The Second Term of the Obama Administration

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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.

Postscript:  Please note that the Kennedy School series on the second term of the Obama administration also includes an interview with my colleague, Professor Joseph Aldy, offering his own views on potential environmental policy developments in the next four years.

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8 Responses to The Second Term of the Obama Administration

  1. Pingback: Climate Policy in Obama’s Second Term | The Penn Ave Post

  2. Ed Reid says:

    What is the Purpose and Scope of US Climate Policy?

    If US climate policy is to reduce global annual CO2 emissions, it will fail because Asia is increasing its annual emissions faster than the US could reasonably reduce its emissions.

    If US climate policy is to set a good example to be followed by the remaining nations of the world, it will fail because the developing nations appear totally unwilling to surrender their economic growth.

    If US climate policy is simply to reduce US CO2 emissions, it is pointless.

    If US climate policy is to use a carbon tax to fund government, then it is just tax policy.

    There is no established relationship between the level of a carbon tax and the level of CO2 emissions reductions.

    Actual reductions in CO2 emissions would require massive investments in low/no emissions facilities and equipment. A carbon tax would not displace any of that investment requirement, but would merely add cost to the overall process.

    There is still no unique, overall goal for global annual CO2 emissions reductions, no plan to achieve such a goal and no timeline for its execution.

    The most common interest of the participants in the last 3 COPs has been the redistribution of wealth and income from the developed nations to the undeveloped nations. Ottmar Edenhofer of UNFCCC, perhaps in a fit of excessive candor, acknowledged that the COPs were now not about climate, but rather about economics.

    It would help if those in charge had some clearly enunciated vision of the goal and the path ahead.
    If they have such a vision, they have done a magnificent jog of hiding it from the rest of us.

  3. Pingback: Thoughts On Energy And Climate Policy In Obama’s Second Term | News Talk One

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  5. Georg Maue says:

    What could be the purpose of the US climate policy and any other nations climate policy?

    To be part of the solution fighting the threat of climate change, which already affects most countries around the globe including the USA and which will cost appr. 10 % of global GDP if no action is taken.

    Ed suggests, that the US should not act because there are others, who dont act enough (like Asia). What kind of excuse is that? Do you stop fighting crime, because crime is likely to continue somewhere else?

    The good news is: Climate protection actions pay-off. There are plenty of win-win options. By increasing energy efficiency and using renewable energy every nation can improve and strengthen its economy and help the climate in the same time.

    Plenty serious studies prove clear economic advantage of climate (and sustainable energy) action for almost all regions around the globe – particularly for the US having splendid renewable energy options.

    The only reason for the excisting resistance comes from old business not wanting to adjust their portfolio and expand to new (energy) ressources. Which is very short-sighted.

    Hopefully CEOs of leading business act responsible and more and more understand the new energy oportunities.

    Climate policy can be the driver initiating intelligent energy supply and the US could have a pole position.

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  8. Ed Reid says:

    Georg Maue,

    “To be part of the solution fighting the threat of climate change, which already affects most countries around the globe including the USA and which will cost appr. 10 % of global GDP if no action is taken.”

    The globe has one climate; and, changes in that climate affect every nation. The only reasonably documented climate change effects are a ~0.5C increase in calculated global average surface temperature and a slight rise in sea level resulting from both a slight increase in temperature of the oceans and the melting of some non-sea ice. All other alleged effects are based on the outputs of computer models which have demonstrated limited predictive skills.

    Please provide a link to your source for the “10% of global GDP” estimate, which appears to be lower than the CAGW scenario would suggest.

    “Ed suggests, that the US should not act because there are others, who dont act enough (like Asia). What kind of excuse is that? Do you stop fighting crime, because crime is likely to continue somewhere else?”

    If the action referred to is reducing carbon emissions, it’s not that the nations of Asia “dont act enough”, but that they act both excessively and adversely. The first logical step in reducing global annual emissions is halting the increase of global annual emissions. The increases in global annual CO2 emissions are occurring primarily in Asia, with China leading the way at ~9% per year.

    CO2 is a globally well-mixed trace gas. Therefore, CO2 emitted anywhere on the globe will rapidly contribute to higher atmospheric CO2 concentrations everywhere on the globe. No nation, for example, could totally eliminate its CO2 emissions and expect the CO2 concentration in the atmosphere above the nation to stabilize as a result. If the objective is to stabilize the atmospheric CO2 concentration at or near the current level, all nations must act to reduce their CO2 emissions.

    Please provide links to the “plenty serious studies” which “prove clear economic advantage”.

    “The only reason for the excisting resistance comes from old business not wanting to adjust their portfolio and expand to new (energy) ressources.”

    Businesses have existing assets. Replacing those assets before the ends of their useful lives produces an economic dead loss, which must be added to the investment in the replacement assets when analyzing the economics of the replacement decision. Also, both solar and wind are currently more expensive that the available alternatives. Both require ongoing subsidies and also increase costs. Both are also intermittent sources of energy and require the continued existence of conventional backup.

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