The Obama Climate Change Agenda

January 7, 2009

On December 16, 2008, President-elect Obama announced his environmental and energy team, which will include former New Jersey Department of Environmental Protection Commissioner Lisa Jackson as EPA Administrator, the Nobel-winning physicist and head of the Lawrence Berkeley National Laboratory Steven Chu as Energy Secretary, former EPA Administrator Carol Browner as White House policy coordinator for energy and climate change, and Nancy Sutley, the Los Angeles Deputy Mayor for Energy and Environment, as head of the White House Council on Environmental Quality.

These choices send a clear signal that two of the central elements of the Obama environmental platform, regulating greenhouse gases (“GHGs”) and investing in alternative energy, will indeed be high priorities for the Obama Administration. At NJDEP, Ms. Jackson led the state’s efforts to join the Northeast Regional Greenhouse Gas Initiative, the nation’s first GHG cap and trade program. Dr. Chu is an outspoken advocate for carbon capture and storage and other scientific solutions to climate change. Ms. Browner and Ms. Sutley are strong proponents of GHG regulation.

The team will be tasked with implementing the Obama Administration’s ambitious climate change agenda, which includes:

  • Reducing greenhouse gas emissions to 1990 levels by 2020 (which is approximately 15 percent below 2006 levels), and by 80 percent below 1990 levels by 2050, employing a market-based cap-and-trade system. All allowances would be auctioned, with some of the proceeds being directed towards development of clean energy and residential energy efficiency improvements.

  • Playing a more central role in international climate change negotiations under the U.N. Framework Convention on Climate Change (“UNFCCC”).

  • Investing $150 billion over the next 10 years to develop clean energy projects and create 5 million new “green” jobs, including accelerating the commercialization of plug-in hybrids, promoting development of commercial scale renewable energy, encouraging energy efficiency, and advancing the next generation of biofuels.

  • Ensuring that 10 percent of electricity comes from renewable sources by 2012, and 25 percent by 2025.

The agenda raises a number of serious questions, including how the plan to auction 100 percent of allowances will affect companies and consumers in the midst of an economic downturn. Several of the GHG bills in Congress, including the Boxer-Lieberman-Warner Climate Security Act (S.3036), would grant at least a certain percentage of allowances for free in the early years of the program. Under S.3036, for example, allowances would not be 100% auctioned until 2031. It has been noted that auctioning would raise electricity prices and affect consumers. To mitigate these effects, the Obama team proposes to use a portion of the proceeds from the auction to improve residential energy efficiency. But the details of how much would be available for such projects and who would be eligible remain to be seen.

Another major issue is the extent to which any domestic GHG reduction program is driven by or tied to a larger international program under the UNFCCC. Under the UNFCCC and the Kyoto Protocol, states made GHG reduction commitments and then were free to achieve those commitments through the Kyoto Protocol’s emissions trading and offset mechanisms and/or through domestic or other international programs, such as the EU Emissions Trading System. But with the UNFCCC parties not set to meet until December 2009 in Copenhagen, where they will seek to establish post-2012 GHG reduction commitments, it is not clear how an administration intent on cooperating internationally will coordinate its domestic and international efforts. As a result, it is possible that any final passage of domestic legislation will have to wait until after the Copenhagen conference.

What the economic downturn, and the depressed fuel prices it has engendered, will mean for the Obama team’s climate change and renewable energy strategies is also uncertain. The President will likely consider the views of his economic team in formulating climate change policy, and that team includes Lawrence Summers, who opposed implementation of tough GHG controls by Carol Browner when he was Deputy Treasury Secretary in the Clinton Administration. Summers continues to be a strong advocate for price controls on emissions credits to assure reasonable energy costs.

The renewable sector has been hit hard by the drop in fuel prices, with some new developments being delayed and at least five initial public offerings being put on hold in recent months.[1] While setting a federal Renewable Portfolio Standard of 10 percent of electricity by 2012 will certainly force change, tax incentives and other financial mechanisms for making alternative energy competitive will have less of an impact, unless they are increased significantly (which may be unlikely due to budget constraints). The result may be that the federal government and state governments get less bang for their buck when it comes to incentivizing renewable energy. So while spending $150 billion in the next ten years on renewable energy and efficiency measures will no doubt spur those markets, the Obama Administration may need to rethink its game plan and even increase its commitment in order to achieve the desired results.

[1] MarketWatch, Alternative energy bulls face bear market, November 18, 2008; New York Times, Alternative Energy Faces Sudden Headwinds, October 20, 2008.