of cellulosic ethanol, made from agricultural wastes, grasses, or woodchips. Companies investing in cellulosic ethanol now have assurances that the demand will be there as they try to make advanced biofuels more cost-competitive with corn ethanol.

In a statement, Don Endres, the CEO of ethanol producer VeraSun Energy, said the biofuels targets provide the incentives for continued investment.

"The Renewable Fuels Standard underpins the growth of the industry by providing a clear and positive market signal for investment in new technologies, production, distribution, and storage infrastructure," Endres said in a statement.

Companies investing in energy-efficient lighting and home appliances also should benefit from the law, as there are higher standards and dollars allocated for research, although Congress still has to appropriate such funds.

Not surprisingly, the failure to pass the tax package that included incentives for renewable power generations was a major disappointment to investors in the field.

"While I do support the energy-efficiency provisions of the bill, the abdication of any responsibility for pushing the U.S. towards further adoption of renewable energy for power generation--in the face of compelling needs for economic development, enhanced energy security, and reduced carbon emissions that can be provided by renewable energy--is quite galling," wrote Richard Stuebi, an energy entrepreneur and consultant in a blog on Monday.

What other technologies might get a lift?
Transportation and energy storage technologies stand to receive research and development funding. That includes advanced materials to make lighter, more fuel-efficient vehicles as well as electric cars.

Other nascent technologies expected to receive funding include wave power and the capture and storage of greenhouse gas emissions.

Green building technologies are also favored with mandates to make government-owned buildings use efficient lighting. The Department of Energy building is set to be fitted for photovoltaic panels.

Now that this law is in place, will the U.S. remain "addicted to oil?"
Yes. The biofuels incentives are meant to reduce dependence on oil and increase energy security through domestic production. But even with the higher mandates, petroleum is not going away.

Even if the U.S. converted 100 percent of farmland to making cellulosic ethanol, it would produce 100 billion gallons a year, while the U.S. consumes 140 billion gallons per year for gasoline alone, according to Felmy from the American Petroleum Institute. "When I hear XYX politician say we're going to grow our way out of imports, they just don't know the facts. It's like a mantra," he said.

But the picture isn't all bad when it comes to biofuels and the environment. The legislation introduces a method of measuring greenhouse gas emissions over the lifecycle of production, according to said Nathanael Greene, senior policy analyst at the National Resources Defense Council.

"While additional safeguards are needed for biofuels (and all agriculture) to protect and preserve soil and water quality, the language in this bill takes a big step towards recognizing the broad range of impacts that biofuels can have if done carelessly," Greene wrote in his blog on Monday.

Reuters contributed to this report.

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