Federalism, fuel and energy policy: Three lingering issues

How much should the federal government be involved in controlling how states produce their own energy, and supply energy to their citizens? That complex question has constitutional and political questions that remain open as energy problems become more complex.

800px-Gas-pump-Indiana-USAEnergy policy issues are among the most difficult ones to untangle in a modern economy. Federal policies encourage the use of renewable resources, while at the same time the national government may seek power to regulate traditional energy products that states have controlled for decades.

One example is the contentious issue of hydraulic fracturing, or fracking. Currently, individual states mostly control policies about how operators use technology to extract natural gas and oil by pumping chemicals into the ground, and extracting the chemicals along with the energy products.

There are signs that the Environmental Protection Agency wants to become more involved in hydraulic fracturing regulations, over the objections of some states that see the technology as a safe one that will lead to a United States that isn’t dependent on other countries for energy.

The EPA has a mandate to ensure Americans have access to safe drinking water, and it plans to release a public study on hydraulic fracturing in 2016. For now, the EPA’s official policy is, “to provide oversight, guidance and, where appropriate, rulemaking that achieve the best possible protections for the air, water and land where Americans live, work and play.

That leaves the industry with a system that requires, but doesn’t define, how the federal government and the states should resolve natural gas and oil exploration issues, with two highly motivated interest groups on the sidelines (environmentalists and energy providers).

States that regulate hydraulic fracturing also face legal challenges from local governments who have safety and policy concerns.

Another important energy issue that involves an intersection of federal and states policy issues is renewable energy.

This June, U.S. circuit judge Richard Posner made a statement in a case about the use of renewable energy providers that could have a far-reaching legal impact.

Posner is an influential jurist and while his statement wasn’t directly targeted at the final decision in Illinois Commerce Commission v. FERC, it was widely seen as a bellwether of future judicial policy by industry watchers.

“Michigan cannot, without violating the Commerce Clause of Article I of the Constitution, discriminate against out-of-state renewable energy,” Posner said.

The state of Michigan had required that a certain percentage of renewable energy used within the state be provided by energy companies within Michigan, in order to meet requirements known as renewable portfolio standards.

If Michigan’s RPS guidelines are challenged, with the logic proposed by Posner, it may have a difficult time using any of its home-grown renewable energy to meet its RPS requirement, since it costs much more to produce some types of renewable energy, like wind power, in Michigan than other states.

Such a decision also would challenge the ability of states, in general, to set their own renewable energy policies, and possibly punish in-state renewable energy providers that provide a lower carbon footprint in how they deliver renewable energy over short distances.

California, Arizona, Colorado, Delaware, Maine, Missouri, Nevada, North Carolina, Ohio and Washington could face constitutional challenges on this issue at some point.

A third energy issue that also cuts across states and the federal government is the requirement for biofuels to be blended with gasoline in the refinement process.

The EPA sets guidelines for how much ethanol must be used in the petroleum refinement process, and in November it proposed cutting back the annual requirement by 3 billion gallons.

For now, the decision poses more policy questions than legal questions. The cutback pits the Big Oil and Big Corn lobbies against each other and cuts across party and geographic lines.

The new EPA biofuel guidelines will be in a review period for the next few months, and they could be one of many factors when the Democrats and Republicans renew their budget haggling in January.

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