News Analysis: What the Energy Bill Means to You

President Bush said last January in the State of the Union speech that the United States was “addicted to oil”, and proposed several remedies. Since then, there has been tremendous activity around a comprehensive Energy Bill that would direct aspects of US energy policy over the next 15 years.

After several months of political squabbling, the Energy Bill is ready to pass through Congress this week en route to a projected signature by President Bush before the end of the year.

What’s in it for you?

1. New Renewable Fuel Standard – passed

The RFS under consideration calls for 20.5 billion of biofuels to be blended annually with conventional gasoline and diesel by 2015, and indexed to the growth of fuel demand from 2016 until 2022.

In the short term, the proposed mandate is for 8.5 billion gallons in 2008 and 10 billion in 2009, both substantial increases over the current mandate which caps blending at 4.7 billion gallons in 2008.

Current production in the US is approximately 7.5 billion gallons and the RFS would thereby balance the domestic supply and demand markets for ethanol.

Winners: Ethanol producers such as Archer-Daniels-Midland (ADM), and VeraSun Energy (VSA). They are likely to see price increases for ethanol as a supply glut eases. With demand ready to rise, Pacific Ethanol is looking cheap at a $244 million market cap for acquisition.

2. Biodiesel in the RFS for the first time – passed

The RFS calls for 1 billion gallons of biodiesel to be blended annually with conventional diesel by 2015 pout of the total 20.5 billion gallons for biofuels as a whole. This is the first time the RFS will have included biodiesel.

Winners: biodiesel producers such as Nova Biosource (NBF), and feedstock aggregators such as Better Biodiesel (BBDS.OB). They are likely to see price increases for fuel and increased feedstock demand.

3. Cellulosic ethanol mandate – passed

The RFS calls for 5.5 billion gallons of the mandate to be fulfilled with cellulosic ethanol, which is the first time that cellulosic feedstock will be mandated for use

Winners: Cellulosic ethanol producers such as Verenium (VRNM), who will see increased demand and an urgency in their timeline, which may spur additional government research, grant activity.

4. Revised CAFE standards – passed

The Energy Bill calls for a 35 mpg mileage standard for US carmakers by 2020. The proposed legislation will extend a 1.5 mpg mileage credit to carmakers based on flex-fuel vehicle construction. Car makers will also be able to maintain different fuel economy standards for SUVs and light trucks, as long as overall standards are met.

Winners: Car makers like GM and Ford (F) got a better deal than expected, and with flex-fuel vehicles offering a multi-billion savings to car makers, expect their entire fleets to be flex-fuel by 2012, which is good news for proponents of E20 and E85, and good news for ethanol producers.

5. Renewable Power Standard – didn’t pass this time, but could be back in ‘08

In this provision, 15 percent of energy used by utilities to generate power would have to come from biofuels by 2020 – primarily by burning biomass. The proposed standard is already in place in 25 states but has run into opposition in the Southwest.

Winners: It’s a toss-up, but if passed would be a huge boom to solar and wind companies like Evergreen Solar (ESLR), SunPower (SPWR) and Zoltek (ZOLT).

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