Bush Tipped to Talk Tough on Energy but Snub Kyoto
    The Financial Times UK

    Tuesday 02 January 2007

    Energy will be a central theme of President George W. Bush's state of the union speech this month, as it was in last year's address when he briefly caught national attention with the claim that the country was "addicted to oil".

    But his critics doubt that he will do much more than call for more spending on alternative fuels, and again fail to embrace international efforts to agree a post-Kyoto regime to tackle greenhouse emissions.

    "We've had the hydrogen economy, then alternative fuels, and 'addicted to oil'," said a senior industry lobbyist. "Yet on close Senate votes, such as drilling in the Arctic National Wildlife Refuge, he has not put his prestige on the line by making personal calls. Energy policy has been the creation of Congress. Almost anything Bush says in the speech is irrelevant the day after he says it."

    The administration rejects that, with one senior official noting: "It's a lot more than rhetorical: what was done with the 2005 act was substantial." Mr Bush has identified energy as a key area for bipartisan co-operation in the next two years.

    Al Hubbard, chairman of the National Economic Council, who is co-ordinating White House energy policy, has also raised expectations. In a speech at De Pauw University he predicted "headlines above the fold that will knock your socks off in terms of our commitment to energy independence".

    "One of the challenges is how they differentiate themselves from last year," warned Spencer Abraham, energy secretary in Mr Bush's first term. "You have had a big commitment to hydrogen and to ethanol. We thought $1.7bn over five years on hydrogen was big bucks but it was seen as insufficient by our critics. Maybe $10bn is enough to get attention. But the question is whether it is actually implemented by Congress."

    Current and former administration officials admit that the $2bn announced last year in loan guarantees for alternative fuels, such as clean coal technologies, has been snarled in bureaucracy. The deadline for applications has now been extended.

    Growing concern from US executives was underscored in the report last month from the Energy Security Leadership Council, a high-profile group of executives and retired generals. They called for increasing the supply of domestic oil but also giving more attention to energy efficiency, notably raising Corporate Average Fuel Economy standards, designed to improve vehicle fuel efficiency by 4 per cent annually.

    The latter would be popular. According to a recent Wall Street Journal poll, 74 per cent of Republicans would support higher standards even if it increased vehicle prices. A Democratic aide on the House energy committee said: "Doing something meaningful on vehicle fuel efficiency would be a major step forward for this administration."

    Robert Hormats, vice-chairman at Goldman Sachs and a leadership council member, briefed senior White House officials, including Mr Hubbard, on the report. "Discussion was most extensive in alternative sources of energy and the idea of additional drilling," he said. "There was some discussion of Cafe standards, but the point was if they prove to be technologically undoable, they are harmful."

    Another participant at the meeting said: "It was not just a courtesy meeting. They were most interested in the specifics and why 4 per cent was chosen as an annual increase, and whether the group would seriously engage or go back to running their companies."

    Mr Hormats told the Financial Times that he would like to see Mr Bush create a commission, using the council as a prototype, "with both financial and military people to develop critical mass to address this issue, like Alan Greenspan did in 1983 with social security."

    There is some optimism that the White House could move on Cafe standards. David Conover, director of the US Climate Change Technology Programme until February, said: "It is conceivable that he could endorse a set of principles giving him administrative flexibility to set Cafe standards, but more likely it will be a call on Congress to respond to his 10-month request to strengthen standards."

    Such a move could bolster Mr Bush's credibility on energy but would face a difficult vote in Congress, given the lobbying power of car makers and the fact that John Dingell, who represents Detroit, will chair the House energy committee. In December Bob Lutz, vice-chairman of General Motors, warned that changing the standards would in effect "hand the truck and SUV market over to the imports, particularly the Japanese".

    There are fewer hopes of an administration shift on climate change. In spite of pressure from leaders such as Tony Blair, the British prime minister, senior officials resist deeper engagement on limiting greenhouse gas emissions after the Kyoto protocol ends in 2012, and remain privately dismissive of the conclusions in the British Stern report on global warming, which called for 1 per cent of gross domestic product to be spent on fighting climate change.