Bush Unveils Energy Proposals

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By Justin Blum and Jim VandeHei
Washington Post Staff Writers
Thursday, April 28, 2005

Industry analysts reacted skeptically to new energy proposals President Bush announced yesterday, saying they would do little to bring down soaring prices of gasoline and other forms of energy.

Bush, whose aides blame high oil and gasoline prices for his sagging poll numbers, made several proposals, including allowing refineries to be built on closed military bases and renewing consumer tax credits for hybrid vehicles. This was his second speech in two weeks devoted to energy. Bush is scheduled to hold a news conference tonight at 8:30 to press his energy plan and give specifics about his proposals for restructuring Social Security.

"See, we've got a fundamental question we got to face here in America," Bush said at the Small Business Administration conference in Washington. "Do we want to continue to grow more dependent on other nations to meet our energy needs? Or do we need to do what is necessary to achieve greater control of our economic destiny?"

Some of the ideas, which administration officials announced in a briefing Tuesday night, are already in the mix on Capitol Hill, while others could result in only minimal change, several experts said. "At best we're talking about a marginal benefit over the long term," said Ben Lieberman, a senior policy analyst with the Heritage Foundation, a conservative Washington think tank.

Bush's new initiatives appeared directed at the Senate, which plans to consider energy legislation soon. Sen. Pete V. Domenici (R-N.M.), chairman of the Energy and Natural Resources Committee, said in a statement that he would incorporate some of Bush's new ideas into the legislation, adding that they "could help with electricity and gasoline prices." In the House, lawmakers approved an energy plan last week that provides billions in incentives designed to spur more production.

The measures Bush announced yesterday augment a larger package of previously announced proposals that include drilling in Alaska's Arctic National Wildlife Refuge.

On the refining issue, the administration has said that limited capacity is one factor pushing up prices at the pump. Allowing companies to build on military bases would give an added incentive for new construction to expand capacity, officials said.

Industry leaders said it is not clear that companies would want to build new refineries because the business historically has not been highly profitable. While demand and profit margins are high now, companies are not convinced those margins will remain high enough to justify new refineries.

"When you look at rates of return for a new refinery, it would be a fairly high-risk project," said William R. Klesse, chief operating officer of San Antonio-based Valero Energy Corp., one of the top U.S. refiners.

Still, industry representatives said Bush's proposal sends a positive message and helps allay concerns over finding suitable locations for refineries. "You ought to encourage the people who want to take the risk and this does that," said Bob Slaughter, president of the National Petrochemical and Refiners Association.

If more refineries were constructed -- a process that probably would take more than five years -- there could be some downward pressure on prices, industry officials said.

Bush's plan also calls for renewing tax credits for hybrid vehicles and adding them for efficient "clean diesel" vehicles. Analysts said that could encourage more people to buy automobiles that get higher mileage and slightly reduce demand for gasoline, but probably not enough to have a significant impact on prices. Diesel incentives were included in the House plan, but Bush calls for more funding over a longer period.

To increase supplies of natural gas, Bush called for giving federal regulators ultimate authority over citing new terminals that receive imports of liquefied natural gas. Natural gas prices have been increasing because of tight supplies and high demand, and the industry has said more terminals are needed to reduce prices.

The House energy plan includes this provision, which proponents said was needed because of concern that local opposition to the terminals makes building new ones difficult. Opponents say that would allow the federal government to force terminals on communities that do not want them.

The Bush plan also calls for providing a new incentive to build nuclear power plants by reducing the "uncertainty in the licensing process" and providing "federal risk insurance to mitigate the additional cost of unforeseen delays."

Industry analysts questioned whether this would be enough to spur construction. Investors have been leery of the upfront costs needed to build a nuclear plant compared with other forms of electricity production.

Amy Myers Jaffe, associate director of the energy program at the James A. Baker III Institute for Public Policy at Rice University in Houston, said neither the energy legislation nor the latest Bush proposals would make a significant dent in prices.

"There are other things that could be proposed that would be more politically costly but have a more immediate impact," she said, such as increasing fuel-efficiency requirements.


© 2005 The Washington Post Company

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