Energy dominates Union address

Announcing his “Twenty in Ten” goal to curb greenhouse gas emissions and confront climate change, President Bush’s plan will see a 20 % reduction in US gasoline usage over the next 10 years.

To do so, the President pledged to raise automobile fuel economy standards and set a mandatory requirement of 35 billion gallons of renewable and alternative fuels in 2017, nearly five times the current 2012 target.

Prior to the address, fuel blenders were mandated to use 7.5 billion gallons of renewable fuels by 2012. To assist the increase, the President announced that the scope of the current Renewable Fuel Standard (RFS) is to be expanded into an Alternative Fuel Standard (AFS), embracing sources such as corn ethanol, cellulosic ethanol, biodiesel, methanol, butanol, hydrogen, and alternative fuels.

Analysts have questioned the realism of such goals, given the logistic difficulties inherent to distributing biofuels, the energy intensive nature of ethanol production from corn and the fact that the target set by President Bush “would require a doubling of the US corn acreage by 2017,” according to Barclays Capital research. Corn price rises resulting from dwindling supply and volatile energy prices may also affect new ethanol plant construction plans.

While the goal to cut gasoline consumption by 20% marks a significant shift in the White House’s environmental stance, the new energy policy fell short of embracing mandatory caps on carbon dioxide (CO2) or even mentioning the possibility of a post Kyoto accord after 2012. This is despite renewed calls by environmental groups and utilities for a mandatory federal emissions cap and trade scheme in the US.

The President also pledged to support Congressional action to authorize environmentally responsible oil and gas exploration in a small area of the Arctic National Wildlife Refuge in Alaska, which could produce as much as 1 million barrels of oil per day.

The new energy policy aims to double the size of US strategic oil reserves to 1.5bn barrels by 2027 to alleviate what the President regards as a dependency on foreign oil which leaves the US “vulnerable to hostile regimes and to terrorists – who could cause huge disruptions of oil shipments.”

U.S. Energy Secretary Samuel Bodman's announcement Tuesday that the government will begin buying crude this spring at a rate of about 100,000 barrels per day triggered a late-session rally Tuesday with WTI crude for March delivery rising 4.7% to close at $55.04 a barrel on the New York Mercantile Exchange (Nymex) in its first full day as the front-month contract.