Obama’s Energy Record and the Second-Term Outlook
Wednesday, January 30, 2013
President Obama gave climate change and the environment the most space of all issues in his inaugural address. He also vowed in December to make climate change and energy one of his top three priorities in his second term.
But we’ve been here before. It’s a little known fact – already lost in the sands of time for most people – that Obama’s first State of the Union speech stated: “It begins with energy.” Energy was in fact the most prominent issue in many of his talks and other communications for the first part of his second term. That is, until it became clear that dramatically lower energy prices, from the crash of 2008 until the middle of 2009, had weakened public support for tackling the sources of record-high energy prices, and for tackling climate change issues in a struggling economy.
Energy and climate change issues slowly slid away from Obama rhetorically, even while he enacted some fairly far-reaching reforms in his first term that will do much to mitigate climate change and enhance energy independence. A few of Obama’s signature achievements on these issues in his first term:
• New fuel economy (CAFE, Corporate Average Fuel Economy) standards, requiring that cars and light trucks achieve a 54 mpg standard by 2025. There are some loopholes, to be sure, that bring this down to about 36-42 mpg, but this is still a major, and highly cost-effective, measure for reducing oil consumption in the United States. The Energy Information Administration calculates that this change alone will reduce our oil consumption by four billion barrels from 2017 to 2025, about 60% of our current annual consumption – and of course far more after 2025 as gains continue
• Tax credits and loan guarantees for renewable energy and energy efficiency. Despite the Solyndra debacle, and the political opportunism that accompanied it, the fact is that the loan-guarantee program that Solyndra used has performed better than expected when Congress created it. Congress allocated up to 10% of the loans to failed companies or projects and as of now the actual failure rate is less than 5% of all funds awarded. More generally, the tax credits and other incentives provided by the 2009 American Recovery and Reinvestment Act “stimulus package” were a major boon for renewable energy and energy efficiency and have helped to achieve record years for solar and wind power in the last few years even while the economy more generally has been struggling
• Proposed new rules for regulating greenhouse gases from new power plants. Ironically, this new rule, proposed in April 2012 and receiving a huge amount of criticism from coal supporters, will, according to the Environmental Protection Agency’s (EPA’s) economic analysis, do literally nothing in terms of preventing new coal power plants from being built. This is because, the EPA projects, existing market forces (primarily much lower natural gas prices) will already prevent any new coal plants from being built through 2030. So why enact the rule? Well, it establishes definitely the EPA’s legal right to explicitly regulate greenhouse gases for the first time. And market forces may change, so it does make some sense to enact this new rule
What about Obama’s second act? How should he proceed on his recent promises to do something real about the threat of climate change? We are approaching $100 a barrel again for oil. 2012 was officially the most expensive year ever for gasoline in the United States, as well as the hottest year on record for the contiguous United States. It is highly likely, with the U.S. and global economies recovering, that oil and gasoline prices will shoot far higher by the summer. The time is now for Obama to take substantial actions on these very important issues.
Here are my recommendations, discussed further below:
• Reconsider a national carbon tax.
• Phase-in regulation of greenhouse gases from existing power plants.
• Enact a national renewable electricity standard (RES).
• Require states to implement existing law (PURPA, Public Utilities Regulatory Policies Act) that allows private developers to sell renewable energy to utilities at cost-effective rates.
• Require all federal agencies to reach 50% electric vehicles in their fleet by 2020, if this can be done cost-effectively.
A national carbon tax: Economists of all stripes agree that a modest carbon tax (say, 10-15 cents/gallon of gasoline) would be a highly effective way to reduce emissions. Bernie Sanders recently proposed a carbon-fee proposal in the Senate. Tom Friedman recently proposed that a carbon tax could be a highly effective “two-fer” – it could reduce emissions, and the revenue could be used to offset the national deficit, an eminently sensible proposition. I’ve argued previously that the national focus on cap-and-trade is misplaced and a well-designed carbon tax would be much better.
Unfortunately, the White House has recently expressed opposition to a carbon tax. Let’s hope that changes.
Phase in regulation of greenhouse gases from existing power plants:
Obama’s EPA hasn’t officially announced its intent to regulate greenhouse gases from existing power plants – but it is legally obligated to eventually do so under the clear language of the Clean Air Act. This will surely be the mother of all regulatory battles if and when it does happen. It seems that any regulation of existing facilities will have to be phased in slowly, and that’s probably for the best since it may entail significant economic dislocation. In a struggling economy (in any economy, for that matter), we’ve got to be sensitive to job issues as well as environmental and broader economic issues.
The carbon-tax discussed above could, and probably should, include existing power plants, and it could be introduced at a very modest level and slowly increased over time. This doesn’t seem to be on EPA’s or Congress’s radar at this time, but public pressure can always help to change minds.
A national renewable electricity standard: I am not a big fan of coercive government measures. I’d prefer that markets did their job and provided for the common good in an appropriate time frame. But climate change is a classic example of how markets can fail to incorporate externalities – in this case, the harm to our environment and to us from increased greenhouse gas emissions, or the risk of oil price spikes – and it is for this reason that I do support strong national and state measures when it comes to climate change and energy.
A national renewable electricity standard could provide a floor for states to achieve a certain level of renewable energy by a certain date. More than half of all states already have a renewable electricity standard in place, but many of the dirtiest polluting states don’t have an RES. An RES doesn’t say “achieve higher renewables at any cost.” Rather, every RES I’ve examined has a cost-effectiveness requirement or an economic safety valve of some sort. A national RES would surely include a cost-effectiveness requirement. And the good news is that many renewables are now cost-effective and are becoming increasingly cheaper over time.
Passed by Congress in 1978 under President Carter’s direction, PURPA was the first law that allowed private energy developers to sell power to utilities for a set fee – a type of “feed-in tariff.” PURPA was implemented in different ways by each state, with varying success. In California, PURPA was responsible for an “embarrassment of riches” in terms of new wind, biomass, and solar projects, made competitive by the record high oil and gas prices during the 1980s. The majority of our renewables in California are still PURPA projects, though this is changing fast.
Unfortunately, PURPA was largely gutted in recent years and it’s faded as an effective tool for promoting renewables for a variety of reasons. It’s time for Congress to modify PURPA again and to require states to implement PURPA in a way that is effective in promoting renewables. In other words, it’s time for a real national “feed-in tariff” (also described in recent years as CLEAN programs, or Clean Energy Accessible Now).
RES and feed-in tariff policies are complementary in that an RES sets the goal and a feed-in tariff is a tool for reaching the goal.
Require federal agencies to reach 50% electric vehicles by 2020:
On the transportation side of the energy equation, we face a much more difficult challenge. The electricity sector is already undergoing impressive transformation – just not fast enough, and that’s why I recommend the above measures. The transportation sector is a much tougher nut to crack because there are few truly viable alternatives to oil today. Electric vehicles (EVs), along with price-induced conservation (which will continue to happen naturally) and more efficient vehicles, present the best solutions for the transportation sector.
We’ve seen an impressive first two years of electric vehicle sales in the United States and abroad – but it’s just a prelude to much bigger things. To accelerate this transition to EVs becoming mainstream, Obama should require that all federal agency fleets have 50% EVs by 2020. This would be a major spur to the market in the next few years and would help get the EV market to scale, allowing all consumers to realize significant savings in terms of lower EV costs.
It will be a tough slog to mitigate climate change and energy price issues in the coming years, but the recommendations above will be a good start.