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The shape of Obama's energy policy

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14 November 2008 10:47

Guest blogger: Fergus Green is a Lowy Institute intern. He has recently worked as a research analyst for an energy and resources consultancy in Melbourne and in the Asian Security Group at CSIS in Washington, DC. 

Having argued recently that the next US administration is likely to face significant political and economic barriers to the implementation of major policy measures to curb America’s greenhouse gas emissions, I’ve been trying to discern the likely shape of Obama’s energy policy from some of the signs he has given, both in the period since last Tuesday’s election and in the final weeks preceding it. From these early signs, I think we can get a broad sense of the priority his administration will attach to energy policy, as well as its focus, its form and its effectiveness. 

Right up until election day and since, Obama has stressed his determination to reform America's energy policy, consistently ranking energy reform near the top of his policy priorities and bracketing global warming with the most urgent challenges facing the world. In a CNN interview just days before the election, Obama stated that 'energy independence' would be his government’s 'second' priority, behind stabilising the financial system and stimulating the economy — a pattern reinforced in his first press conference as President-Elect.

It seems that Obama is committed to making energy reform a major priority upon taking office. Given the range and scale of the economic constraints, political demands and policy challenges Obama faces, this alone would be a significant development. 

Energy policy can, however, be focused on achieving different ends, can be pursued through different means, and can yield varying results. Throughout the campaign, Obama has variously touted energy reform as a solution for mitigating climate change, growing the US economy and enhancing US national security (by reducing American dependence on oil imports, aka 'energy independence').

Obama is right to link these themes as certain energy policy mechanisms, including a number of his own campaign promises, would help to achieve all three objectives over the long-term. However, as the US economic crisis unfolded and the Obama campaign focused exclusively on the economy, so too did the economy become the focus of Obama’s rhetoric on energy, echoing a chorus of popular interest in 'green stimulus packages', 'green new deals', and 'green Keynsianism'.

This implies an approach to energy shaped heavily by government assistance, such as subsidies for clean technologies and energy efficiency upgrades, research and development funding, and infrastructure investments — precisely the sorts of measures that Obama has been spruiking lately. Contrary to what The Economist would have you believe, there are strong economic cases for some forms of green government intervention of this kind, particularly in an economic downturn (common examples include modernising the US electricity grid and other infrastructure spending). 

Though The Economist’s unqualified rejection of green stimulus measures lacks nuance, it does highlight some important perils of a government-driven energy agenda: picking winners and eschewing a market-based approach. There is reason to be worried about the prospects for both under an Obama administration.

The reason for scepticism about the next administration’s ability to pick the right winners can be highlighted by the case of America’s shambolic automotive industry. Since his election, Obama, some of his top advisers and Democrat leaders in Congress have been pushing for extended assistance to bail out America’s embattled car-makers. Obama described the auto industry, after the election, as 'the backbone of American manufacturing and a critical part of our attempt to reduce our dependence on foreign oil', alluding to the industry’s sizeable contribution to output and jobs and to his plan for government assistance to help the industry produce more fuel-efficient cars.

Trouble is, even if it were theoretically possible for Detroit to pioneer a greener US automotive sector, it has to date been a huge part of the problem; the backbone broke itself through its own resistance to innovation and fuel-efficiency. The unduly friendly overtures being made to this politically powerful industry foreshadow a real danger that an Obama Administration and a Democratic Congress could fritter away tens of billions of (future) tax-payer dollars to help the dirty industries of the 20th century make a green transition that they are unwilling or simply unable to make (think coal and coal-fired power generation, too). 

This risk would be mitigated if Obama were also to follow through on his promise to implement a cap-and-trade system. Such a system would also raise much needed revenue. However, as Obama has focused his energy agenda on economic growth and job creation, he has deemphasised its market-based plank. While pricing carbon must be a core component of any credible climate mitigation policy and would grow the economy more sustainably over the long-term, it would impose new costs on businesses and households in the short-term.

Given that the dominant theme of Obama’s campaign was easing the economic pain of middle America and that his primary focus as President-elect has so far been the rehabilitation of ailing industries considered 'too big to fail', the Obama team may well have calculated that pushing an environmentally rigorous cap-and trade regime now would be politically dangerous. We may instead see Obama push a more moderate regulatory agenda, such as a watered-down cap-and-trade bill or executive measures pursued through the EPA.

If the focus of energy policy remains short-term growth and if cap-and trade is deferred (or watered down), the effectiveness of Obama’s energy policy will be mixed, from a climate change perspective. It would defer substantial cuts in American greenhouse emissions indefinitely, which would encourage other countries to do the same, substantially reducing the likelihood of an adequate post-Kyoto agreement being reached in 2009. Nonetheless, a well managed and well targeted 'green stimulus' approach to energy reform could at least set the stage in the US, politically and technologically, for a more aggressive, market-based approach in the future.  

It won’t quite be the 'change we need', but after eight years of prevarication and inaction, it wouldn’t be a bad start.

Photo by Flickr user Vlastula, used under a Creative Commons license.

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