· Executive Summary ·

 

The energy crisis is a complex issue that impacts billions of individuals and families worldwide. Unprecedented spikes in oil costs have forced consumers across the globe to adapt to record fuel and food prices. Consumer outrage over record gas prices has led to protests all over the world, from India to here in the United States , where consumer frustration has reached an all-time high. In recent months, oil prices have skyrocketed to $143 a barrel and national gas prices surpassed the $4 per gallon threshold.

 

As consumers cope with record food and gas prices, speculators, oil producers and traders continue to divert the blame. Heated Congressional debates have marked the beginning of an investigation into this complex crisis, which appears to be partly a result of market manipulation and speculation.  Congressional committees have held a series of oversight hearings in recent weeks on oil market manipulation.  These hearings continue this week and appear to be driving a move toward more regulation in the U.S. oil market.

 

During a recent Congressional hearing convened by the Senate Committee on Commerce, Science and Transportation, economic experts verified the link between the pain at the pump and market manipulation and speculation.  “That speculative bubble in energy commodities has cost households, on average, about $1,500 over the past two years in increased costs for gasoline and natural gas,” stated Dr. Mark Cooper, director of research for the Consumer Federation of America. The speculative bubble has cost the American economy an astonishing half a trillion dollars, according to Cooper.

 

Strict federal enforcement of the markets and speculators could immediately reduce gas prices by 25 percent, according to Michael Greenberger, former director of the Division of Trading and Marketing at the Commodity Futures Trading Commission.

 

While the energy crisis is mainly a federal issue, solutions to such a complex and multi-level problem require a collaborative effort from the local, state and federal government.  Massachusetts citizens have been struggling with the high costs of food and gas, and the rising cost of heating their homes during the frigid winter months. It has been the objective of the Senate Post Audit and Oversight Committee here in Massachusetts to give voice to consumers across the Commonwealth.

 

On June 3, 2008 , the Senate Committee on Post Audit and Oversight conducted a hearing to examine the energy crisis in Massachusetts and investigate actions the Commonwealth can take to curb rising fuel costs. During the hearing, Running On Empty: Massachusetts Faces Record Energy Costs, the Committee members listened to testimony from an esteemed panel of experts, including written testimony from Congressman Edward J. Markey, Chair of the Select Committee on Energy Independence and Global Warming; Rayola Dougher, Senior Economist, American Petroleum Institute; Philip Giudice, Commissioner, Massachusetts Division of Energy Resources; Paul Hibbard, Chairman, Massachusetts Department of Public Utilities.

Committee members have reviewed their testimony along with testimony from recent Congressional hearings.  The Committee recommends certain actions the state and federal government can take to promote short and long-term solutions to the rising energy costs and fuel prices here in Massachusetts and across the nation.  One of the key findings of the Committee deals with fuel assistance funding.  The Committee found that that heating oil prices have increased 80 percent in one year.  Massachusetts utilized a total of $139 million in state and federal fuel assistance for last winter, including $124 million in federal funding and $15 million in state supplemental appropriations.  Given the enormous increase in the prices of heating oil and natural gas, it is clear that past federal and state funding levels for fuel assistance will be inadequate this winter. Based on this evidence, the Committee is recommending that state leaders and budget writers be prepared to authorize additional supplemental funding, potentially as much as $50 million or more this winter, more than three times the amount of funding the state provided in FY08.  Additional findings and recommendations are discussed below.

 

 

· Findings and Recommendations ·

 

The Senate Committee on Post Audit and Oversight presents the following findings and recommendations on both the state and federal level:

 

FINDING ONE :   Excessive speculation in the futures markets, which have gone unregulated since the end of 2000, contributes $25 to $50 per barrel to the price of oil.

 

RECOMMENDATION:

 

·        Urge our federal government to end market manipulation and speculation. Tighter control on speculators and market manipulation could immediately reduce fuel prices by 25 percent, according to Michael Greenberger, former director of the Division of Trading and Marketing at the Commodity Futures Trading Commission. [1]  

 

 

FINDING TWO:  More drilling is not a long-term solution to the problem of high energy prices.  Oil industry representatives testified at both state and federal hearings that the U.S. needs to open up additional public land and offshore waters to drilling.  They contend that this will drive down crude oil prices.  However, it has been widely reported that any increase in domestic drilling will take 10 to 20 years to yield additional supply, and furthermore, that the oil industry is utilizing only a small percentage of public land they currently have under lease.  Global oil production is likely to peak within the next four or five years and then begin declining, just as developing countries like India and China are demanding an increasingly larger share of available supply. 

 

RECOMMENDATION:

 

·        Rather than focusing on just drilling, the federal government should focus on policies geared at energy independence, which include an aggressive move toward renewable energy resources which will ultimately reduce the nation’s dependence on foreign oil.

 

 

FINDING THREE:  Massachusetts has begun to address high energy costs and reduce its demand for energy by passing important legislation such as the “Green Communities Act,” which included language codifying the Regional Greenhouse Gas Initiative. However, in order to complete a comprehensive legislative package to address the energy crisis, Massachusetts must pass legislation that establishes the legal authority to limit carbon emissions, as well as pass legislation that promotes alternative fuels.  The state should also advocate for federal policies that ensure that federal subsidies are used exclusively to promote U.S.-based alternative fuels.

 

RECOMMENDATIONS:

 

·        Pass the climate change bill pending in Massachusetts .  In order to promote alternative energy sources, reduce our energy consumption, and promote greener living, the Massachusetts Legislature must enact the “Global Warming Solutions Act” (S2540).  The legislation will help mandate that the state move toward fuel independence and as a consequence spark job creation throughout the Commonwealth.

 

·        Pass “An Act Furthering the Biofuels Clean Energy Sector” (H4363), provided it includes provisions to ensure that a comprehensive life-cycle analysis of pollution, global warming, and the increase in food costs is included. Also encourage Congressional leaders to close the “splash and dash” loophole.

 

 

FINDING FOUR:  Heating oil prices have increased 80 percent in one year.  Since 2000, natural gas prices have almost doubled and electricity prices are up 60 percent.  Massachusetts utilized a total of $139 million in state and federal fuel assistance for last winter, including $124 million in federal funding and $15 million in state supplemental appropriations.  Given the enormous increase in the prices of heating oil and natural gas, it is clear that past federal and state funding levels for fuel assistance will be inadequate this winter.  Furthermore, it is expected that many more Massachusetts residents will apply for fuel assistance this year.   

 

RECOMMENDATION:

 

·        The state must provide increased funding for the Low Income Home Energy Assistance Program this winter. It is likely that this will be a particularly difficult winter for low-income families due to rising fuel prices, and the federal appropriation will not be enough.  State leaders and budget writers should be prepared to authorize additional supplemental funding, potentially as much as $50 million or more this winter, more than three times the amount of funding the state provided in FY08.  This funding would meet the difference between last winter's energy prices and current prices, without addressing further oil price increases or natural gas price increases.

 

 

FINDING FIVE :  Aggressive action by the Commonwealth can reduce its own energy consumption, thereby reducing energy demand and avoiding higher costs in the future. 

 

RECOMMENDATION:

 

·        The Executive Office of Environmental Affairs should continue to measure compliance with Executive Order 484 and report to the governor and legislature annually on progress.  In addition to the requirements of EO484 and the “Green Communities Act,” the state should mandate replacement of all state vehicles with fuel-efficient vehicles by 2018.

· Introduction ·

 

Soaring gas prices have left the American consumer questioning what actions the government is taking to bring relief to this crippling problem.  While supply and demand surely play a significant role in the increase of fuel prices, the surging prices cannot be fully explained using this basic economic principle - and consumers are demanding answers and solutions. With gas prices topping more than $4 per gallon, the federal government has been forced to examine other factors behind the extreme increase in prices. 

 

 

In response to this threatening problem, Congressional leaders have recently convened numerous hearings and listened to testimony from market analysts, regulators, speculators and oil industry executives. These essential hearings have been hosted by various Congressional committees, such as the Senate Committee on Commerce, Science and Transportation; and the House Energy Subcommittee on Oversight and Investigation. More hearings are slated for the upcoming weeks, as this issue continues to heat up.

 

As a result of these recent investigations on Capitol Hill, Congress has introduced nine bills aimed at reducing oil speculation on the market. A few of these bills include, “The Consumer-First Energy Act of 2008” (S. 3044), “Oil Speculation Control Act of 2008” (S. 3131) and “Increasing Transparency and Accountability in Oil Prices Act of 2008.” The bills include measures that would raise margin limits for speculators; establish a windfall profits tax on the five largest oil companies; enforce speculation limits, thus deterring investors from playing a large role in the market; and allow the CFTC to increase transparency on oil traders and market activities.

 

The energy crisis is complex and requires a multi-tiered response. Solutions on the federal level must be reinforced by state action and policy. Massachusetts has an opportunity to become a leader on this issue and to address the energy crisis with innovative policy initiatives. Recent passage of the “Green Communities Act,” which contains the RGGI standards, shows that Massachusetts has made progress on this issue, but there is still a long way to go. The “Global Warming Solutions Act,” which is currently in the House Ways and Means Committee, would boost the clean energy sector and grow the green economy here in Massachusetts . Another key component of this comprehensive legislative package is “An Act Furthering the Biofuels Clean Energy Sector,” which would help strengthen the clean energy sector and promote renewable energy resources. The future of the Commonwealth’s economy hinges on the Legislature’s choices today.

 

Investing in the Commonwealth’s green economy would help reduce our dependence on foreign oil and would spur job creation throughout Massachusetts . Jobs in the “clean energy” sector are predicted to grow by 20 percent over the next year; this is three times greater than the next fastest-growing sector in the Commonwealth grew over the last year. [2]

 

As the oil supply starts to dwindle at a rapid pace, the Commonwealth must focus on alternative energy resources and renewable energy. Since oil is not an infinite resource, Massachusetts must not only embrace alternative energy, but also reduce its demand for oil. “Our most powerful tool for dealing with these energy costs is to take control of our energy bills through energy efficiency and alternatives to fossil fuels,” said Phillip Guidice, Commissioner of the Division of Energy Resources.

           

Unfortunately, there is no “quick fix” for the energy crisis. Solutions will require a combination of federal, state and local policies and initiatives, as well as a move toward alternative energy sources. Under the existing federal administration, such policies have been neglected and American citizens have suffered at the pump. In 2002, a gallon of gas cost only $1.38 and crude oil cost a mere $30 a barrel. Over the course of seven years, the cost of gas has tripled and the cost of crude oil has quadrupled.

 

As the nation looks to elect a new President, Americans have an opportunity to determine the course of the energy issue in the United States . Current federal energy policies will most likely continue to linger until a new administration takes office. That is why it is critical that Massachusetts takes resolute action now. The energy crisis has impacted the daily lives of every citizen across the Commonwealth, particularly elderly and low-income consumers. According to Charles Harak of the National Consumer Law Center , in only one year oil costs in Massachusetts have increased by 80 percent and electricity costs have increased by 60 percent since 2000. Across Massachusetts , 300,000 individuals owe their electric and gas companies a combined total of $90 million. [3]

 

As the cost of gas and home heating oil continue to increase, Massachusetts must provide relief for thousands of individuals and families throughout the Commonwealth. Combined efforts of the federal and state government will help alleviate the impacts of the energy crisis on consumers. Energy priorities on the federal level will include closing regulatory loopholes, releasing oil from the strategic petroleum reserve, and ending market manipulation and speculation. In Massachusetts , approving significant energy and global warming legislation and growing the clean energy sector will be necessary tools in helping Massachusetts cope with and conquer the energy crisis.   

 

· Federal Initiatives ·

 

In recent weeks Congress has taken a serious look at the impact of market manipulation and speculation on gas prices.  Last week Representative Bart Stupak, Democrat of Michigan, who chaired the hearing of a House Energy and Commerce subcommittee stated, “Make no mistake about it, the excessive speculation in commodity markets is having a devastating effect at the gas pump that is rippling through our entire economy.”  Earlier this month, the Senate Commerce, Science and Transportation Committee held an important hearing that brought many of the issues being discussed today to light.  In addition, President Bush asked Congress to end the federal ban on offshore oil and gas drilling along much of America ’s continental shelf.  Below, the Committee examines what the decisions being made at the federal level mean for long-term energy security for American consumers. 

           

Closing the Enron Loophole

 

The biggest factor in determining gas prices is the price of crude oil, according to Rayola Dougher, of the American Petroleum Institute. [4]   Crude oil prices have increased due to strong worldwide demand, even as demand in the U.S. has flattened out and even decreased in recent weeks in response to higher prices.  Diesel fuel prices have increased even more than gasoline, partly due to the fact that diesel consumption is mostly business related and therefore less discretionary.  But strong demand alone does not explain the recent spike in gas prices.  Many experts believe that speculation and manipulation of the oil futures market is partly to blame for current gas prices.  The President and CEO of Marathon Oil recently said, “$100 oil isn’t justified by the physical demand in the market. It has to be speculation on the futures market that is fueling this.” [5]

           

Changes over the last few years have changed the way in which commodities markets are regulated.  The most devastating piece of legislation is known as the “Enron Loophole.”  The “Enron Loophole” was codified in the Commodity Futures Modernization Act of 2000, allowing oil futures to be traded electronically in unregulated markets outside of the jurisdiction of the Commodities Futures Trading Commission.  Prior to 2000, U.S. energy futures were traded exclusively on regulated markets like NYMEX, where the CFTC polices the market for price manipulation or fraud. Since 2000, however, there has been a tremendous growth in the trading of oil and gas futures on unregulated, electronic markets.

 

Legislation aimed at closing the Enron Loophole was recently passed as part of the Farm Bill over the President’s Veto. [6]  This measure will ensure the ability of the CFTC to regulate all US energy exchanges to prevent price manipulation and excessive speculation.  The “CFTC Reauthorization Act of 2008,” will put all significant energy trades on electronic platforms within the regulatory authority of the Commodity Futures Trading Commission, and will impose limits on the size of traders' positions to prevent excessive speculation. [7]  

 

While this was an important move, that piece of legislation only closed the door to natural gas trades on unregulated exchanges - not oil trades. Many bills attempt to further close these trading “loopholes.”  In addition, the London-Dubai loophole, which allows foreign oversight over certain U.S. energy trading, must also be closed.  Last month, Senator Carl Levin introduced legislation that requires U.S. traders trading on the London exchange to provide U.S. regulators with trading information that they must already provide when they trade on the New York Mercantile Exchange. [8]  

 

Drilling is not a long-term solution to the energy crisis

 

Drilling offshore will not provide short term or long term relief for consumers paying exorbitant prices for gas and fuel.  According to the Energy Information Administration access to the Pacific, Atlantic and eastern Gulf regions would not have a “significant impact on domestic crude oil and natural gas production or prices before 2030.” [9]   In addition, 95 percent of Alaska 's expansive North Slope is already available for oil and gas exploration and leasing. [10]   Furthermore, global oil production is expected to peak and then begin declining within the next four or five years. [11]   The idea of drilling is diverting the public’s attention from dealing with high gas prices and creating a false sense of a never ending supply of oil.  Drilling offshore seems especially imprudent in light of the fact that while Americans consume 25 percent of the world's produced oil, the nation holds less than 3 percent of the world's oil reserves. [12]  

 

“Developing ANWR, offshore California, Florida, and off the East coast will take a decade to bring new supply to market, and will only make a small dent in U.S. consumption.  While a little more than half the world’s crude oil has been extracted, what remains is increasingly difficult to find and drill.  Tar sands, shale oil, CTL (coal to liquids) and other unconventional sources of liquid fuel will not make up for the accelerating decline of conventional oil production.  Their capital costs are enormous, and it will take decades for these sources to achieve more than a few million barrels per day of flow.” [13]

 

Rather than pushing for more energy efficiency policies and initiatives to reduce demand, the current U.S. administration is pushing for misleading solutions and taking the focus off implementing meaningful energy policies.  According to Congressman Edward J. Markey, “It is highly misleading to suggest that we can solve the problem of our oil dependence or high gas prices with more drilling, when the real answer is not more drilling, but using technology to make our cars and SUVs more energy efficient.” [14]

 

Our Congressional leaders, such as Congressman Markey, have introduced important “use-it or lose-it” legislation that deals with the fact that current leases are not being maximized.  Oil and gas companies currently hold leases on nearly 68 million acres of federal land that they are not developing.  It is estimated that development of the leases could produce an additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day. [15]   While prices at the pump stay high and continue to rise, the federal government must stop wasting time on ideas that will not produce viable long-term solutions.

 

Worldwide, crude oil prices are also being driven upward as “net exports” decline.  For the last three years, the total amount of oil exported by the 15 largest exporting countries has declined at an accelerating pace.  In essence, as supplies tighten, exporting countries are keeping more of their own supply for domestic use and exporting less crude oil. [16]  

 

· State Initiatives·

As the federal government tackles the tough issues surrounding market manipulation and speculation and reinstating the much needed regulatory oversight, state governments should not wait for the effects of pending federal legislation to address the problems with gas prices.  Furthermore, states should not rely on the false hopes of drilling to increase supply at a time when gas prices increase daily.  Instead, state government must look at its own policies and enact innovative legislation that will help consumers deal with the unavoidable consequences of high energy prices. 

 

Responding to this need, on June 3, 2008 , the Senate Committee on Post Audit and Oversight conducted a hearing to examine the energy crisis in Massachusetts and investigate actions the Commonwealth can take to curb rising fuel costs. During the hearing, Running On Empty: Massachusetts Faces Record Energy Costs, the Committee members listened to testimony from an esteemed panel of experts, including written testimony from Congressman Edward J. Markey, Chair of the Select Committee on Energy Independence and Global Warming; Rayola Dougher, American Petroleum Institute; Philip Giudice, Massachusetts Division of Energy Resources; Paul Hibbard, Massachusetts Department of Public Utilities, Charles Harak, National Consumer Law Center, Jerrold Oppenheim, Low-Income Energy Affordability Network, Ann Lynch, Massachusetts Motor Transportation Association, Richard Lawrence, Association for the Study of Peak Oil – USA, and Seth Kaplan, Conservation Law Foundation. The themes that emerged from this hearing included the need to provide fuel assistance for low-income households as well as the need to pass strong climate change legislation.

 

 

Massachusetts must prepare to provide additional assistance to the working poor and elderly who are struggling to pay their energy bills.

 

High gasoline prices have hit all Massachusetts residents hard.  Even those who do not rely on a car for transportation are seeing increasing prices for food and other consumer items.  Hardest hit by this crisis are the state’s working poor and the elderly, who have little or no financial cushion to absorb higher prices. 

 

Price Increases Lead to Utility Terminations

 

Heating oil prices have increased 80 percent in one year.  Since 2000, natural gas prices have almost doubled and electricity prices are up 60 percent.  Due to the increase in prices, arrearages are also up.  Currently, more than 125,000 Massachusetts households owe their electric and gas utility companies an aggregate of $90 million.  These households owe an average of $500 to $1,000 in unpaid energy bills and many will face terminations of service this summer.  Utility companies are predicting that residential terminations will increase 20 percent to 50 percent over 2007. [17]

 

A Snapshot of the Fuel Assistance Program in Massachusetts

 

The Low Income Home Energy Assistance Program (LIHEAP) serves approximately 140,000 households in Massachusetts .  Of these, 40,000 receive assistance for heating oil.  One third of these households is below the Federal Poverty Level ( FPL ) of $20,650 for a family of four.  Half of the households earn less than 125 percent of the FPL , and one third are elderly.  The average benefit for fiscal year 2008 was $1,165 for oil, kerosene and propane, and $1,025 for electricity and natural gas. [18]

 

Massachusetts utilized a total of $139 million in fuel assistance for last winter. [19]   Of this, $81.8 million came from a federal block grant, $9 million was carried over from the FY07 federal block grant, $15 million from a supplemental state appropriation, and $32.2 million came from two releases of federal emergency funds in early 2008. [20]

 

Predictions for the Upcoming Winter Season

           

The U.S. Energy Information Administration predicted that heating oil prices will reach an average of $4.46 a gallon in the Northeast during the upcoming heating season. [21]  The commodity price of gas, which is unregulated and accounts for the majority of the price consumers pay, is up 82 percent in the past year, to $13 per million BTUs. [22]   This price is estimated to range from $10-$16 per million BTUs this winter, which is not good news for consumers who heat their homes with gas. 

 

 

 

Last week the National Energy Assistance Directors’ Association (NEADA), called on Congress to increase LIHEAP funding to $1 billion.  NEADA predicted that average cost of heating a home this winter will reach $2,593 for heating oil, $978 for natural gas, and $1,967 for propane. [23]   In New England , it could cost between $3,500 and $7,000 to heat a home with oil. [24]   In spite of the increases in energy prices, President Bush’s fiscal year 2009 budget cuts fuel assistance by 22 percent for this winter.  Under this budget, Massachusetts would likely lose about $20 million in federal funding.  This could reduce the payment per household from $1,165 last year to $650 this winter, which will only pay for about a half a tank of heating oil. [25]  

 

The state has budgeted for $93 million in federal fuel assistance for fiscal year 2009.  LIHEAP advocates expect that in spite of threatened cuts, the program will be funded this year through continuing resolutions at a similar level to last year. [26]   However, it is clear that last year’s funding levels will not keep pace with the dramatic increase in prices. Furthermore, it is likely that the rise in energy prices will force an increasing number of households in Massachusetts to apply for fuel assistance this year. [27]   With heating oil prices estimated to hit $4.46 per gallon this winter, Massachusetts must reassess its supplemental budget funding for LIHEAP, given the current energy crisis.  The Committee is recommending that the state budget writers and leaders prepare to fund as much as $50 million in fuel assistance funding this winter. [28]  

 

 

State Agency Compliance with Executive Order 484:  “Leading By Example – Clean Energy and Efficient Buildings”

 

Governor Patrick’s Executive Order 484, “Leading By Example – Clean Energy and Efficient Buildings,” was issued April 18, 2007 , one of the first actions of the new administration.  In announcing this executive order, Governor Patrick stated, “[i]n my administration, we intend to practice what we preach.” [29]   Patrick went on to issue a proclamation declaring the year beginning April 22, 2007 “The Year of Energy Efficiency.” [30]   The Governor called for changes in behavior in state office buildings and said, “[t]here will be no more leaving lights on at night or over the weekend.” [31]   With this order, Governor Patrick sent a strong message that the Commonwealth of Massachusetts  would take energy efficiency seriously.

 

The executive order requires that state agencies reduce their overall energy consumption from 2002 levels by 20 percent by 2012 and 35 percent by 2020. [32]   The order also requires agencies to reduce greenhouse gas emissions in their operations by 25 percent by 2012, 40 percent by 2020, and 80 percent by 2050. [33] In order to achieve these goals, the state is required to obtain 15 percent of its energy from renewable sources by 2012, and 30 percent by 2020. [34]   Starting with last winter, agencies were required to use bio heat products with a minimum blend of three percent bio-based materials for all heating using #2 fuel, and a 10 percent bio heat blend by 2012. [35]   All new construction and major renovation of state buildings must meet Massachusetts LEED Plus green building standards, effective immediately. [36]   Potable water use by state agencies must be reduced 10 percent by 2012 and 15 percent by 2020. [37]   The order gives the Executive Office of Environmental Affairs and the Executive Office of Administration and Finance the discretion to “establish alternative baselines and guidelines for meeting the above targets.” [38]

 

While the goals in this executive order are laudable, it is unclear what progress has been made since the order was issued in April 2007.  In response to the Committee’s requests for data on the state’s compliance with Executive Order 484, the administration provided a draft report on sustainable programs at state agencies covering the period between 2003 and 2008. [39]   Although this report highlights the importance of measuring progress by state agencies in meeting the mandates of Executive Order 484, the report does not specifically set out whether the state is on track to meet the order’s requirements. [40]   The report describes many interesting case studies of sustainable projects throughout the state, in various stages of completion. [41] The Committee is confident in the continued success of the Leading by Example Program, and applauds Governor Patrick for his commitment to energy efficiency and clean energy.  

 

Massachusetts should take advantage of “early mover” benefits in federal global warming legislation. 

 

Unfortunately, Congress has failed to pass comprehensive global warming legislation this year.  The bi-partisan Lieberman-Warner “Climate Security Act” (S3036) would have reduced greenhouse gas emissions 15 percent by 2020 and 70 percent by 2050, but this legislation was narrowly defeated by a Republican led filibuster in the Senate. Instead of debating the merits of the legislation, the Senate chose to ignore the country’s growing dependency on foreign fossil fuels, rising gas prices and the impacts of global warming. The filibuster was backed by President Bush, who threatened to veto the legislation if it passed.

 

Congressman Edward Markey, chairman of the Select Committee on Energy Independence and Global Warming, filed legislation (commonly referred to as the “iCAP” bill) that would reduce emissions 20 percent by 2020 and 85 percent by 2050. The economy-wide carbon cap program would limit greenhouse gas emissions from all sources and place a price on carbon. It would then invest all of the revenue generated from auctioning pollution permits back into renewable energy, energy efficiency and the new green economy. “Under my bill, half of the proceeds from polluter auctions flow directly back to the consumers, protecting 80 percent of America’s families from increased energy costs while our economy transitions,” said Markey at a event in May. [42] While scientists agree that the goals included in the Markey bill will put the country on the right track to reduce the nation’s oil imports, energy consumption and global warming, Congress will not have an opportunity to debate the legislation until next session.

           

It is widely anticipated, however, that in 2009 a new administration will push Congress to act on global warming. States that act before the federal government are expected to be rewarded as “early movers” in the federal legislation. There are already five states, California , New Jersey , Hawaii , Washington and Connecticut that have enacted climate legislation requiring mandatory greenhouse gas reductions. Massachusetts must join these other states in setting statewide emissions reduction targets by passing the “Global Warming Solutions Act” (S2540).

 

The legislation, which passed the Senate and awaits action in the House, calls for greenhouse gas emissions to be reduced 20 percent by the year 2020 and 80 percent by the year 2050. Modeled after carbon cap legislation passed into law in California (AB 32), the goals in the “Global Warming Solutions Act” are backed by the international scientific community. They are also comparable to goals outlined in similar legislation in other states. When comparing Connecticut ’s carbon cap law (H5600) to Massachusetts , Connecticut will have to reduce its greenhouse gas emissions 17 to 18 percent. This is because Connecticut has seen an increase in emissions over the last 25 years, while Massachusetts ’s emissions rates have remained relatively stable. In order to most effectively reduce emissions in Massachusetts at a comparable level to Connecticut , Massachusetts must reduce greenhouse gas emissions 20 percent by 2020.

 

Signing the “Global Warming Solutions Act” into law is also critical so that the emission reduction goals are legally enforceable for generations to come. State climate change legislation will not only protect our environment, but also safeguard existing jobs, spur new job growth, protect the public health and provide a roadmap to move the nation toward energy independence. This legislation will also help reduce demand and help to insulate consumers from volatility in future energy prices. “The best way to reduce our economy’s vulnerability to high natural gas prices is to waste less gas. Simply by issuing new efficiency standards for commercial air conditioners, residential furnaces and boilers, and electric distribution transformers, America would save 6.4 trillion cubic feet of natural gas over the next 20 years,” according to the Natural Resources Defense Council. [43]

 

 

Massachusetts should pass a biofuels bill that ensures a net environmental benefit.

 

Biofuels are also a critical part of the nation’s energy equation. “When adjusted for energy content, 485 million barrels of ethanol are the equivalent of 320 million barrels of gasoline. If ethanol were not available for use, the world’s refiners would need an additional 1.9 million barrels of crude oil per day (700 million barrels a day), or 2.2 percent of current world production…a shortfall of this magnitude would likely result in a short-term price increase of 27.5 percent.” [44] It is clear that without biofuels in the mix, energy prices would be even higher than they are today.

           

It is easy to want to encourage the unlimited production of biofuels in the United States . Doing so could potentially reduce energy prices, as well as the nation’s dependence on foreign fuels. However, biofuels are a complicated, complex and often controversial issue. Some of the concerns associated with the production of biofuels are that it uses more fertilizers than other crops, destroys natural carbon sinks, causes water shortages and contributes to world hunger. The net benefit, or life-cycle-analysis, of biofuels must be weighed carefully.

 

Another concern with biofuels is a loophole commonly referred to as “splash-and-dash.”  The process allows biodiesel to be imported from another country into the United States , where a “splash” of petroleum is added and importers can receive tax credits meant to encourage the production of American based biofuels. The product is then shipped to Europe , where the U.S. subsided biofuel is sold. “Up to 10 percent of biofuel exports from the US to Europe are believed to be part of the rogue scheme reaping big profits for agricultural trading firms.” [45]  According to Ann Lynch, Executive Director of the Massachusetts Motor Transportation Association, such practices cost the nation over $30 million dollars a year. [46] In addition to robbing the nation’s taxpayers, the practice requires unnecessary shipping, increases greenhouse gas emissions, reduces U.S. production of biofuels and hurts the global biofuels industry. In 2007, language closing the “splash-and-dash” loophole was originally included in the Energy Advancement and Investment Act, but was eliminated from the final version that was signed into law in 2007.

 

Massachusetts leadership has made biofuels legislation entitled “An Act Furthering the Biofuels Clean Energy Sector” (H4363) a top priority of the 2007-2008 session. The bill would increase the amount of biofuels used for heat and transportation by two percent by 2010 (and ramped up each year until the requirement is five percent by 2013). The bill also includes a requirement that approved biofuels must yield a substantial reduction in life-cycle greenhouse gas emissions.

 

The science, however, has not yet caught up to the policy. Currently, there is no standardized life-cycle analysis of the effects of pollution, greenhouse gas emissions, water shortages and increases in food costs.  A biofuels blending mandate should not go into effect without the necessary analysis of the fuel’s life-cycle. While the biofuels bill is a positive step in the right direction, the legislation must ensure that the blending requirement be delayed if the net benefits cannot be determined.

 

· Conclusion ·

 

As Congressional debates continue and our federal government works on implementing important regulatory changes to the commodities market, Massachusetts must move forward as well.  With the passage of the much awaited “Green Communities Act,” Massachusetts is one step closer to becoming energy independent. However, there is still critical work that must be done.  The Commonwealth must reduce its own energy demand, pass key legislation to limit carbon emissions and promote alternative energy sources, as well as approve sufficient FY09 funding to ensure the working poor are able to afford to heat their homes this winter.  As there is no foreseeable end to the energy crisis, smart choices must be made in 2008 in order to avoid the long-term costs of inaction. Having the courage today to lock in good policy means future generations will not have to rely on the goodwill of future administrations.  Implementing the Committee’s recommendations will be a vital part in helping Massachusetts citizens cope with and conquer the energy crisis.  Massachusetts must act now before we are running on empty.