Energy and Environmental Law and Policy in the Obama Administration

U.S. Energy and Environmental Policy in the Obama Administration Professor Joel B. Eisen University of Richmond School of Law [email_address]

Leads his party & attempts to shape public opinion (press conferences, State of the Union, etc.) -- Obama call for energy independence within 10 years: meant to remind us of JFK’s “man on the moon” commitment – builds public excitement and spurs investment and programs Works with Congress on energy/environmental legislation -- Success depends on many factors including who controls Congress Heads executive branch = large number of employees report directly to the President Represents the U.S. abroad (treaty negotiations) The President’s Role in Environmental Law and Policy

Energy and environmental policy are important but a U.S. President has other priorities Swine flu and two wars Economic downturn – limits $ to invest Emphasis on “green recovery” Car companies – bankruptcy(ies)? Car company opposition less important now because the auto companies depend on federal government and will be required to make cleaner cars Important signals early on that energy and environmental policy will be central The President’s Role in Environmental Law and Policy

A New Beginning Many differences from Bush Administration Domestic high priority to energy and environmental matters Foreign leadership Major actions at all 3 branches of national government: judicial, legislative (Congress), executive (agencies) Specific recognition of need to address global warming The most pressing environmental challenge ( Massachusetts v. EPA ) Important to US economy Recent evidence of ice melting, need to act fast

A New Beginning Domestic and foreign policy team appointments signal a seriousness of purpose about energy/environment Lisa Jackson = respected state department leader as EPA Administrator Steven Chu = scientist heading the DoE Carol Browner = “climate czar,” well-respected EPA Administrator under Clinton Todd Stern = climate envoy

A New Beginning Congressional leadership aligned to support action “ this is the beginning of an incredibly intense period of political debate in our country.” (Rep. Edward Markey on CESA) “ A surprise defeat in the race for the Energy and Commerce Committee’s chair sent Detroit’s longest serving and strongest advocate packing, and signaled hope for environmentalists.”

Foreign environmental policy also different from previous Administration: “we are ready to listen” (Clinton) Commitment to Copenhagen talks Team in place/negotiating position soon Domestic actions coordinated with negotiations New relationship w/China on E&E Secretary of State Clinton: the United States is “no longer absent without leave” in this area, but will make “climate change a central focus of our foreign policy.” Todd Stern = visit already to China, intends to do more A New Beginning

President Obama and President Hu Jintao of China met at the G20 Financial Summit Press release : “The two sides agreed to intensify policy dialogue and practical cooperation in energy, the environment and climate change building on the China-US Ten Year Energy and Environment Cooperation Framework, carry out active cooperation in energy efficiency, renewable energy, and clean energy technologies and work with other parties concerned for positive results at the Copenhagen conference.” Establishment of the “Strategic and Economic Dialogue” Builds on past efforts, but new framework A New Beginning

Global warming -- Possible comprehensive federal law (Clean Energy and Security Act) -- “Cap-and-trade” emissions reduction programs -- Federal regulation after Massachusetts v. EPA -- New international treaty (Copenhagen 2009) – active participation in negotiations Fuel economy standards for automobiles (CAFE) -- May 2009 announcement of new standards Renewable energy (deployment, portfolio standards, R&D) Nuclear power deployment Offshore drilling for oil Key Energy and Environmental Issues

Fuel Economy Standards for Automobiles CAFE Standards = Corporate Average Fuel Economy Established in 1975 (Energy Policy Conservation Act) Little change since mid-1980s – blocked in Congress until recently; new law requires 35 mpg by 2020 Source: DOT, Congressional Research Service

Fuel Economy Standards for Automobiles Automobile fuel economy has increased since 1970s = but note most increases early on Some attribute this to technological improvements, not CAFE standards Others argue that only having higher standards motivates automakers to manufacture more fuel-efficient vehicles 1973 Ford Gran Torino, 9-12 mpg

Fuel Economy Standards for Automobiles: Key Proposal Obama proposal May 2009 = 35.5 mpg by MY 2016 Harmonizes with California’s standard (dashed line) Makes passage of Waxman-Markey less imperative Resolves confusing tangle of administrative and judicial battles over increasing standard

Nuclear Energy Currently 20% of electricity generation; no new plants for decades after Three Mile Island, but applications now pending Touted as a “zero-carbon” solution – but what about process of extracting and transporting uranium?? Obama: “It is unlikely that we can meet our aggressive climate goals if we eliminate nuclear power as an option. However, before an expansion of nuclear power is considered, key issues must be addressed including: security of nuclear fuel and waste, waste storage, and proliferation.” Would eliminate Yucca Mtn., NV as a storage site.

Domestic Oil Production OCS: Moratorium on drilling in protected areas ended on Sept. 30. Campaign promise: “Use It Or Lose It” – drill on existing leases or turn them over. April 2009 = framework for renewable energy production on the OCS, still waiting on lease policy

Renewable Energy: A Response to Global Warming One 500-MW coal-fired power plant produces approximately 3 million tons/year of CO2. The U.S. produces close to 2 billion tons of CO2 per year from coal-burning power plants. GHG emissions from coal-fired electricity, now 27 percent of total U.S. emissions, are projected to grow by a third by 2025.

Lessons From The Past “ You wouldn’t want those houses” (Chesterfield County, 1993) Governmental policies are key to developing renewable power industries

By 2010, renewable energy will contribute 10% of the country’s gross energy consumption, increasing to 16% by 2020. It took less than 18 months to craft and implement the Renewable Energy Law. The law requires power grid operators to purchase resources from renewable energy producers. The law also offers financial incentives, such as a national fund to foster renewable energy development, and discounted lending and tax preferences for renewable energy projects. "Passing such comprehensive renewable energy legislation is a remarkable feat for any country.” Where’s This Miracle Nation?

What We Have Instead: Notice the Yellow

Renewable Energy: Key Proposals Renewing production tax credit “ 10% federal [RPS] = require 10 percent of electricity consumed in the U.S. derived from clean, sustainable energy sources, like solar, wind and geothermal by 2012.” Recognizes state leadership: “Many states are already well on their way to achieving statewide goals and it’s time for the federal government to provide leadership for the entire country to support these new industries.” CESA would supplant this with national standard

GHG Control: Action on Many Fronts International agreements Negotiation to create a post-Kyoto Protocol international climate change agreement Domestic litigation: Mass. v. EPA , tort litigation State/regional initiatives (e.g., RPS) Federal initiatives (e.g., EISA/CAFE) Regulation: CAA/CA waiver etc. Comprehensive Climate Change Legislation (Climate Security Act/2009 proposals)

Obama Campaign Promises: Domestic Policy Obama Campaign Plan – New Energy/Environment Fight climate change = important Tied to 5 million new jobs = renewable energy industries $150 billion over 10 years 10% RPS by 2012, 25% by 2025 Cap-and-trade 80% by 2050

Global Warming: Obama Campaign Platform EPA = endangerment finding Would be preempted in CESA, shows it is important politically Action on CA waiver Reduction target: 80% reduction by 2050 Initial distribution of allowances: 100% auction vs. 100% distribution based on historic emissions Pros of Obama approach: doesn’t reward pollution, amounts collected go to R&D and offsetting economic impacts Pros of other approach: gives time for adaptation, comparable to ARP approach

GHG Control: Federal Initiatives in the Obama Administration Regulation at the EPA: Endangerment finding under the CAA clears the way to regulation of CO2 as a “criteria pollutant” Waiver allowing CA standards to proceed Comprehensive climate change legislation Climate Security Act 2009: Clean Energy and Security Act Global warming addressed now or put off to 2010 after Copenhagen?

Legislative Branch (Global Warming Legislation) Omnibus energy bill with or without targeted global warming title Cap-and-trade included in House bill but NOT in Senate, shows political will difficult for C&T Differences would be reconciled in a “conference committee” Possible plans to offer GW title in conference

A Lobbyists’ “Super Bowl” "I've never seen this much media spending on a bill that is only in the subcommittee." (John Larson, WRI) “ The number of climate change lobbyists in Washington rose to 2,430 last year – an increase of 300% over the previous five years – which works out to about four lobbyists for every member of the Senate and House of Representatives”

Legislative Branch (Global Warming Legislation) Omnibus energy bill with or without targeted global warming title? Cap-and-trade included in House bill but NOT in Senate, shows political will difficult for C&T Differences would be reconciled in a “conference committee” Possible plans to offer GW title in conference

American Clean Energy and Security Act (ACESA) Introduced May 14, 2009 after Committee hearings on discussion draft Committee markup this week & final action by Memorial Day Waxman-Markey bill = two of the most influential Democratic Members on environmental issues

ACESA – Major Themes Core provisions Compare to previous bills and efforts in other nations Political compromises so far = signs of difficulty of passage Allowance distribution (Inslee/Doyle, car mfrs./Dingell) Significance of a major energy /carbon bill & likelihood of passage

ACESA – Core Provisions Renewable energy/national RPS Energy efficiency/utility mandate Global warming/cap-and-trade First attempt at national cap for GHG emissions Allowance distribution (similar to CSA in “hybrid” construction; some distributed, some auctioned) “ Transition provisions”

ACESA Discussion Draft Title I Renewable energy = RPS @ 6% in 2012 and going to 25% by 2025 Carbon capture and sequestration (early demo/incentives) $ support for electric vehicles Demonstration programs Support for car companies “ Smart grid” and electricity transmission provisions

ACESA Discussion Draft Title I: Pre-Introduction Compromise Renewable energy = RPS @ 6% in 2012 and going to 25% by 2025 Reduced to 15% by 2020. Nuclear and CCS are included Combined with a higher utility energy efficiency mandate (Title II) Spin = this is a “combined” standard “ This combined renewable energy and energy efficiency standard will drive the deployment of clean energy from solar, wind, geothermal, and biomass resources and promote cost-effective investments in energy efficiency,” said Waxman.

ACESA Discussion Draft Title I: Pre-Introduction Compromise If the governor of a state determines that utilities in the state cannot meet the 15% renewable requirement, the governor may reduce the renewable requirement to 12% and increase the efficiency requirement to 8%. Note this (from a conservative Dem): “ Regional difference present complicated challenges, especially in the area of renewable energy. I appreciate Chairman Waxman and Chairman Markey working with us to create a Renewable Electricity Standard that is not regionally punitive and includes the flexibility to accommodate regional differences.”

ACESA Discussion Draft Title II: Energy Efficiency Building, manufactured home and appliance energy efficiency provisions Harmonize transportation standards Mandate for utility energy efficiency improvements Applies to distribution (local) companies 1% electricity savings and 0.75% natural gas savings in 2012 15% cumulative electricity savings and a 10% cumulative natural gas savings by 2020

ACESA Discussion Draft Title II: Pre-Introduction Compromise Requirement increased to 5% and merged with the RPS Ability to trade off RPS for increased efficiency = shows political appeal of forcing utilities to do better But is this really progress? Could have a RPS as low as 12% -- doesn’t do more than some state standards already in place

ACESA Discussion Draft Title III: Global Warming Market-based cap-and-trade program Would cover large emitters: electric utilities, oil companies, large industrial sources, and other covered entities that collectively are responsible for 85% of U.S. global warming emissions. Goal: reduce emissions by 3% below 2005 levels in 2012, 20% in 2020, 42% in 2030, and 83% in 2050 Safety valves: Offsets : can increase emissions above their allowances if they can obtain “offsetting” reductions (5:4 ratio) at lower cost from other sources. Unlimited banking and rolling 2-year compliance period

“ Cap-and-trade” is a market-based system of pollution reduction = unlike traditional regulation Companies start with allowances (1 ton = 1 allowance) & must have sufficient allowances to cover emissions. Flexibility: companies can make $ by selling or trading excess allowances to other companies that need them. Companies that don't want to reduce their emissions have to consider the price of buying or trading credits from these other companies. Global Warming: “Cap-And-Trade” Basics

Key Features of Emissions Trading Regulatory Flexibility : sources can choose how to reduce emissions; can buy additional allowances from other sources that reduce emissions Allowance trading : sources can buy or sell allowances on the open market Compliance : at the end of each compliance period, each source must own at least as many allowances as its emissions. Penalty in ARP: more than $2,000 for each excess ton of emissions

Phase I (1995-1999): 110 plants to cut emissions by 5 Mtonnes Phase II (>=2000): 800 plants to cut emissions by further 5 Mtonnes

ACESA Discussion Draft Title III: Global Warming No provisions for allowances W-M knew they’d be added in committee Other legislation (e.g., Inslee-Doyle) Safety valves: Offsets : can increase emissions above their allowances if they can obtain “offsetting” reductions (5:4 ratio) at lower cost from other sources. Unlimited banking and rolling 2-year compliance period

ACESA Discussion Draft Title III: Pre-introduction Compromises = Allowances Remember Obama’s campaign position: Auctioning off 100 percent of the allowances. Estimated to raise nearly $650 billion over the next decade. Most of the money would have paid for a tax credit to offset higher energy prices expected to be passed down from industries as they reduce the pollution that causes global warming.

ACESA Discussion Draft Title III: Pre-introduction Compromises = Allowances The reality: allowances become a rich pot of funds to use to pacify individual constituencies and members Key members: ten Democratic members from conservative Southern and Midwestern districts Republicans on the margin = broadly opposed, not a single member likely to vote in favor “ A leading conservative Democrat said he would not vote for a climate change law under any circumstances. "This thing is out of control," said Collin Peterson, who heads the agriculture committee. "I've had it.”

ACESA Discussion Draft Title III: Pre-introduction Compromises (Allowances) Auto industry allowances (Dingell) “ incentives to make electric and advanced technology vehicles.”: The industry will receive 3% of allowances from 2012 through 2017, and after that will receive 1% of allowances through 2025. Recognizes importance of auto manufacturers/Dingell in securing agreement Also shows there will be lots of horse trading = lobbying for allowances regardless of economic efficiency

ACESA Discussion Draft Title III: Pre-introduction Compromises (Allowances) Major manufacturer allowances (Inslee/Doyle) Folds in text of their standalone bill = very common Standalone bill not likely to move given the omnibus bill movement Allows Members to claim credit for having drafted/created part of a larger bill Secures their agreement

ACESA Discussion Draft Title III: Pre-introduction Compromises (Allowances) Major manufacturer allowances (Inslee/Doyle) Energy-intensive, trade-exposed industries will be allocated 15 percent of all carbon dioxide emission allowances in 2014. Manufacturers will receive allowances based on the average carbon emissions from the sector, scaled by the manufacturer's U.S. production. To provide adequate transition time, the industries will receive allowances through 2025, at which time the President will determine whether they are still needed. "This agreement will allow energy-intensive American industries like Alcoa, Weyerhaeuser, and Nucor Steel in Washington state to fairly compete and protect jobs while reducing our national emissions." (Rep. Jay Inslee, D-WA) Shows how ACESA is similar to DoD appropriations bills: parts for aircraft carrier made in every district

ACESA Discussion Draft Title III: Pre-introduction Compromises (Allowances) Potential trouble?? “ [T]he bill would auction only 15 percent of the allowances to help lower- and middle-income families pay for higher energy bills. The rest will be given away to a variety of industries and states to ease costs and to help pay for improvements in energy efficiency and investments in clean-energy technology.” “ Energy tax” argument comes back . . .

ACESA Discussion Draft Title III: Pre-introduction Compromises (Target) The compromise deal waters down the original targets in the bill. The target of a 20% cut in emissions on 2005 levels by 2020 has been reduced to 17%. The US would be falling short of EU targets of a 20% reduction in emissions by 2020. The compromise bill could undermine the EU’s pledge to increase its target to a 30% reduction by 2020 if the US agreed to similar measures. “ Unless strengthened, this bill could undermine America’s ability to secure an effective international agreement during climate negotiations in Copenhagen this fall,” . . . .but clearly not going in that direction.

Clean Energy and Security Act: Transition Provisions (Title IV) Rebates to companies incurring “additional costs” Green jobs program Consumer assistance (to be developed) Exporting clean technology (only to nations signing new GHG treaty)

Grading the ACESA Climate Progress : B+ = “fails to address how allocations for GHG emissions allowances would be distributed.” Auction vs. distribution? “ Give the vast majority of the revenues back to the public, so they are held harmless (or, in fact, do better than break even because they can adopt efficiency measures).” Defeats the "biggest tax" argument. “ Rip-offsets”: allowing offsets “pokes a giant hole in the carbon cap and robs us of billions of dollars of auction revenue that can and should be reinvested to accelerate and smooth the transition to a clean energy economy.” “ Trading of rights to pollute … introduces speculation and makes millionaires on Wall Street . . . I hope cap and trade doesn’t pass, because we need a much more effective approach.” (James Hansen)

Congressional Action on Global Warming Legislation Bill discussion draft w/aggressive timetable : House Energy and Commerce Committee aims for 5/31 Hearings Markup Other committees promise to complete work by end of 2009 Many committees will be involved, work slow Energy Policy Acts of 1992, 2005, and EISA 2007 were considered by multiple committees Science and Technology: “All energy research, development, and demonstration, and projects therefor, and all Federally owned or operated nonmilitary energy laboratories.

Congressional Action on Global Warming Legislation Democrats control both houses of Congress but cannot act alone Republican opposition to global warming regulation continues (Boehner) “ We would hope to have Republican votes as we go forward on this . . . Will I not put it forth unless I do? No. There’s an inevitability to this that everyone has to understand.” (Nancy Pelosi) 60 Senate votes needed to overcome filibuster Al Franken/Arlen Specter – 60 votes? One Senator can stop everything (“courtesy”) Congress ends on 2010, must restart

Congressional Action on Global Warming Legislation Even though a majority, Democrats do not always vote together Example = proposed change to allow bankruptcy judges to modify home loans to avoid foreclosure change rejected 13 Democrats voted with all Republicans Members often represent narrow economic interests of their states and districts

Congressional Action on Global Warming Legislation “ Double-down” strategy: House bill includes both energy and climate titles Underscores time pressure of enacting a law by December (Copenhagen climate talks) May make passage of any bill difficult “ We will work to see that it dies as quickly as possible” (CEI Director of Energy and Global Warming Policy Myron Ebell)

Congressional Action on Global Warming Legislation Lobbying trench warfare already under way . . . Hundreds of thousands of dollars in print and TV ads Better coalitions this time = environmental and liberal organizations as well as major corporations that support energy reform, even some religious organizations, are pushing back hard, launching new ads on TV, in print, on the web, and even on subway platforms. Oil/coal/utility companies much better funded: the oil, gas and coal industry has increased its lobbying budget by 50%, spending $44.5m in the first three months of this year to try to influence legislation

Congressional Action on Global Warming Legislation Republicans: offering 449 (!) amendments to weaken the bill “ the provisions in the bill would boost a typical family's energy costs by more than $3,000 a year and trim the nation's economic output by $7 trillion over the next two decades” – Doesn’t need to be correct Scare tactic (“energy tax”)

Congressional Action on Global Warming Legislation “ Creating an artificial market for government-mandated carbon credits would be monstrously stupid to do right now .” – Charlie Munger (Berkshire Hathaway CEO) "[Lawmakers] are literally rewriting the ground rules about what types of energy they want us to use” What’s the response? Transformation to a green economy/new jobs Measures to protect consumers

My Prediction “ Green Recovery” program for job creation and start of low-carbon economy = energy bill with most of current Titles I, II, IV Followed by a cap-and-trade program in 2010 or beyond Why? Political pragmatism that meets main goal (start with a jobs/economy program) Commit to global warming measures in Dec. 2009 at Copenhagen and then implement them

“ Personnel Is Policy” ( Reagan and others ) “ Mr. Obama named John D. Podesta, the former Clinton White House chief of staff, to lead his transition team . . .” (NYT, 11/5/08) “ Founded in 2003, CAP is headed by John D. Podesta, former chief of staff to President Bill Clinton and professor at the Georgetown University Center of Law.”

Basics of “Green Recovery” “ Our report looked at investments that were funded through an increase in near-term government spending, which could ultimately be repaid by future carbon cap-and-trade revenues .” (my emphasis added) $100 billion = $50 billion in tax credits, $46 billion in direct spending, $4 billion in loan guarantees

Summing Up . . . “ At a time when four out of five Americans say America is on the wrong track and are demanding change – [we] can deliver change by committing to building a clean energy economy.” New sense of purpose in energy and environmental policy International cooperation much more likely Some form of omnibus bill and/or regulation of GHG expected in 2009 Not likely C&T before 2010

Energy and Environmental Law and Policy in the Obama Administration

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