Newly re-elected President President Obama gave a nod to climate change in his acceptance speech on election night, but reducing the United States' greenhouse gas (GHG) emissions is still not very high on the President’s agenda for his second term. Yet the looming debate on fiscal reform combined with recent weather events could create an opportunity to introduce a carbon tax.
While global warming was one of Obama’s top priorities going into his first mandate, in 2012, Obama stayed as far away from the topic as he could. Not only was the economy the main issue for both candidates, but it’s also likely that Obama felt vulnerable to attacks against his energy policy record following the high-profile Solyndra bankruptcy in September 2011.
Hurricane Sandy, and maybe more importantly, Mayor Bloomberg’s open editorial tying Sandy to global warming and to presidential politics, brought climate change back on the agenda – though it's still not very high on the list. Even after Tuesday's victory, Obama is going to have to tread carefully – the suffering of millions on the East Coast is very real and the path to recovery is going to be a long one, so any attempt (or perceived attempt) to push a political agenda on the back of Sandy’s destruction may not be well received. In addition, the state of the economy remains the absolute top priority, and Obama will not be able to focus on other high profile issues until the economy gets better and the budget deficit gets somewhat under control.
So what, if anything, can we really expect from a second Obama mandate? Well, don’t get too excited. Caution has been the operating concept since Congress’s attempt to pass a cap-and-trade bill went down in flames, and more cautious progress is all we can reasonably expect.
Obama’s biggest success with regards to GHG emissions is undoubtedly the new fuel efficiency (CAFE) standards, set in agreement with the auto industry, which requires new automobiles to meet a fleet-wide average of 54.5 mpg standard by 2025. There is a lot of expectation from the environmental community that he could do the same to address emissions from stationary sources – power plants, industrial facilities - also under the Clean Air Act. Of course, there is also a lot of opposition from those potentially regulated – the power sector in particular – against such a move. Forcing GHG emission reductions under the Clean Air Act via EPA regulations has historically been seen as a second-best solution, even by the EPA administrator, compared to the flexibility afforded by a federal carbon market. If Obama does proceed with EPA regulations, the latest thinking is that states may be able to comply with those standards through their existing cap-and-trade programs, which would provide welcome support to the Regional Greenhouse Gas Initiative and California. As EPA has been under fire from the Republicans over the past two years, I’d expect Obama and Democrats in Congress to explore other solutions before they go the regulatory route.
What other solutions, you ask? Well, cap-and-trade is out of the picture for the foreseeable future, but a carbon tax, which I would not have bet a nickel on a year ago, may be back from the dead. In the context of the looming fiscal cliff, the grown-up solution to address budgetary issues would involve a so-called "grand bargain" between Democrats and Republicans on tax increases and budget cuts. Should this grand bargain take place, it could open a window of opportunity to revamp the overall tax structure of the country, and possibly introduce a carbon tax into the picture. (More on how a tax structure would work on Resources for the Future’s website). And while climate change is not very high on the agenda, fiscal reform is indeed the top priority for both Congress and the President. Sadly for the climate and for the U.S. economy, reaching this grand bargain is still a ways away. Much will depend on whether Congress starts on a fresh, constructive dynamic in January, or if partisan bickering continues to prevail.
Now, none of this may be exciting to those waiting for more aggressive climate policy, but compare to what a Romney administration would have brought: Romney was eager to unravel the new CAFE standard and certainly would have stopped any further rulemaking from the EPA. Cautious progress and “no regrets” investments in clean energy are still better than climate denial and a handcuffed EPA.
Yet, in my view, the most interesting part of Obama’s re-election may lie in what we don’t know. After a summer of drought that brought the Midwest to its knees, and Hurricane Sandy’s freak destructions on the East Coast, having a second-term President who recognizes climate change as an issue and is bent on leaving a positive legacy means more could actually happen. The public opinion in the U.S. has been slowly shifting back, with two-thirds now saying there is solid evidence of global warming, up 10 points from 2009, according a survey by the Pew Research Center. Stay alert for surprises. Nobody wishes more extreme weather events, but they might happen anyway, and may eventually drive the point home in D.C. In the words of the President himself: there is more than one way to skin a cat.
Emilie Mazzacurati is Executive Director at Real Options International, a carbon advisory firm, and an expert on U.S. climate policy and carbon markets. Emilie has published extensively on federal climate legislation, regional programs and the interaction of carbon with other commodity markets. Previously, Emilie was Head of Carbon Analysis at Point Carbon Thomson Reuters, where she managed a portfolio of research and trading analytics products for North American and global markets.
[Image credit: Flickr/The U.S. Army]
Emilie Mazzacurati is CEO of Four Twenty Seven (www.427mt.com), an award-winning market research and advisory firm that brings climate intelligence into economic and financial decision-making. Founded in 2012 and based in the San Francisco Bay Area, Four Twenty Seven helps Fortune 500 companies, investors and government institutions understand how to quantify and monetize climate change impacts on operations as well as social factors that affect their value chain.