The names may change in Congress. Democrats may replace Republicans in the majority. But when it comes to energy legislation, the same rule always applies: Money talks.
So is it any surprise that agribusiness, a sector that gave $44.6 million to Democratic and Republican candidates in the last election cycle, according to the Center for Responsive Politics, came out the big winner in the energy bill passed by the Senate on June 21? The oil-and-gas industry, which gave $19.1 million as part of a natural-resources sector that gave $46.4 million, didn't do too badly, either.
Automakers, who gave $14.2 million of the $39.9 million contributed by the transportation sector, wound up with the short end of the stick in the Senate bill but look poised to recover in the legislation now moving through committee in the House. The auto industry is likely to benefit from the second rule of political giving: It's not how many politicians you buy but which ones. The first rule, by the way, is give early and often.
(For how the oil and gas industry passed out its dough in the cycle leading up to the 2006 elections, see my Oct. 24, 2006, column "Big oil's 10 favorite members of Congress.")
Pay to winThis is how I think investors should handicap the winners and the losers in the legislation so far. (See my video below for the names of some individual stock winners.)
- Ethanol: huge winner. The Senate bill would require the use of 36 billion gallons of ethanol in motor fuels by 2022. In the relatively near future, "ethanol" means ethanol from corn kernels, because what's called cellulosic ethanol, which produces ethanol from the cellulose of such green plants as switch grass, cornstalks or pine trees, is still in the process of moving from test project to commercial-scale production. And the new target is a huge jump -- about a fivefold increase -- from the goal of 7.5 billion gallons by 2012 set in the 2005 energy bill, a target that will be surpassed this year. The new target roughly matches the 35 billion gallons proclaimed by President Bush in his 2007 State of the Union address. It's no surprise that most farm-state Republicans crossed the aisle to join with Democrats like Sen. Dick Durbin of Illinois to give the bill its 65-27 final approval.
- Oil and natural gas: big winner. This industry didn't come away with anything like the bushel of money it got in the 2005 bill, but its lobbyists were able to beat back a strong effort to repeal those tax breaks. Citizens for Tax Justice calculates that just the four biggest tax breaks for the oil and gas industry add up to $11.4 billion over five years: $5.4 billion for deducting the intangible costs of exploration and development; $4.7 for allowing the percentage depletion for oil and gas properties; $700 million for expensing equipment used to refine liquid fuels; and $611 million for accelerated amortization of geological expenditures. Defeated versions of the Senate energy bill would have repealed some of these breaks and added taxes on the industry of about $30 billion over 10 years to increase funding for renewable energy and other energy technologies. That effort failed when six Democrats, including Sens. Carl Levin and Debbie Stabenow of Michigan, voted with the majority of Republicans against ending debate and forcing an immediate vote, effectively killing that provision.
- Coal-to-liquid fuels: big loser. The Senate rejected two amendments to mandate the increased use of liquid fuels made from coal. The first, proposed by Republican Sens. Jim Bunning of Kentucky and Pete Domenici of New Mexico, would have mandated the use of 6 billion gallons of coal-to-liquid fuel by 2022. The second, proposed by Sen. Jon Tester, D-Mont., would have provided federal money for coal-to-liquid plants that capture and stored 75% of their carbon dioxide emissions.
- Alternative and renewable energy: big loser. Besides losing the vote on funding alternative-energy development and production with taxes on the oil-and-natural gas industry, supporters of alternative energy such as Sens. Amy Klobuchar, D-Minn., and Norm Coleman, R-Minn., failed in an effort to require utilities to produce 25% of their electricity from renewables by 2020. Even a compromise that would have cut the requirement to 15% -- and to count efficiency savings of up to 4% as part of the target -- failed when faced with opposition from senators who claimed that their states didn't have the wind power resources to meet the target.
- Energy-efficient technologies: a reasonable victory. The Senate bill includes new federal standards for energy efficiency in lighting and appliances. This will help build a market for more energy-efficient compact fluorescent and LED lighting and for more efficient appliances, including air conditioners and refrigerators. The bill also increased funding for research into advanced battery technologies.
If the Senate bill were to become law as it was passed at the end of June, I'd include U.S. automakers among the big losers. The Senate bill includes the first legislation to impose new corporate average fuel economy (CAFE) standards in 32 years.