America 2021: What Next on Climate?

The effort to address climate change stumbled with the failure to pass cap-and-trade. What should happen now? Five experts discuss the future of U.S. climate and energy policy.

Roy: Our early analysis is that Obama’s target is actually pretty ambitious, and that you can’t hit that target without pretty significant change from business as usual. Going back to what we were saying about narrative, Senator Richard Lugar had this really interesting statement the week before the State of the Union, in which he said of President Obama’s call for emissions reductions of 17 percent below 2005 levels by 2020, “It is hard to imagine a goal that is less inspiring or less tangible.” Lugar was saying that we need to think about framing the issue in positive ways, not negative ways—like promoting doubling our use of clean energy in 25 years, not just saying we need to cut back on our emissions. I think maybe that works with people.

Such an approach embraces in a very serious way some Republican priorities. Nuclear power is in every Republican candidate’s DNA. Now, we’ll see if this tragedy in Japan has affected that, but it’s a genuine olive branch by the Administration to support nuclear. Done properly, it can have real emission benefits.

Aldy: There are two things that a CES does that change the dynamic. One, we’re talking about a policy that can be technology-neutral. Whoever can compete, whether it’s coal with CCS or renewable, go at it. That plays to some who don’t like government picking winners with our very complicated tax code or various state policies. As a corollary to that, one thing that’s important is I don’t think long term—and by long term I mean more than two or three years in the future—we’re going to be able to provide tax credits for renewables like we do now. I just think fiscally it’s going to be very tough. That’s why they’ve had a lot of interest in something on the demand side to serve as a replacement for what we do now on the supply side through tax credits. The other thing that’s important about it is allowing natural gas to be a factor. Two of the biggest players in gas in America right now are Exxon Mobil and Chevron. They were clearly opposed to cap-and-trade legislation. By bringing in gas, you’re bringing in companies that are traditionally associated with Republicans. If they actually see that this is a potential opportunity to bring more of their gas to market, they may find this to be an appealing alternative, and it helps to change the political dynamic going forward.

There’s a way you could have a responsible regulatory framework that allows us to develop these resources. I would hope we wouldn’t make it so burdensome that we lose this opportunity. When we look at the risks associated with burning coal, whether it’s premature mortality or climate impacts or how we dispose of the coal ash, shale gas has a much better environmental impact. I’d like us to keep in mind the big picture when we think through how to develop these resources, because in the next decade, we’re not going to make the breakthroughs that can dramatically ramp up renewables. And even if we weren’t worried about safety on nuclear, we’re just not going to build many new plants in the next decade. When we start thinking about what we can really do to change our energy mix, gas looks like the only one where you have a lot of opportunity with the domestic resources, and, for that matter, the existing generating capacity. I’m more bullish on what this policy could do in terms of eliciting support and then driving demand for gas.

Shultz: Just one point on that. When you talk to the renewable industry, they want a renewable electricity standard that’s going to increase their role and supply a market, but the single thing that they need is tax incentives or some other financing mechanism to supply the needed upfront capital. And even with a renewable electricity standard, if they don’t have tax incentives, it’s really hard for them to continue to make it.

Laskey: We’ve got to find other ways of creating demand, because the subsidies for renewables aren’t going to exist. If we can go far enough along on the cost curve, they may not need it.

Shultz: I don’t want to be snarky or anything, but I’m fascinated that we can continue oil subsidies, which have been so much more costly.

Roy: There’s no disagreement in this room.

Laskey: They shouldn’t exist for either.

Aldy: The problem is that if we got rid of all our oil, coal, and gas subsidies that we appropriate every year, it wouldn’t pay for a one-year extension of the wind-production tax credit. We actually spend more dollars out of the federal budget now on renewable energy than we do on fossil fuels.

Laskey: On the CES, for a moment, it’s a renewable portfolio standard repackaged with a more positive spin, and gas is allowed in. I’d like to think that it will pass, though I’m not optimistic that it will.

Roy: Yeah, I don’t think it would pass in this Congress.

Laskey: The thing is we are still picking winners by not considering demand-side solutions to the problem and only considering supply-side solutions. We’re only considering electricity supply, and we’re considering a CES, which does not include energy efficiency as a core resource. It’s like trying to solve the budget problem by only looking at cutting spending or only looking at raising taxes. We need an energy policy that addresses both supply and demand.

Walsh: To get back to the 2021 line very briefly: Are you optimistic that in 2021 we’ll be in a better place in energy and climate policy than we are now?

Roy: Yes, but we won’t be anywhere near where we need to be.

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