## Senate Rejects 40% Cut in Oil Use; Approves 10% Renewable Portfolio Standard for Electricity

##### 17 June 2005

Work on the Senate version of the energy bill (S. 10) continued Thursday.

The Senate rejected the Cantwell amendment (earlier post) that proposed a 40% reduction in oil consumption by 2025 from the baseline forecast by the EIA.

The bill, co-sponsored by Senators Feinstein (D-CA), Reid (D-NV, Minority Leader) and Durbin (D-IL) went down 47–53, basically on a party-line vote with four exceptions.

One Democrat (Stabenow, MI) voted against the bill; three Republican senators (Chafee, RI; Snowe, ME; and Specter, PA) voted for it.

However, Senator Jeff Bingaman’s (D-NM) amendment to establish a national renewable portfolio standard (RPS) for electricity generation squeaked by 50–48.

That amendement, which was opposed by the White House (earlier post), mandates every electric utility to generate an increasing minimum percentage of its power from renewable resources, scaling up to a minimum of 10% by 2020.

The amendment was co-sponsored by a bi-partisan set of 14 other senators: Coleman (R-MN); Jeffords (I-VT); Collins (R-ME); Dorgan (D-ND); Feinstein (D-CA); Cantwell (D-WA); Reid (D-NV, Minority Leader); Salazar (D-CO); Obama (D-IL); Clinton (D-NY); Kerry (D-MA); Lautenberg (D-NJ); Johnson (D-SD); and Snowe (R-ME).

Eight Republicans voted for the RPS: Brownback, KS; Chafee, RI; Coleman, MN; Collins, ME; Grassley, IA; Smith, OR; Snowe, ME; and Specter, PA. Two Democrats voted against it: Byrd, WV; and Nelson, NE.

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I have to wonder: If peak oil is going to hit between now and 2010 (2007 is my guess), then how much will U.S. oil consumption decline by 2025? Doing it voluntarily through a gov't policy is vastly better than being forced by high prices. But one way or the other, I suspect the mix of energy sources the U.S. relies on will change a lot in 20 years.

I'm not so sure peak oil will occur by 2010 -- after all, there's always the tar sands of Canada if the price of oil creeps up another $10 or so. The "supply curves" that show oil supply as flat for a while followed by a steep elbow aren't quite right. In fact, one the curve gets up to something like$70 a barrel (2004 dollars), it flattens out for another long while. At $70/barrel, it's economically efficient to extract tar from the tar sands in Canada, and there's a whole bunch of oil in those sands. So, the question is not so much about peak oil right now, but instead: what price is a "good" price for oil? If we do nothing, it will soon get to$70 and stick there for a while. However, when that happens, the countries who already have installed renewable energy plants, efficiency gains, and alternative transportation will be years ahead of the US, and our economy will suffer tremendously as a result.

Luckily, states like CA and NY (and many others, although CA and NY seem to have taken the leadership positions) aren't willing to wait around for Congress. They're pushing through for their own green-e and efficiency gains, which IMO will put their states in the position to make economic gains when oil prices jump again, since their structural costs will be lower.

At $70/bbl, the market for oil is going to be considerably smaller than it is today. That alone would cause production to trend downward, leaving a peak in the past. I definitely agree with stomv about being proactive. If we fail to "future proof" our buildings and physical plant, we risk having much of it become uneconomic as conditions change and having to eat the cost. The risks of this increase with the longevity of the asset; an electricity-hungry computer is a problem for a few years, a guzzling vehicle for ten or so, a leaky house for perhaps fifty. People who bought guzzling trucks in the past few years are already regretting it. The coming decline in natural gas production is going to show the folly of loose building codes. When are we going to learn to be ready for what comes? At$70/bbl of oil there are many alternative fuels that could be cost effective. The question is not 'which (syn)petroleum sources become viable as price rises' but rather 'which fuels don't rise in lockstep with petroleum?' If a significant differential builds up, some kind of arbitrage or conversion will happen. A corollary: as the price of oil rises, corporations which divorce their costs from that rise are going to win big.

Not gas; some companies have been shifting from natural gas to oil as gas prices spiked, and higher oil prices will shift them back.

Candidates for non-shifting:  coal, nuclear, the non-transport component of biomass.

A further question:  what efficiency measures become cost-effective as the price of (gas, petroleum) rises?

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