Senate Energy Bill Emphasizes Renewable Fuels and Alternative Energy
Submitted by Mark R. Robeck, Baker Botts, L.L.P.

On September 4, 2007, the Senate received the House of Representatives’ version of sweeping new energy legislation in a pair of companion bills.¹ The bills raise taxes on oil companies and emphasize the use of renewable energy through new mandates on existing energy companies and incentives for the development of “green” energy sources.

On a rare Saturday vote in August, the House voted 241-172² to include a controversial provision that requires investor-owned electric utilities to generate at least 15 percent of their electricity from renewable energy sources, such as wind, solar, or biofuels, by 2020.³ This mandate threatens billions of dollars in penalties for non-compliance and may affect electricity prices in regions of the county that do not have abundant wind energy.  In another highly debated provision of the companion bill, the House voted 221-189⁴ to repeal certain 2004 tax breaks given to oil companies to aid in competition against foreign oil sources.⁵  This will result in a $16 billion increase in taxes on the affected oil companies, such as Exxon Mobil Corp., ConocoPhillips, and Chevron Corp.

In June, the Senate passed a similar bill⁶, which must be reconciled with the House’s more aggressive mandates.  However, the Senate version contains relevant mandates as well.  For example, the Senate bill requires fuels used in motor vehicles and boilers to contain designated volumes of renewable fuel.⁷  If put into law, this would entail a graduated program, requiring 36 billion gallons of renewable fuel to be in place by 2022.⁸ 

The resulting revenue from the $16 billion tax increase on oil companies will be used to fund energy research.  The Senate bill contains new government grant programs to encourage the initiation and maintenance of infrastructure to support renewable and alternative energy sources.⁹  The Senate’s grant programs focus on biorefineries and solar, wind, geothermal, and ocean energy.¹⁰  Similarly, the House bill contains grant programs to aid small business in becoming more energy-efficient and authorizes loan guarantees to assist in the construction of biorefineries.¹¹

The White House has threatened to veto any bill that that makes no serious attempts to increase energy security, does not address high energy costs, or would harm domestic oil and gas production.  The Senate bill attempts to work around such a threat by including exceptions to the new mandates when their implementation would severely harm the economy or environment, or extreme or unusual circumstances exist.¹²  While the political dialogue of these provisions is ongoing, it is likely that any energy legislation put into law will include alternative energy incentives and impose aggressive new mandates on existing energy companies.