Obama Swaps Cap-and-Trade for a Clean-Energy Goal

In charting a new energy policy, he focused on creating jobs and improving American competitiveness, instead of climate change.

In Tuesday’s State of the Union address, President Obama emphasized developing and deploying clean-energy technology as part of an effort to improve American competitiveness and create jobs. Rather than promoting a cap-and-trade system for creating a market for clean energy—an approach that failed in the Senate last year—he suggested a goal that 80 percent of the electricity in the United States come from such sources as solar, wind, nuclear, “clean” coal, and natural gas.

The approach to energy policy is a marked shift from the one the president has supported since taking office. Previously he’d focused on taking measures to reduce greenhouse-gas emissions. He supported a bill that passed the House in 2009 that included a cap-and-trade system ( where the government sets limits on greenhouse-gas emissions, and emitters can purchase and trade for emissions allowances). A similar bill in the Senate did not pass, and cap-and-trade is widely considered to be off the table, at least for the next two years, now that Republicans who oppose it have control over the House. In Tuesday’s speech, Obama didn’t mention climate change or limits on greenhouse emissions—but employing the clean energy sources he mentioned would reduce carbon emissions.

The shift away from cap-and-trade is likely meant to appeal to Republicans, many of whom have supported nuclear power and clean coal, which refers to a variety of technologies for capturing or eliminating the emission of carbon dioxide and other pollutants from coal combustion. Some Republicans have called for a nationwide clean-energy standard, requiring utilities to use cleaner electricity sources. “The president has put a lot of stock in clean energy when it comes to job creation, and it’s an area where there might be some room for bipartisan movement in this Congress,” says Tony Kreindler, the media director for climate at the Environmental Defense Fund.

Many business leaders support the creation of a long-term energy policy as a way of clarifying the regulations that companies are likely to face in coming years. “What we’re hearing from our members is, we need policy certainty,” says William Booher, executive vice president of the Council on Competitiveness, an industry group. He says companies need  a clear policy to be confident in where they invest the cash they’ve accumulated in recent years.

A fact sheet issued by the White House clarified that the 80 percent clean-energy goal would be a “standard”—presumably similar to the renewable energy standards in many states that require utilities to include a certain percentage of renewable sources in the power-generation mix. The standard will be accompanied by “new efforts to promote energy efficiency.” Obama’s 80 percent goal is likely achievable, especially if natural gas can be considered “clean energy.” (Burning natural gas releases about half the carbon emissions as burning coal, and it emits significantly fewer pollutants such as mercury.)  Today, coal provides roughly half of the electricity in the United States.

In spite of likely support from some Republicans, passing a clean-energy mandate could be a challenge, as Republican leaders focus on reducing government spending and regulations. In a response to the State of the Union address, Rep. Fred Upton (R-Michigan), the chair of the House Energy and Commerce Committee—which will shape energy bills in the House—said he opposed policies that would “force consumer and job creators to purchase energy they cannot afford.” Clean-energy technology can be significantly more expensive than sources of electricity like conventional coal-fired power plants.

Many economists say that a cap-and-trade system would be a cheaper and more effective way to reduce greenhouse-gas emissions than a requirement that utilities use certain sources of electricity. It would give emitters more flexibility in how they reduce their emissions, and allow them to purchase extra allowances if measures to reduce emissions are too expensive. Cap-and-trade programs are also more comprehensive than electricity mandates, since they typically cover carbon emissions from sources other than electricity generation. According to Robert Stavins, director of the Harvard Environmental Economics Program, clean-energy standards “would be less effective than a comprehensive cap-and-trade approach, would be more costly per unit of what is achieved, and yet, ironically, appear to be much more attractive to some politicians who strenuously opposed cap-and-trade.”

In addition to supporting a clean-energy standard, Obama also called for more spending on clean energy R&D, funded in part by collecting $4 billion more in taxes from oil companies. “Instead of subsidizing yesterday’s energy, let’s invest in tomorrow’s,” he said. It could be difficult to convince House Republicans to go along with this. They’ve have demanded that spending increases be offset by spending cuts elsewhere in the budget, rather than by raising taxes. Still, overall, energy-related research has strong bipartisan support.

The first test of Obama’s approach will come in March, when the current continuing resolution that’s funding the federal government expires. It will likely be replaced by another continuing resolution, which typically keeps funding at the previous year’s levels. Some Republicans have proposed funding the government at 2008 budget levels. That would involve cuts to energy R&D, and could hurt the new Advanced Research Projects Agency for Energy, which has bipartisan support, but has so far only received onetime funding from the 2009 Recovery Act, and not from the regular budget. Later this year, Congress will take up the president’s budget for the 2012 fiscal year. He will release his budget in the middle of February, but Congress doesn’t usually pass budget bills until late in the year. 

A clean energy bill could come from Sen. Lindsay Graham (R-South Carolina), who last year worked with Democrats on energy and climate legislation, and has supported a clean-energy standard. Sen. Richard Lugar (R-Indiana) has written a bill that includes energy-efficiency measures and a “diverse energy standard” for promoting clean energy and domestic energy sources.

Another key energy issue this year is EPA regulation of greenhouse-gas emissions, which is proceeding as a result of a court order. Republicans such as Upton have strongly opposed these regulations, and are considering ways to block them.

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