The Energy Policy Act of 2005 Overview and Implications

1
The Energy Policy Act of 2005 - Overview and
Implications

• Sue Tierney
• MIT Enterprise Forum
• The Energy Bill Opportunities For
  Entrepreneurs
• September 12, 2005

2
Overview of the new Energy Policy Act

• Context for the Act
• Whats in the new Act
• Whats not
• Natural gas and petroleum provisions
• Electric provisions
• Research and development

3
The U.S. Energy Context
4
Rising global primary energy use (18501997)
Fossil Fuel Consumption
Non carbon sources
Rosina Bierbaum, Climate Change A matter of
Degrees, Energy Foundation Board Meeting, June
16, 2004.
5
Todays growing energy consumption
Developing Countries
Industrialized Countries
Population 4.56 billion of fossil fuels
70 Energy 3,861 x 106 toe 0.85 toe/capita
Population 1.34 billion of fossil fuels
81 Energy 6,701 x 106 toe 5.0 toe/capita
IPCC
6
Two core global energy challenges

• Electricity Production and Use

• Transportation-Related
• Energy Use

http//www.pewclimate.org/global-warming-basics/fa
cts_and_figures/fig10.cfm
M. Walsh, http//64.70.252.93/newfiles/Final_
Report/ I_Oil20Security/I.5.c20-20International
20 Fuel20Economy20Policies.pdf
7
Rising worldwide demand for oil
(especially from motor vehicles)
8
US remains major oil user, with
fast-growing demand from China
India
? 90-00 U.S. 13.7 (25 of
world) Japan 3 (7 of world)
China 52 (6 of world) India
? 45 OECD ? 13.0 World ? 13.4
EIA, Annual Review of Energy, 2003, Figure 62,
Leading Petroleum Consumers
9
Crude Oil Prices Nominal, Real
Peaker vs. Economists forecasts?
Short Term Forecast 4th Q 05
Import Price 60.00 WTI
Price 67.80
EIA, Short-Term Energy Outlook, September 2005
10
U.S. Production as of Consumption for
Coal, Natural Gas,
Petroleum
EIA, Annual Review of Energy, 2004, Figure 12.
Production as Share of Consumption for Coal,
Natural Gas, and Petroleum
11
Most oil imported to U.S. is from Canada Most
global incremental capacity is in OPEC
Net Imports 58 of US Oil Consumption
Imports to US From Selected OPEC Countries
World Oil Production
by Region
Sources EIA, Annual Energy Review, 2004,
Figures 24 and 25 EIA, International Energy
Outlook, 2004, Figure 32.
12
Growing U.S. Motor Vehicle Use of Oil
TOTAL U.S. DEMAND
20.5 MPD
9.1 MGD (44 of oil use)
EIA, Annual Review of Energy, 2004, Figure 5.13b
Estimated Petroleum Consumption by Product by
Sector, 1949-2003
13
U.S. Worsening fuel economy in cars
EIA, Annual Energy Review, 2004, Figure 2.8,
Motor Vehicle Mileage, Fuel Consumption, and Fuel
Rates
14
Tightening U.S. Refining Capacity
Disrupted by Katrina
Sources History EIA Projections Short-Term
Energy Outlook, June 2005. History and Outlook
for Gasoline Prices Doug MacIntyre/Michael
Burdette, Petroleum Division, U.S. Energy
Information Administration, July 6, 2005, Owen J.
Roberts High School, Pottstown, PA
15
Rising (Spiking) Gasoline Prices
Katrinas Shock Average US price 3.04/gal
MA 3.19/gal (9-7-05) One year ago 1.89/gal
NY Times, Katrinas Shock to the System,
9-4-05 http//198.6.95.31/index.asp, and
http//198.6.95.31/MAavg.asp
16
¾ of oil reserves in four areas (2002)
EIA, US Crude Oil, Natural Gas, and Natural Gas
Liquid Reserves, December 2003
17
U.S. Electric Production Prices
Electrical Output by Fuel
Average Retail Electricity Prices
Annual Review of Energy, 2004, Figures 44, 47.
18
Older electric capacity is mainly coal nuclear,
most new capacity is natural gas-fired
Significant gas demand
Coal Nuclear legacy plants
National Commission on Energy Policy, 2004.
Ending the Energy Stalemate A Bipartisan
Strategy to Meet Americas Energy Challenges,
page 44, citing Energy and Environmental
Analysis, Inc., 2004.
19
Coal is plentiful domestic resource
EIA, US Coal Reserves 1997 Update, 1999
20
Domestic renewable resources also abundant
Solar and Wind Resources
Renewable Wastes (Biomass)
21
Current nuclear operating licenses end soon
Nuclear 20 of US electric generation
22
Western Natural Gas Basins Declining Production
Natural Gas Well Average Productivity
Source Western Infrastructure Assessment,
Prepared by the Division of Market Development,
October 24, 2001 (including data from California
Energy Commission, California Energy Outlook,
Staff Draft, Sep 2001) Annual Review of Energy,
2004, Figure 35.
23
Many proposed new LNG terminals
FERC Coast Guard http//www.ferc.gov/industri
es/lng/indus-act/exist-prop-lng.pdf (as of
8-22-05)
24
Short-Term Natural Gas Prices
_at_NE City Gate 2004 7.78 2005
9.84 2006 11.01
EIA, Medium Recovery case, Short-Term Energy
Outlook, 9-7-05
25
Rising energy prices expenditures
EIAs 9-7-05 winter outlook This winters energy
expenditures v. last years oil 20
NE Heating oil 31 Natural gas 24 Coal
13 Electricity 5 For all of 2005 total
U.S. energy expenditures 18 above 2004 levels
8.3 of GDP (highest since 87) 6.2 in 2002
26
Supply demand balance

• Oil
• Worldwide demand/supply 80 MBD
• Huge demand pressure (e.g., U.S., China, India)
• Production incremental supplies in Saudi Arabia
• Reserves in many regions, especially Saudi
  Arabia
• Refining extremely tight refining capacity in
  U.S.
• Gas
• North American demand pressure (esp. electric
  power)
• Declining North American production
• Improving economics of LNG
• Pressure for new import/delivery/storage capacity
• Coal
• Rising demand (esp. China, India)
• Rising costs
• Significant environmental impacts especially GHG

27
The fundamental challenging equation
CARBON EMISSIONS
Number of people
Economic activity per person
Energy intensity of economic activity
Carbon content of energy supply




28
Growing coal use expected worldwide
(primarily for electricity)
U.S. Energy Information Administration,
International Energy Outlook (2004).
29
Growing vehicle use in Asia, world ( ? oil, ?
GHG )
IN 25 YEARS
TODAY
Bellagio Memorandum on Motor Vehicle Policy
Principles for Vehicles and Fuels in Response to
Global Environmental and Health Imperatives
Consensus Document 19-21 June, 2001, Bellagio,
Italy - T h e E n e r g y F o u n d a t i o n
30
The U.S. Energy Context




IPCC
31
Official U.S. position on Climate Change

• The biggest GHG emitter is outside the
  international treaty
• Washington not willing to join Kyoto Protocol
• Continued resistance to mandatory action
• Support voluntary initiatives, RD, data, analysis

Continued increases

• power plants (coal)

• cars, SUVs (oil)

EIA, Annual Energy Outlook, 2005
32
The U.S. Energy ContextDiminishing federal
support for energy RD
National Commission on Energy Policy, 2004.
Ending the Energy Stalemate A Bipartisan
Strategy to Meet Americas Energy Challenges.
33
Central energy challenges for the U.S.

• The era of cheap energy is over.
• No silver bullet solutions
• Diverse energy strategy with following
  components
• Enhance oil security (especially diversifying
  transportation sectors dependency on oil)
• Reduce climate change risks
• Increase energy efficiency (in end-use
  technologies)
• Diverse resource mix of resources technologies
• Enhance infrastructure
• Increase RD for advanced energy technology

34
The Energy Policy Act of 2005
35
Energy Policy Act - Overview

• Congressional passage in July 2005
• Signed by President in August 2005 passage
• 1st comprehensive energy Act in 13 years
• 1725 pages 18 Titles
• 14.6 billion U.S. budget estimate
• Support from majority of state delegations
• Generally not supported by delegations from
  Western states, Northeast states, and Florida

36
Energy Policy Act of 2005 The vote

Votes For
Votes Against
Majority of states delegation voted AGAINST
the Act Majority of states delegation voted
FOR the Act Split delegation (equally voted
FOR and AGAINST or NO VOTE)
http//www.congress.org/congressorg/issues/votes/?
votenum213chamberScongress1091
37
Energy Policy Act - Overview

• Whats in it
• Incentives for investment
• Tax incentives (e.g., refinery, exploration,
  efficiency)
• Authorizations for federal funding (e.g., IGCC,
  nuclear RD)
• Royalty relief (e.g., oil and gas drilling)
• Risk mitigation (e.g., nuclear liability
  insurance, coastal impacts, SPR)
• Removal of barriers to entry (e.g., jurisdiction,
  venues)
• Complex and technical electric legislation
• Cats and Dogs (e.g., day light savings)

38
Energy Policy Act - Overview

• Whats not in it
• No mandatory climate change control policy
• Inadequate attention to reducing oil use in motor
  vehicles (ethanol, but no change in CAFÉ
  standards)
• No drilling in ANWR (to be addressed in budget
  reconciliation bill)
• No federal Renewable Portfolio Standards
  (was in Senate version)

39
A few observations

• Remember the difference between
• Appropriations (discretionary budget funding
  decisions to allow spending)
• Authorizations (approval of possible spending but
  still require appropriation action in later
  years)
• Direct spending programs (automatic
  expenditures under certain statutory provisions)
• Tax provisions (allow action by eligible
  entities, with impact on revenues to federal
  treasury)

40
Oil and Natural Gas Production

• Royalty relief for production on federal lands,
  and for shallow-water and deepwater wells in Gulf
  of Mexico
• Expensing of geo-related investments for
  exploration
• Faster depreciation for gas distribution
  gathering facilities
• Inventory in the Outer Continental Shelf
• Designation of critical
  national
  corridors for
  oil, gas
  pipelines
• Assistance for coastal
  
  wetlands in oil states
• Coordinated permitting
  to drill
  on federal lands

41
Natural gas provisions other (LNG)

• Confirms FERCs authority over siting,
  construction, expansion, operation of LNG in
  state waters on-shore
• Confirms states rights to review LNG CZMA, CWA,
  CAA
• Expedited judicial review (DC Circuit) for
  delayed permits for gas pipelines and LNG
  facilities
• Requires FERC to consult with state/localities on
  safety issues of LNG applications.
• Allows state PUCs to perform safety inspections
  of operating LNG terminals.

42
Petroleum provisions other

• Refining
• Tax credits for certain refinery investments
• Permanent authority to operate the Strategic
  Petroleum Reserve (with authority to fill to 1
  billion barrels)

• Renewable fuels for motor vehicles
• Goal of tripling biofuels (e.g., ethanol) in
  gasoline (to 7.5 b
  gallons/year) by 2012

43
Nuclear technologies

• Price Anderson Act extended (to 25) (increased
  indemnity limits (500 m))
• Risk insurance to cover permitting/ construction
  delays for first 6 new nuclear power plants built
  (up to 2 b)
• Production tax credit of up to 125 million per
  year (1.8 cents/kwh)
• Eligibility for loan guarantees (up to 80) for
  innovative technologies to avoid/reduce GHG
  emissions
• DOE authorized 1.25 billion to build a next
  generation nuclear reactor to generate power
  hydrogen
• Updates tax treatment of decommissioning funds
• Advanced Fuel Cycle Initiative authorized

44
Coal technologies

• Advanced coal plant demo authorized, with
  federal/private cost sharing
• Upgrade existing pollution control authorizes
  funds
• Coal RD 3 years of funds authorized
  
• Carbon capture RD 3 years authorized
  
• Power industrial sectors
  investment tax credit
  
• Pollution control
  equipment shorter
  
  recovery period
• Innovative technologies
  
  authorizes loan
  
  guarantees

45
Renewable technologies

• Electricity Production Tax Credit extended thru
  2007
• Eligibility for loan guarantees for innovative
  technologies
  
  
• Clean renewable bonds new types
  
• RPS for federal agencies
• Modified FERC
  hydrolicensing
  
  procedures

46
Tax code provisions 14.6
billion
47
Direct Consumer incentives

• Alternative Fuel Vehicles tax credit for
  purchase (e.g., up to
  3,400 for purchase of a hybrid vehicle) 0.87
  b1
• Installation of alternative fuel refueling
  property 0.01 b2
• Residential energy efficiency property purchase
  0.03 b3
• Efficiency improvements - existing homes ITC
  0.56 b4
• Business purchase fuel cells, microturbines
  ITC 0.22 b5
• Commercial bldg efficient design build ITC
  0.24 b6

• Section - tax credits for automobiles and light
  trucks Fuel cell vehicles, hybrids, advanced
  technology vehicles (e.g., lean-burn technology).
  Effective date The provision applies to
  vehicles placed in service after December 31,
  2005, in the case of qualified fuel cell motor
  vehicles, before January 1, 2015 in the case of
  qualified hybrid motor vehicles that are
  automobiles and light trucks and in the case of
  advanced lean-burn technology vehicles, before
  January 1, 2011 in the case of qualified hybrid
  motor vehicles that are medium and heavy trucks,
  before January 1, 2010 and in the case of
  qualified alternative fuel motor vehicles, before
  January 1, 2011. (Source Tax bill summary, US
  Senate)
• Applicable to homes or businesses of the
  taxpayer. 30 tax credit. (Source Tax bill
  summary, US Senate)
• credit for PV and solar water heating, fuel
  cells.
• ITC for improvements to building envelope,
  furnaces, boilers.
• Credit for m for purchase of fuel cell power
  plants, microturbine, solar energy

48
State and local energy programs

• LIHEAP reauthorized to 07 (5.1 b/year, up
  from 2 b/year)
• State weatherization grants reauthorized thru
  08 (500 m for 05,
  600 m for 07, and 700 m for 08)
• State energy efficiency programs
• Authorizes 225 m (06-08) for state efficiency
  improvement
• Incentives (25 m/year) for efficient state
  building codes
• Grants (30 m/year) to states to assist local
  government buildings
• Low income efficiency pilots (20 m/year)
• Low
• Appliance efficiency standards national 15 new
  appliances
• estimated to avoid 85 new 600-mw plants by 2020)
• Extends Daylight Savings by one month (in 07)

49
Electric supply provisions Reliability and
Power Delivery

• New reliability standards new Electric
  Reliability Organization
• New national interest T corridors, with FERC
  back-stop siting authority where states fail to
  act.
• Establishes new eminent domain authority for
  FERC.
• Requires FERC to establish incentives for T
  investment.
• Authorizes participant funding and native load
  protections for transmission assets.
• Allows federal power
  
  authorities under
  
  FERC RTOs.

50
Energy Policy Act of 2005

• Provides financial incentives for investment in
  domestic
• Refining (oil)
• Exploration and drilling (oil and gas)
• Energy delivery (LNG, pipelines, electric
  transmission)
• Advanced power technologies
• Generation (nuclear, advanced coal, renewables)
• Energy efficiency
• buildings
• appliances

• Biggest missing elements
• mandatory GHG controls
• motor vehicle fuel economy
• stable basis for RD funding

51
Susan F. Tierney, Ph.D.Managing
PrincipalAnalysis Group, Inc.111 Huntington
Ave., 10th FloorBoston, MA 02199ph
617-425-8114fax [phone]stierney_at_analysisg
roup.comwww.analysisgroup.com