InsideCounsel » April 2008
Acting Up
Critics complain the new Energy Act omits more than it includes.
In early February, Citigroup Inc., JPMorgan Chase & Co. and Morgan Stanley announced they would set environmental standards that factor in risks posed by carbon emissions when lending to power companies building coal-fired power plants. The move was yet another indication of the speed at which environmental considerations are moving from social concern to financial reality.
Whether Congress is keeping up, however, is open to debate. President Bush signed the Energy Independence and Security Act of 2007 into law Dec. 19, but the year of political horse-trading that preceded the legislation’s passage took its toll.
“It would be a misapprehension to conclude that the Energy Act is a significant step on the road to a comprehensive energy policy or energy independence,” says Mark Stermitz, of counsel with Christensen, Glaser, Fink, Jacobs, Weil & Shapiro in Los Angeles. “While it is ... the most definitive thing to come out of Washington in quite awhile, its importance is primarily symbolic.”
There’s no doubt that the Act includes some measures designed to increase use of alternative fuels. But critics say it is compromised legislation as notable for what it leaves out as for what it mandates.
“The Act as passed eliminated key components that were in the original version,” says Radha Curpen, a partner at Osler Hoskin & Harcourt in New York. “The most important are a rollback of the tax breaks to oil and gas companies, an extension or creation of tax incentives for renewable energy sources and the implementation of a national renewable energy mandate.”
Up for Debate
Understandably, the reaction from the business community has been mixed.
“The big winners were the ethanol and biofuel sectors,” Stermitz says.
Indeed, the total amount of biofuels added to gasoline must increase to 36 billion gallons by 2022 from the current 4.7 billion gallons. A further 16 billion gallons of the 2022 total must come from cellulosic ethanol. Renewable fuel manufactured at new facilities must achieve at least a 20 percent reduction of lifecycle greenhouse gas emissions. The Act also promotes investment in renewable fuels infrastructure and encourages development of new bioenergy sources. Still, major uncertainties remain, especially for investors.
“There are serious concerns about the economic viability of ethanol,” Stermitz says. “And while biofuels can be produced on a smaller scale and therefore more economically, no one’s quite sure of the environmental benefits.”
Finally, there’s the prospect of an uncertain economy in combination with sky-high commodity prices.
