STALLED ENERGY POLICY

As any economist can tell you, there are two sides to the supply and demand equation. When it comes to energy, however, the country’s CEO is prone to consider only one side – supply. So, it is no surprise that President Bush is urging Congress to move forward with an energy plan that increases the supply of oil, gasoline and even nuclear power. But even these supply-side fixes are mostly empty talk.

During his first prime-time televised press conference since being re-elected, the president stressed the need for measures that would increase the country’s energy dependence. To do this, the president the day before called for the building of new oil refineries on closed military bases, federal risk insurance to encourage the building of nuclear plants, more oil and gas drilling, including in the Arctic National Wildlife Refuge, and greater federal power to site liquefied natural gas terminals. Conservation would come through expanded tax credits for hybrid and clean-burning diesel cars.

Some of these ideas are good, but are meaningless without government policies to move them forward, as is pointed out by BusinessWeek columnist John Carey. The biggest obstacle to building new nuclear plants, for example, is not the cost, although that is an issue. The biggest problem is the lack of permanent storage for radioactive waste. The CEO of the country’s largest nuclear operator, Exelon Corp., made that clear during a recent speech. “We won’t have a new generation of nuclear plants unless the government keeps its 50-year-old promise of waste disposal,” John Rowe said.

On the issue of refinery capacity, Mr. Carey notes, the best thing the Bush administration could do is require just one blend of automotive fuel, rather than the dozen required by various states. That blend, naturally, should be the cleanest burning. But what would really make a difference is higher fuel efficiency standards. Cars and trucks account for 60 percent of the country’s oil consumption.

In other words, more attention needs to be paid to the demand side of the equation.

Maine’s senators have long understood this and have been stalwart supporters of higher fuel efficiency standards. A bill they have supported for years would require sport utility vehicles and light trucks to meet the same standards as passenger cars. This would move the SUV standard to 27.5 miles per gallon by 2011, saving 1 million barrels of oil a day.

The president, on the other hand, has proposed to increase the corporate average fuel economy (CAFE) standards to 22.2 miles per gallon by 2007. This is an increase of only 1.5 gallons over current standards and, because it is spread over the entire fleet, can be achieved by selling more fuel-efficient cars without making a single SUV more efficient.

If the president is serious about making America more energy independent, conservation must be part of the equation. The best way to address this is to significantly increase CAFE standards. On the demand side, he must match his ideas with policies

that make them possible to fulfill.