November 2008

Last year, CEI published a report, Gone with the Wind, explaining why such a requirement, known as a renewable portfolio standard, is unfair to states in the southeast, where electricity is cheap and the potential for renewables is low.

Yesterday, the Cato Institute published a report that asks how policymakers could favor a policy so politically correct and so economically suspect. The report further demonstrates that support for a national program largely stems from misleading claims about state-level successes, misunderstandings about how renewables interact with other environmental regulation, and misinformation about the actual benefits renewables create.

On the global warming issue, President Obama will be a big change rhetorically from President George W. Bush and only slightly less of a change on policies.  Obama supports re-engaging in the U. N. negotiations for a treaty to follow the Kyoto Protocol when it expires on December 31st 2012, but the Bush Administration is fully engaged in those negotiations now.  What could be different is if President Obama reverses U. S. negotiating policy and agrees to cut emissions unilaterally without similar commitments from other major economies, such as China.  Such a move would put the U. S. at a huge competitive disadvantage.     

The President-elect also supports enactment of cap-and-trade legislation to reduce greenhouse gas emissions by 80% by 2050.  McCain is the chief sponsor of similar legislation with a 60 % mandatory reduction by 2050.  However, unlike McCain, Obama has not taken an extreme leading position on the issue and even joked about the fanaticism of some global warming true believers at his rallies.  His main concern will probably be to satisfy the special interests supporting him without spending too much political capital, so I think he will try to advance energy rationing indirectly or by stealth rather than through a big public debate on energy rationing.

One stealthy way would be to begin implementing regulation of carbon dioxide emissions under the Clean Air Act.  The Supreme Court ruled in 2007 that the EPA does have authority to do so, and the campaign indicated last month that Obama would go ahead and begin to regulate.  Using the Clean Air Act to regulate carbon dioxide emissions will create numerous bureaucratic nightmares for millions of people and cripple the economy (see my colleague Marlo Lewis’s analysis here), but it can be done without attracting much public attention and it would be many years before the proposed rules were fully litigated and implemented. 

Another less direct approach would be to try to push through a big new “green jobs” program early in his administration and put off the heavy lifting required to pass cap-and-trade until later—possibly much later or never.  That makes sense for several reasons.  First, Obama hardly mentioned cap-and-trade in his campaign, but found that talking about creating green jobs was a crowd pleaser.  Second, as I will discuss in a following piece on the congressional elections, even with significant Democratic gains in the House and Senate, it is not going to be easy to pass a cap-and-trade bill.  Moreover, the continuing credit crunch and looming recession provide difficult conditions for enacting legislation to raise people’s energy prices.

Candidate Obama has been commendably forthright and realistic about the fact that cap-and-trade will raise energy prices significantly.  He remarked during the campaign that the problem with high gas prices wasn’t that they were high, but that they had gone up too quickly.  People needed more time to get used to paying more because they were indeed going to have to pay more and use less in order to solve global warming.  It also came to light late in the campaign that Obama told the San Francisco Chronicle in January that under his cap-and-trade plan building new coal-fired power plants would bankrupt electric utilities.  Understanding that cap-and-trade is going to be very costly may make him quite cautious about pushing for it right away.   

A major difference between McCain and Obama on cap-and-trade is that Obama supports auctioning all emissions coupons rather than giving some of them away to special interests.  Although CEI opposes cap-and-trade and all other energy-rationing policies, we agree with Obama and environmental pressure groups that, if there is going to be cap-and-trade, then all coupons should be auctioned.  But many companies that support cap-and-trade are going to oppose auctioning because they hope to make windfall profits by using their political influence to get more coupons than their fair share.  If Obama really does want to enact cap-and-trade at some point in his term, he is probably going to have to give some ground and buy off some special interests with free allowances. 

To sum up, my guess is that President Obama will pursue a number of global warming initiatives starting early in his administration, but may well decide to put off cap-and-trade legislation for a year or two or three.  And in politics three years is forever.