Thoughts On Energy And Climate Policy In Obama’s Second Term

by Robert Stavins, via Harvard

In his inaugural address on January 21st, President Obama surprised many people – including me – by the intensity and the length of his comments on global climate change.  Since then, there has been a great deal of discussion in the press and in the blogosphere about what climate policy initiatives will be forthcoming from the administration in its second term.

Given all the excitement, let’s first take a look at the transcript of what the President actually said on this topic:

We will respond to the threat of climate change, knowing that the failure to do so would betray our children and future generations. Some may still deny the overwhelming judgment of science, but none can avoid the devastating impact of raging fires, and crippling drought, and more powerful storms.  The path towards sustainable energy sources will be long and sometimes difficult. But American 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 crop lands and snow capped peaks.  That is how we will preserve our planet, commanded to our care by God.

Strong and plentiful words.  Although I was certainly surprised by the strength and length of what the President said in his address, I confess that it did not change my thinking about what we should expect from the second term.  Indeed, I will stand by an interview that was published by the Harvard Kennedy School on its website five days before the inauguration (plus something I wrote in a previous essay at this blog in December, 2012).  Here it is, with a bit of editing to clarify things, and some hyperlinks inserted to help readers.

The Second Term: Robert Stavins on Energy and Environmental Policy

January 16, 2013

By Doug Gavel, Harvard Kennedy School Communications

President Obama’s second term in office began on Inauguration Day, January 21st, and the list of policy challenges facing his administration is daunting. Aside from the difficult task of addressing the nation’s economic woes, the president and his administration will also deal with the increasing complexities of global climate change, a rapidly changing energy market, entitlement and tax reform, healthcare reform, and the repercussions from the still simmering “Arab Spring.” Throughout this month, we will solicit the viewpoints of a variety of HKS faculty members to provide a range of perspectives on the promise and pitfalls of The Second Term.

We spoke with Robert Stavins, Albert Pratt Professor of Business and Government, and Director of the Harvard Environmental Economics Program, about energy and environmental policy issues the president will face in the next four years.

Q: What are the top priorities for a second Obama administration in energy and environmental policy?

A: The Obama administration faces a number of impending challenges in the energy and environmental policy realm in its second term, which I would characterize – in very general terms – as finding balance among three competing factors: (1) demands from some constituencies for more aggressive environmental policies; (2) demands from other constituencies – principally in the Congress – for progress on so-called “energy security;” and (3) recognition that nothing meaningful is likely to happen if the country’s economic problems are not addressed.

Q: What will be the potential challenges/roadblocks in the way of implementing those top priorities?

A: The key challenge the administration faces in its second term as it attempts to achieve some balance among these three competing objectives is the reality of a very high degree of political polarization in the two houses of Congress.

The numbers are dramatic.  For example, when the Clean Air Act Amendments of 1990 that established the landmark SO2 allowance trading system were being considered in the U.S. Congress, political support was not divided on partisan lines. Indeed, environmental and energy debates from the 1970s through much of the 1990s typically broke along geographic lines, rather than partisan lines, with key parameters being degree of urbanization and reliance on specific fuel types, such as coal versus natural gas. The Clean Air Act Amendments of 1990 passed the U.S. Senate by a vote of 89-11 with 87 percent of Republican members and 91 percent of Democrats voting yea, and the legislation passed the House of Representatives by a vote of 401-21 with 87 percent of Republicans and 96 percent of Democrats voting in support.

But, 20 years later when climate change legislation was receiving serious consideration in Washington, environmental politics had changed dramatically, with Congressional support for environmental legislation coming mainly to reflect partisan divisions. In 2009, the U.S. House of Representatives passed the American Clean Energy and Security Act of 2009 (H.R. 2454), often known as the Waxman-Markey bill, that included an economy-wide cap-and-trade system to cut carbon dioxide (CO2) emissions. The Waxman-Markey bill passed by a narrow margin of 219-212, with support from 83 percent of Democrats, but only 4 percent of Republicans. (In July 2010, the U.S. Senate abandoned its attempt to pass companion legislation.) Political polarization in the Congress (and the country) has implications far beyond energy and environmental policy, but it is particularly striking in this realm.

Q: In the Obama administration’s second term, are there openings/possibilities for compromises in those areas?

A: It is conceivable – but in my view, unlikely – that there may be an opening for implicit (not explicit) “climate policy” through a carbon tax. At a minimum, we should ask whether the defeat of cap-and-trade in the U.S. Congress, the virtual unwillingness over the past 18 months of the Obama White House to utter the phrase “cap-and-trade” in public, and the defeat of Republican Presidential candidate Mitt Romney indicate that there is a new opening for serious consideration of a carbon-tax approach to meaningful CO2 emissions reductions in the United States.

First of all, there surely is such an opening in the policy wonk world. Economists and others in academia, including important Republican economists such as Harvard’s Greg Mankiw and Columbia’s Glenn Hubbard, remain enthusiastic supporters of a national carbon tax. And a much-publicized meeting in July, 2012, at the American Enterprise Institute in Washington, D.C. brought together a broad spectrum of Washington groups – ranging from Public Citizen to the R Street Institute – to talk about alternative paths forward for national climate policy. Reportedly, much of the discussion focused on carbon taxes.

Clearly, this “opening” is being embraced with enthusiasm in the policy wonk world. But what about in the real political world? The good news is that a carbon tax is not “cap-and-trade.” That presumably helps with the political messaging! But if conservatives were able to tarnish cap-and-trade as “cap-and-tax,” it surely will be considerably easier to label a tax – as a tax! Also, note that President Obama’s silence extends beyond disdain for cap-and-trade per se. Rather, it covers all carbon-pricing regimes.

So as a possible new front in the climate policy wars, I remain very skeptical that an explicit carbon tax proposal will gain favor in Washington. Note that the only election outcome that could have lead to an aggressive and successful move to a meaningful nationwide carbon pricing regime would have been: the Democrats took back control of the House of Representatives, the Democrats achieved a 60+ vote margin in the Senate, and the President was reelected. Only the last of these happened. It’s not enough.

A more promising possibility – though still unlikely – is that if Republicans and Democrats join to cooperate with the Obama White House to work constructively to address the short-term and long-term budgetary deficits the U.S. government faces, and if as part of this they decide to include not only cuts in government expenditures, but also some significant “revenue enhancements” (the t-word is not allowed), and if (I know, this is getting to be a lot of “ifs”) it turns out to be easier politically to eschew increases in taxes on labor and investment and turn to taxes on consumption, then there could be a political opening for new energy taxes, even a carbon tax.

Such a carbon tax – if intended to help alleviate budget deficits – could not be the economist’s favorite, a revenue-neutral tax swap of cutting distortionary taxes in exchange for implementing a carbon tax. Rather, as a revenue-raising mechanism – like the Obama administration’s February 2009 budget for a 100%-auction of allowances in a cap-and-trade scheme – it would be a new tax, pure and simple. Those who recall the 1993 failure of the Clinton administration’s BTU-tax proposal – with a less polarized and more cooperative Congress than today’s – will not be optimistic.

Nor is it clear that a carbon tax would enjoy more support in budget talks than a value added tax (VAT) or a Federal sales tax. The key question is whether the phrases “climate policy” and “carbon tax” are likely to expand or narrow the coalition of support for an already tough budgetary reconciliation measure.  The key group to bring on board will presumably be conservative Republicans, and it is difficult to picture them being more willing to break their Grover Norquist pledges because it’s for a carbon tax.

What remains most likely to happen is what I’ve been saying for several years, namely that despite the apparent inaction by the Federal government, the official U.S. international commitment — a 17 percent reduction of CO2 emissions below 2005 levels by the year 2020 – is nevertheless likely to be achieved!  The reason is the combination of CO2 regulations which are now in place because of the Supreme Court decision [freeing the EPA to treat CO2 like other pollutants under the Clean Air Act], together with five other regulations or rules on SOX [sulfur compounds], NOX [nitrogen compounds], coal fly ash, particulates, and cooling water withdrawals. All of these will have profound effects on retirement of existing coal-fired electrical generation capacity, investment in new coal, and dispatch of such electricity.

Combined with that is Assembly Bill 32 (AB 32) in the state of California, which includes a CO2 cap-and-trade system that is more ambitious in percentage terms than Waxman-Markey was in the U.S. Congress, and which became binding on January 1, 2013.  Add to that the recent economic recession, which reduced emissions. And more important than any of those are the effects of developing new, unconventional sources of natural gas in the United States on the supply, price, and price trajectory of natural gas, and the consequent dramatic movement that has occurred from coal to natural gas for generating electricity.  In other words, there will be actions having significant implications for climate, but most will not be called “climate policy,” and all will be within the regulatory and executive order domain, not new legislation.

Q: Are there lessons that a second Obama administration can draw upon from the first administration, or from history, when constructing its energy & environmental policy over the next four years?

A: It will take a great deal of dedicated effort and profound luck to find political openings that can bridge the wide partisan divide that exists on climate change policy and other environmental issues. Think about the following. Nearly all our major environmental laws were passed in the wake of highly publicized environmental events or “disasters,” including the spontaneous combustion of the Cuyahoga River in Cleveland, Ohio, in 1969, and the discovery of toxic substances at Love Canal in Niagara Falls, New York, in the mid-1970s. But note that the day after the Cuyahoga River caught on fire, no article in The Cleveland Plain Dealer commented that the cause was uncertain, that rivers periodically catch on fire from natural causes. On the contrary, it was immediately apparent that the cause was waste dumped into the river by adjacent industries. A direct consequence of the observed “disaster” was, of course, the Clean Water Act of 1972.

But climate change is distinctly different. Unlike the environmental threats addressed successfully in past U.S. legislation, climate change is essentially unobservable to the general population. We observe the weather, not the climate.  Notwithstanding last year’s experience with Super Storm Sandy, it remains true that until there is an obvious, sudden, and perhaps cataclysmic event – such as a loss of part of the Antarctic ice sheet leading to a dramatic sea-level rise – it is unlikely that public opinion in the United States will provide the tremendous bottom-up demand that inspired previous congressional action on the environment over the past forty years.

That need not mean that there can be no truly meaningful, economy-wide climate policy (such as carbon-pricing) until disaster has struck.  But it does mean that bottom-up popular demand may not come in time, and that instead what will be required is inspired leadership at the highest level that can somehow bridge the debilitating partisan political divide.

Robert Stavins is Director of the Harvard Environmental Economics Program. Reprinted with permission from Harvard’s Economic View of the Environment Blog.

15 Responses to Thoughts On Energy And Climate Policy In Obama’s Second Term

  1. Superman1 says:

    The politicians will do little until the electorate is on board. Unfortunately, there is an inherent conflict. There’s an old saying that ‘you won’t solve problems by using the people that created the problem’. Yet, that’s exactly what we’re trying to do with climate change, and why we’re having little success. It’s as though 99.9% of the electorate were chain smokers, and we’re asking them to solve the smoking problem. That’s why I have trouble seeing a positive outcome.

  2. Leif says:

    IMO the problem is that both parties share the same fundamental flaw to varying degrees. That is, both are beholden to the “socially enabled capitalism” paradigm that allows, even encourages, to few to profit from the exploitation and pollution of the commons. You will only be allowed to profit as well if YOU accept that paradigm via investment in the fallacy, stocks, bonds, Wall Street, etc. Obviously this paradigm leads directly to the “haves” and “have not’s” who must continually fight for a piece of the action. All this as the the resources of the planet, and the life support systems that we all depend upon, are rapped and pillaged, leaving only destitution in the wake. The original “Tea Party” was the rebellion of taxation without representation. Today the “socially enabled capitalistic economy” is far worse. The hidden “Taxation” that supports the ecocide of the planet as witnessed by all who have the guts to look. (Tar sands, acidified oceans, disrupted climate, health care associated costs, etc.) A new paradigm is needed and it is one that has arisen from time to time in the past, usually in outlying cultures. However those cultures quickly become plundered by the more aggressive rapacious exploiters. The fallacy that those exploiters refuse to recognize is that exponential growth is not allowed in a closed system and Nature bats last. Add to that that “We the People” are tapped out and in debt as is, to the tune of trillions of $$$. Nature is at bat and she has a strong line up. She will prevail. Humanity cannot refill the coffers without serious investment in the Green Awakening Economy and clean renewable energy from the cosmos. Financing must follow the money, not those exploited already. Those that provided that wealth in the first place by a failed paradigm of profits from the pollution of the commons.

  3. Daniel Coffey says:

    For those who think a tax on carbon is the answer, think again. Focus on the solution – new energy systems and modes of transportation. A tax on carbon does not address that anymore than the current tax on gasoline, which is actually a tax on carbon in disguise. A reduction in consumption does not alter the status quo and does not reduce consumption enough to make any difference.

    And it makes people mad.

    This is the typical solution adopted by those who think we have time on our side, time enough to depreciate all 100 trillion dollars of investment already made in exploiting carbon-based fuels for the betterment of society. We don’t. Those costs are lost, or should be.

    On with the new technology, not a tax on the old.

    Oh, yes, a tax does not get money to the people who will build and deploy the energy systems of the future. Follow the money, and the path leads elsewhere.

  4. Daniel Coffey says:

    Focus on the tangible solutions, not the funny-money games which don’t actually get anything built. We need to deploy wind and solar PV technology to do what we want but without the side effects. We have that technology now. We just need to deploy it in quantity, at large scale, and soon.

    A “tax” is treated as a message to the market. Really? Not really. It just slows progress.

  5. Joan Savage says:

    I’m grateful for the guarded prediction that we might reach the 17% reduction goal, even without new legislation.

    Is 17% still enough?

  6. Sasparilla says:

    I thought Mr. Stavins points were very reasonable and set expectations for what we’ll probably see from the administration in a realistic manner.

    Watching all this recently, the speech, the immediate back pedaling by the administration with the reporters on what Pres. Obama meant on climate change and of course the Administration saying it would never mover forward with a Carbon tax (both before and after the speech) reminds me of that Chris Hedges article where he said:

    “Barack Obama is another stock character in the cyclical political theater….. Act I is the burst of enthusiasm for a Democratic candidate who, through clever branding and public relations, appears finally to stand up for the interests of citizens rather than corporations. Act II is the flurry of euphoria and excitement. Act III begins with befuddled confusion and gnawing disappointment, humiliating appeals to the elected official to correct “mistakes,” and pleading with the officeholder to return to his or her true self. Act IV is the thunder and lightning scene. Liberals strut across the stage in faux moral outrage, delivering empty threats of vengeance. ”

    We went through this once from 2008 onward and now with nothing but a speech (with lots of administration backpedaling afterwards) we’re back to Act 2….

  7. Sasparilla says:

    World wide CO2 emissions are currently increasing year over year at an accelerating rate (i.e. the accelerator to the CO2 emissions engine is still floored). Just because the U.S. has emissions decreasing mostly due to fracking bringing the price of natural gas below coal and displacing coal as electricity production of choice, high oil prices and a small amount of EPA regulation is better than an increase but isn’t something to be remotely satisfied with.

    Bill McKibben’s excellent numbers article lay things out so clearly for where we are – we have about 565 Gigatons of CO2 to emit before we hit the 2 degree CO2 target (however bad that target is) and we emit about 32 Gigatons of CO2 a year, even without taking into account emissions growth (which are accelerating) – we only have until somewhere in the later 2020’s before we have to be at zero CO2 emissions (no coal use, no oil use and no natural gas use) to stay inside that target.

  8. Paul Klinkman says:

    For those who think that focusing on new energy systems and modes of transportation is the solution, be aware that lots of money may be doled out and then exactly the wrong people will get all the money. Why should Washington want to mistreat the fossil fuel industry with its hundreds of millions of dollars in campaign expenditures?

  9. David Goldstein says:

    and, of course, zero CO2 emissions is an impossibility. This is the main reason the ‘17%” number is deeply misleading. Even the most wildly optimistic projections have the world at 20% emissions by 2050. To reach that we need to (as a World) cut emissions by 5.3% a year starting in 2012!!!! That means – for the U.S. alone (and we all know that the U.S. is increasingly less relevant when compared to China, India, etc.) a 35% cut by 2020 to be on this path. 17% is not even close to where we need to be heading…and, sadly…it is probably the best we can do short of collapse. We will be in trouble, I feel, until leaders treat this as an emergency a la WW II. It is only then that the ‘we will do what needs to be done’ mentality will kick in. And even then…it will be a very tough go.

  10. David Goldstein says:

    To be clear: 20% emissions by 2050 = an 80% reduction.

  11. Brian R Smith says:

    Dr. Stavins,
    I disagree with your conclusions -first, that it’s “unlikely” that bottom-up demand for climate action can or will be as effective as past environmental campaigns and, second, that inspired leadership we can’t actually count on is the only path that can “somehow bridge the debilitating partisan political divide.”

    There are several reasons to believe that past isn’t necessarily prologue & that the growing groundswell needed to inspire high level action has more potential than you give credit for. Robert Brulle, in 2008: “The U.S. environmental movement is perhaps the single largest social movement in the United States. With over 6,500 national and 20,000 local environmental organizations, along with an estimated 20-30 million members, this movement dwarfs other modern social movements such as the civil rights or peace movements.” In 2012, the National Center for Charitable Statistics'(NCCS) update on NGOs in the U.S. counts 57,425 groups (including 1,575! private foundations) dedicated to environment & conservation, double the numbers of 4 years ago. I won’t assume that membership has also doubled in 4 years but lets say there are only 40 million voters concerned about climate. This is significant if creating political will in the elites is the goal.

    Add in other factors- increasing calls for action from disaster-hit Repub legislators willing to leave the fold; increasing acceptance/coverage of the evidence by the media; growing awareness and experience of collaboration among advocates; exploding potential of the Net for organizing & targeting; eagerness of advocate funders to be effective; the work of the League of Conservation voters & others focusing on how to vote in a more progressive house in 2014; pressure from major investors & business leaders. What I see is the biggest, broadest constituency for anything, ever, and trends that suggest the need for a lot more deliberate strategy & coordination at the national level in the run-up to Presidential courage.

    Assuming the worst (inaction) by assuming that these combined interests have no power to change politics and policy is to throw away the opportunity to use that power. We need a level of cooperation among organizations that results in giving 40 to 50 million already sympathetic voters a voice that is heard loud & clear at the polls in 2014.

    NCSS puts total revenues for environmental orgs in 2012 at $17,727,571,043 with total assets of $50,405,669,239. Money for a cohesive national campaign is clearly not the problem. Imagining/believing it is worth doing is definitely part of the problem.

  12. Dave Bradley says:

    The political compromise that is possible is more renewable energy, and especially the lower cost of production forms – wind turbines, biogas, biomass, tidal, run-of-river and geothermal. With PV, the political compromise is for residential PV – not cheap, but at least it will not raise electricity prices much, and every owner of a small PV also becomes a political advocate of renewables (which is happening in Germany).

    We should also face up to the need to get rid of the subsidies that allow some renewables to be priced at the same low subsidized prices as pollution based electricity. We need to be able to sell renewables at a price that is actually based on the cost to produce such electricity, not based on whatever the price of coal or natural gas happens to be at any given moment, or how much consumers can be gouged for on any given hour.

    Lower cost renewables are possible when a predictable, viable price can be obtained for the energy made. In much of this country neither predictable pricing nor viable pricing for renewable electricity is possible. This can add another 2 or 3 c/kw-hr onto wind electricity production costs, which is a bite when the prevailing (pollution sourced) price is only 2 to 4 c/kw-hr, or 4.8 c/kw-hr in NY City….

    Renewable energy systems are economic stimulating arrangements. CO2 pollution taxes are Demand Destruction, and while that may serve valid purposes, demand destruction is not demand creation. Renewable energy systems do not need CO2 pollution taxes to thrive – all they need is a sane pricing system, such as what happens with Feed-In Tariffs. CO2 taxes/fees do nothing to stimulate demand unless those taxes are really high – think $85/ton of CO2 pollutant – but such tax rates will also cause a lot of economic damage.

    So, to get the ball rolling, try creating economic demand FOR renewable energy. That makes for jobs and businesses and customers with a stake in the sensible climate biz. And maybe then you can ease into a regressive CO2 tax that will act as a negative reinforcement for fossil fuel consumption. But you might also want to concentrate on minimizing the profits that come from fossil fuel sales. After all, that is the motivation for fossil fuel production, not the sales of them. And since the costs of CO2 taxes will be passed along to their customers, it (CO2 taxes) really doesn’t mess with coal and gas guzzling power plant owner profits much at all. But renewables sure do whack fossil fueler’s profits via the Merit Order Effect….. and that’s one of the reasons for the assault on renewable energy approaches by Republican’s in the US and neo-liberals in Canada and Europe these days.

  13. Mulga Mumblebrain says:

    I’d prefer a tax, rising at a set rate, to punish environmental destruction by greenhouse gas emission and eliminate it. The moneys raised could compensate the working and middle classes, pay for new, non-fossil fuel, technology, and help remediate past ecological damage. Simple really.

  14. Mulga Mumblebrain says:

    A tax is a price signal, which I thought was one of the sacred processes of the market religion. Are you against all taxes?

  15. Mulga Mumblebrain says:

    Hedges is correct, and it has panned out exactly as Chomsky, Nader and others predicted in 2008. No-one even gets within a country mile of political power in the USA unless they are controlled, lock, stock and barrel, by the money power. Obama’s ‘patrons’ are certain Chicago billionaires and the increasingly dominant financial caste, and the history of his recruitment at college, employment and the financing of his political career by these people is well known. He’s not going to change his spots-it would be far too dangerous, for a start. He’s probably read history and knows just how many enemies JFK made for himself by imagining that he was, you know, ‘the President’.