Climate in the Second Inaugural: Signal and Substance

In President Obama’s second inaugural address he singled out climate change as a policy priority, which would be an unusual step in any inaugural address. Over the last decade presidents have mentioned wounded travelers, deepest beliefs and lofty goals; but not specific policy priorities. For instance, the extent of President Obama’s statement about health care in his first address was a pledge to “to raise health care’s quality and lower its cost.” This makes the explicit and extended mention of climate change a somewhat historic precedent. Pending decisions are the most significant that any administration has had to face about climate policy, and the inaugural address gives a signal about the possible outcome.

In a recent post on this blog our colleagues dismissed the president’s statements, arguing that “nothing has really changed” since the first term when Congress failed to pass comprehensive climate legislation. In a sense this is true, because one cannot expect Congress to overcome partisan division and lead on this issue in the current session. The path forward is likely to center on the development of regulations under the Clean Air Act, and this indeed will be historic.

In a recent paper we found that the U.S. is 60 percent of the way toward achieving the president’s Copenhagen commitment of reducing emissions to 17 percent below 2005 levels by 2020. Most who are aware of emissions changes in the US, including our colleagues in their recent post, attribute this to secular trends in the economy such as changing natural gas prices. In fact, those trends get us only a quarter of the way to 17 percent, and that includes improved efficiency resulting in part from investments in energy efficiency made during the last administration. The lion’s share of reductions so far comes from subnational policies and mobile source rules under the Clean Air Act.

The next major action to achieve emissions reductions under the Clean Air Act is the regulation of existing stationary sources, and the president’s statements indicate his intent to continue with these regulations. Reductions of 6 percentage points, on the metric toward 17 percent, are available at low cost according to EPA technical documents released in 2008 that identified low-cost opportunities for reductions in several sectors through efficiency improvements (not fuel switching). We use this as a benchmark to calculate the US is currently on target to achieve reductions of 16.3 percent by 2020. However, that is not how the result is actually likely to occur.

Electricity is the most important sector for achieving reductions. The EPA’s proposed performance standard for new sources combines coal and natural gas into a single source category; this designation makes a single source category the default for an existing source standard. While the 2008 documents (and our subsequent statistical research) show that improvements at coal plants could yield reductions of 3 percentage points (measured on the 17 percent metric), the broader source category will credit and incentivize further fuel switching to natural gas, and yield further emissions reductions. If implemented as a single national performance standard the U.S. will do better than the 17 percent target. The push back, however, is this may lead to wealth transfers across regions. The path forward will likely give great latitude to the states in developing implementation plans for an existing source standard, with some regions going further than others, but with the necessary reductions for the 17 percent goal still in sight. Subsequently under the law the administration then has to pursue other sectors of stationary sources, likely beginning with refineries.

We realize there are uncertainties. We say over 10 percent is baked in, but the rest depends on decisions that will still be made.  The US is “on target” in the way a marathon runner is on target at the 14th mile to achieve a goal at the end. The decision of whether the U.S. will achieve its goal in 2020 is, metaphorically speaking, sitting on the president’s desk.

About Matt Woerman

About Dallas Burtraw

Dallas Burtraw is one of the nation’s foremost experts on environmental regulation in the electricity sector. For two decades, he has worked on creating a more efficient and politically rational method for controlling air pollution. He also studies electricity restructuring, competition, and economic deregulation. He is particularly interested in incentive-based approaches for environmental regulation, the most notable of which is a tradable permit system, and recently has studied ways to introduce greater cost-effectiveness into regulation under the Clean Air Act.

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