“The path toward sustainable energy sources will be long and sometimes difficult. But America cannot resist this transition, we must lead it. We cannot cede to other nations the technology that will power new jobs and new industries, we must claim its promise. That’s how we will maintain our economic vitality and our national treasure — our forests and waterways, our croplands and snow-capped peaks. That is how we will preserve our planet, commanded to our care by God. That’s what will lend meaning to the creed our fathers once declared.”
— President Barack Obama, Second Inaugural Address, January 2013
President Barack Obama followed up on the promise of his inaugural address by announcing in June the President’s Climate Action Plan. Obama’s June address received well-deserved attention, particularly since it was the first-ever major presidential speech devoted entirely to the issue of climate change. Obama is to be applauded for finally using his bully pulpit to bring attention to this crucial issue in a major way.
That said, it’s important to consider what Obama has proposed and assess whether these measures will be effective and up to the magnitude of the problems we face.
I’ve noticed over my years following the energy space that there is an unholy congruence of regulated industries and politicians when it comes to setting goals. Goals, such as mandates for renewable energy or a specified reduction in greenhouse gas emissions, turn out on close inspection to often be set at a level at or below where the market is headed even without such goals. In such cases, the goals become not only ineffective but in some cases are actually counter-productive due to the costs incurred in creating and enforcing them.
A couple of examples will help explain what I’m getting at. Obama set the Corporate Average Fuel Economy (CAFE) standards for 2014-2017 vehicle models at 35 miles per gallon fleet-wide for each manufacturer. However, the Environmental Protection Agency’s own economic analysis of this goal concluded that the market was already set to achieve it without any government intervention.
Similarly, Obama’s EPA has previously proposed requiring that all new thermal power plants built in the United States be at least as efficient as an advanced natural gas power plant. (Obama’s Climate Action Plan states: “To build on this progress, the Obama administration is putting in place tough new rules to cut carbon pollution.”)
However, the EPA’s own economic analysis for regulating new power plants found that this goal will have no effect on the market because the market is already expected to avoid new coal power plants, primarily due to the low price of natural gas and other air pollution regulations already in place. The EPA’s analysis found that “energy market data and projections support the conclusion that, even in the absence of this rule, existing and anticipated economic conditions in the marketplace will lead electricity generators to choose technologies that meet the proposed standards.” [emphasis added]
Now, we can still support this proposed goal for new thermal power plants, as I do, because it will at least act as a backstop in case economics or other factors change in a way that again favors coal, as has been the case in the past.
There is an unholy congruence of interests between the regulated industries at issue in these situations and the politicians seeking the regulations. The industries generally work hard against regulation, or at least work to dilute regulations. It is in fact ideal for regulated industries to appear to be subject to onerous regulations when in fact the regulations aren’t onerous at all. That way, they can play the victim but not actually have to do anything, or not very much, to comply with the “onerous” regulations.
Similarly, the politicians at issue, and the agencies themselves, can claim to be “doing something” about the issue at hand, even if the regulations aren’t actually going to do anything.
Turning to Obama’s recent package of climate change solutions, let’s look at which goals are likely to be “real” goals, rather than just “doing something” goals. Obama’s June 24 speech and Climate Action Plan covered the following goals and programs:
» In 2009, Obama announced a goal of reducing U.S. greenhouse gas emissions “around” 17 percent below 2005 levels by 2020, but only if all other major economies agreed to reduce their emissions as well.
» Create standards for greenhouse gas emissions from new and existing power plants
» Doubling renewable energy production by 2020
» Increasing investment in clean energy research by $7.9 billion for 2014, which includes money for renewables, but also nuclear, clean coal and advanced natural gas
I discussed above the fact that EPA’s own economic analysis of the proposed regulations for new power plants found that the regulations wouldn’t actually have any impact on the market. The new Climate Action Plan doesn’t actually suggest a goal for reducing emissions on existing power plants, so we can’t make any judgment about the degree to which this announced goal will become a “just doing something” goal.
When it comes to Obama’s “ambitious” new goal of doubling renewable energy production by 2020, the conclusion is pretty clear: this is definitely just a “doing something” goal because the market is on track to far more than double renewable energy production by 2020, based on existing market forces and government policies. When it comes to wholesale renewable energy, as opposed to behind-the-meter facilities, the federal government and Obama himself certainly deserve major credit for the recent expansion in renewables. Obama’s 2009 American Recovery and Reinvestment Act directed about $80 billion toward energy efficiency and renewable energy, and this money has had a large impact through tax credits and other programs.
However, announcing a goal of doubling renewable energy production by 2020 ignores the fact that wind and solar, by far the fastest-growing renewables, have been doubling in the United States every two to three years over the last decade. So if this rate of growth merely continues, we’d see about three doublings by 2020 — not just one doubling, as Obama’s new goal suggests.
Obama is to be applauded for relying on executive actions alone because Republicans in Congress have made it clear that they won’t act on any climate change legislation at this time.
Adapting to Climate Change
The Climate Action Plan states that “the Obama administration will help state and local governments strengthen our roads, bridges and shorelines so we can better protect people’s homes, businesses and way of life from severe weather.”
Leading International Efforts
Unfortunately, for those who have followed international efforts to mitigate climate change, this last category feels like a bad joke. The fact is that Obama has largely continued the climate change policies and leadership on the international level that his predecessor pursued. The United States has largely been an obstructor — very actively — when it comes to setting international climate goals.
The Climate Action Plan states:
“Just as no country is immune from the impacts of climate change, no country can meet this challenge alone. That is why it is imperative for the United States to couple action at home with leadership internationally. America must help forge a truly global solution to this global challenge by galvanizing international action to significantly reduce emissions (particularly among the major emitting countries), prepare for climate impacts, and drive progress through the international negotiations.”
The Climate Action Plan states that “the Department of Defense — the single largest consumer of energy in the United States — is committed to deploying 3 gigawatts of renewable energy on military installations, including solar, wind, biomass and geothermal, by 2025.” This is a laudable goal. I don’t feel that it’s particularly ambitious but it is certainly the case that markets wouldn’t do this absent political direction.
What should we do instead?
How should we mitigate this unholy congruence in favor of just “doing something”?
A relatively easy fix would be to require goals to be set only after the regulatory agency at issue completes a detailed analysis of the relevant market forces and determines where the market is likely to go absent any new government goals or support.