The U.S. Senate passed a long awaited energy bill this week that will surely fall short of many people’s expectations with respect to clean energy.

On the positive side there are new federal mandates for auto efficiency. The new CAFE standards are likely to result in cleaner technologies for automobiles and increased investment into biofuels.

On the negative side there was no extension of the critical renewable electricity production tax credit which expires at the end of 2008. This tax credit provides a strong incentive for clean energy developers (including wind and solar) to launch successful projects. In order to benefit from the credit these projects must generate electricity and be profitable. The presence of such credits undoubtedly spurs investment into the clean energy space in the United States. The lack of certainty over the credit post-2008 may stymie investment.

The major issue related to the tax credits seems to be the omnipresent question of, “Who’s going to pay for it?” So in the interest of moving the bill forward these provisions were removed. This “watered down” version of the energy bill is likely to pass an upcoming House vote and be signed into law by President Bush. Unfortunately this law has a huge hole that needs to be addressed on the issue of what to do about electricity production tax credits.