July 3, 2013
The Heat Is On: The President Turns Up the Heat on Climate Policy
As we enter the dog days of summer and are now in both hurricane and wildfire season, the President is embarking on a new climate strategy sure to turn the heat up on Congress and the energy sector. This is no surprise to anyone who was listening to his Inaugural address and the State of the Union where he telegraphed climate change as a priority for the second term. It has also been foreshadowed by the appointment of several key advisors who have a history of climate focus, including Denis McDonough as his White House Chief of Staff, John Kerry at the U.S. State Department, Ernie Moniz at the U.S. Department of Energy (DOE) and Gina McCarthy at the U.S. Environmental Protection Agency (EPA). The President and his staff have also been hinting at the new policy for weeks, but the announcement last Tuesday, June 25, 2013, took some by surprise in terms of its breadth, as well as for the challenges it presents to the business community.
Along with the speech, the White House released a short summary, a 21-page Climate Action Plan and a Presidential Memorandum directing EPA to take certain actions to carry out the Plan. What President Obama outlined presents a number of challenges for key industry sectors – particularly for coal and the utilities that use coal. The proposed Action Plan also includes initiatives that will present challenges or opportunities to industries that depend on energy, the oil and gas sector, agriculture, state and local governments, and even the hospitality and health care sectors. It also complicates the President’s tenuous relationship with Congress, especially with Republicans and moderate Democrats who will be scrambling to figure out how best to respond.
A Call to Broad Agency Action: The programs outlined in the President’s speech and spelled out in greater detail in his Action Plan focused on a series of agency actions in three broad areas: (a) to curb carbon concentrations in the atmosphere consistent with his previously announced goal of a 17 percent cut below 2005 levels, (b) to improve adaptation strategies to deal with the problems created by rising temperatures and (c) to push for concerted international action by developed and developing nations to curb global emissions and prepare for climate change impacts. Key features and the lead agencies involved include:
- Cutting carbon emissions from both existing and new power plants using the Clean Air Act permitting programs (EPA)
- Improving energy efficiency in buildings, industries, appliances and heavy duty vehicles (DOE and EPA)
- Doubling renewable energy generation by 2020 by accelerating permitting for ten gigawatts of new electric power from renewables and streamlining permitting for transmission lines (Department of Interior (DOI) and Federal Energy Regulatory Commission (FERC))
- Increasing funding and loan guarantees for clean energy R&D and deployment for long-range technologies including in biofuels, nuclear energy and clean coal (DOE)
- Developing new fuel economy standards for heavy duty vehicles beginning with model year 2018 vehicles (Department of Transportation (DOT) and EPA)
- Modernizing the electric grid (DOE, DOI and FERC)
- Reducing hydrofluorocarbons (HFCs) and methane emissions (EPA, U.S. Department of Agriculture (USDA), DOI, U.S. Department of Labor (DOL) and DOT)
- Developing enough new renewable energy projects on federal land to power 6 million homes and 100 megawatts of renewable energy at federally assisted financed housing projects (DOI, DOE and U.S. Department of Housing and Urban Development (HUD))
- Securing a 20 percent improvement in building energy efficiency by 2020 through the Better Building Challenge using expanded energy performance contracting and other measures (U.S. General Services Administration (GSA), HUD)
- Improving planning and infrastructure investment strategies to better prepare for more frequent or more intense storms (DOT, Army Corps of Engineers (Army Corps), Federal Emergency Management Agency (FEMA), National Oceanic and Atmospheric Administration (NOAA))
- Working to develop disaster-resilience standards for buildings and infrastructure (EPA, DOT, HUD)
- Learning the lessons from Hurricane Sandy about how to rebuild (FEMA, Army Corps, Federal Transit Administration (FTA), NOAA)
- Identifying vulnerabilities by sectors and resources affected by climate change (DOE, USDA, DOI)
- Developing best practices in the health care fields to ensure hospitals are prepared for climate change impacts (U.S. Department of Health and Human Services (HHS))
- Working with insurers to develop practices to better manage risk and respond to disasters (FEMA and U.S. Department of Commerce (DOC))
- Launching cross-agency drought resilience (many agencies)
- Reducing wildfire risks through better management of brush and vegetation (DOI, USDA)
- Improving climate related science including its impacts and climate modeling (NOAA, EPA, DOE)
- Working on a multinational basis with the 17 major economies group of nations on climate (State)
- Working on a bilateral basis with the emerging nations of China, India and Brazil (State)
- Focusing on short-lived pollutants of concern like methane, HFC and black carbon (EPA, State)
- Helping develop global approaches for agricultural, land use and land conservation strategies (USAID)
- Providing international leadership and support for clean energy initiatives through financing, and export credits for renewables, fuel switching, nuclear energy and other clean energy projects (U.S. Trade and Development Agency (USTDA), Overseas Private Investment Corporation (OPIC))
- Promoting natural gas export and its local development as a “bridge fuel” that can be substituted for coal in power plants and for diesel fuel in heavy duty vehicles (State, USAID, U.S. Geological Survey (USGS))
- Negotiating a global free trade agreement for environmental goods and services to promote advanced clean energy technologies through the World Trade Organization (WTO) (USTR, State)
- Phasing out subsidies in the U.S. and around the globe for fossil energy use (State, WTO)
- Ending U.S. funding support for coal plants overseas except for (a) those to fund the most efficient designs available in the poorest countries where no other options are available and (b) those using carbon capture and sequestration technologies (State, USAID)
- Promoting global resilience and adaptation (State, USAID)
- Continuing to fund the Copenhagen Accord’s commitment to help pay for low-emission, climate resilience projects around the globe to which the U.S. has already contributed $7.5 billion (State)
The breadth of what the President has proposed is stunning and, if fully implemented, could have huge ripple effects across the economy. While most of the initiatives fall on the actions of the EPA and DOE, there are programs announced that involve over 30 departments, agencies, sub-agencies, executive offices and ad-hoc or interagency task forces as well as numerous multinational and bilateral international organizations or trade agreements. Most of the activities proposed, such as the proposal to issue new emissions rules for existing and new power plants and fuel economy standards, can be done administratively under existing authority with little or no role for Congress. Less than a week after the speech, reports were circulating that EPA had already sent their recommendations for changes to Clean Air Act permitting of new power plants to the White House. For many of these rules, Congress gets a bite at the apple at the end of the process under the Congressional Review Act which applies only to “major” rules and would require that both Houses vote to overturn the proposed rule. However, the President has veto authority over any resolution of disapproval so it would require a veto-proof majority to overturn any of the rules which agencies promulgated.
Congressional Impact: One area where Congress could have a major impact is through the appropriations process where the White House will need funding to carry out the program or to fund the regulatory process leading up to any new rules. Congress will also have leverage on a host of other issues – like the confirmation process for agency officials or trading one of the Administration’s legislative priorities for greater regulatory flexibility on climate. Finally, the President is pledging to work co-operatively with Congress and the industry’s affected, as well as other stakeholders, in developing the rules. This creates a dilemma for the business community. Do they fight the rules through a congressional strategy or post-promulgation in the courts or do they sit down at the table to negotiate something they can live with? Given the Administration’s appetite for getting something done, agencies may be very eager to work with the affected stakeholders who could help fashion a more acceptable rule or at least one that has greater political legitimacy by virtue of having at least some industry support. Either way, there will be considerable activity in Washington that will generate a great deal of heat in terms of both the stakes for those industries affected and the level of rhetoric we can anticipate in the political arena.
Keystone XL Pipeline: A surprise issue addressed in the President’s speech but not in the materials released the same day was his statement concerning the 1,700 mile Keystone XL (KXL) pipeline which would bring Canadian oil sands from Alberta and Bakken oil from the Upper Midwest to connect with existing pipelines in Steele City, Oklahoma. The KXL pipeline has become a rallying cry for a large part of the President’s environmental base as well as for his critics in Congress. Supporters of the pipeline argue it would generate jobs at no cost to the Federal government and would improve energy security. Opponents argue it enables the development of oil with one of the highest carbon footprints of any oil resource in North America.
Last Tuesday, the President announced that he would approve the pipeline only if it was shown to have no significant net increase in carbon emissions. What he did not mention is that the State Department’s draft Supplemental Environmental Impact Statement (SEIS) had already reached that conclusion. The SEIS found that the oil transported by the pipeline would be developed whether it was shipped south using the KXL or transported using rail or other pipelines and that, therefore, the approval of the pipeline would not result in any significant increase in carbon emissions. Arguably, the President’s statement only reinforces the importance of confirming or overturning the preliminary finding that the State Department has already made. Alternatively, the President could be telegraphing that he will approve the pipeline if and only if the project sponsors and Canada can show offsets for the higher carbon emissions generated.