The prospects for Obama’s energy plan
Given the specter of global warming and the dangers posed by oil dependence on potentially hostile countries, energy policy reform has taken center stage as both an environmental issue and a national security issue. President Barack Obama has an ambitious agenda for tackling these challenges, including plans to limit carbon emissions with a cap-and-trade system, provide incentives for fuel-efficient cars, encourage development of new alternative energy sources, and promote energy efficiency. Though this agenda offers reason for optimism in the effort to reduce emissions and move toward self-sufficiency, Americans should be prepared to accept the high costs of this strategy.
Enacting Market-Based Reform
In order to most effectively offset carbon emissions, Obama plans to institute an economy-wide cap-and-trade system. History validates the wisdom of this approach, as a cap-and-trade regime established in 1990 reduced electrical utilities’ sulfur dioxide emissions below mandated levels while allowing for increased electrical output.
It may prove impossible to replicate those successes entirely; as energy expert Henry Lee of Harvard’s Belfer Center for Science and International Affairs explained in an interview with the HPR, “The magnitude of Obama’s proposal will make it difficult to regulate,” which may make it “necessary to cap the auction price of carbon permits” or give some away to make the plan politically viable. Nevertheless, if regulation is to be enacted, cap-and-trade mechanisms have proven successful in minimizing the economic impact.
Obama would invest much of the funding from cap-and-trade auctions in alternative energy research and efficiency improvements, an endeavor that will be fruitful only if the funds are invested wisely. The most obvious stipulation, according to Lee, is that grants for research and development be made according to genuine innovation potential instead of rewarding lobbying clout.
Charles Ebinger, Director of the Energy Security Initiative at the Brookings Institution, told the HPR that the incoming administration will likely fund a number of relatively simple measures to increase energy efficiency, such as “weatherizing” homes and reforming the setting of utility rates to encourage conservation. Though most funding for research and development will be oriented toward wind, solar, and geothermal energy, Ebinger notes that such sources will probably not be viable in the near future. Significant resources must be dedicated to building a new national energy grid to promote the reliable storage and transport of clean energy.
Toward Cleaner Transportation
With respect to the transportation sector, Obama has proposed increasing fuel economy standards in the automobile industry, providing tax credits for the purchase of fuel-efficient cars, and creating tax incentives and subsidies for the development of biofuels. David Pumphrey, a senior fellow at the Center for Strategic and International Studies, pointed out to the HPR that “the plan requires the government to provide auto companies with funding for retooling production facilities to build environmentally-friendly vehicles.” Given the financial state of the American auto industry, government assistance will be necessary.
Biofuels will provide some reduction in emissions and oil demand but are not a permanent solution. Ebinger pointed out that the utility of corn-based ethanol has been virtually maximized and that the economy might conceivably be able to produce up to four million barrels of biofuels per day, while current needs would require about 13 million. The best long run strategies, therefore, require entirely different concepts such as electric-powered cars, which Lee told the HPR will require substantial “technological improvement and infrastructural change.”
Results Require Sacrifice
Though the new administration’s energy agenda will likely succeed in cutting emissions and reducing energy dependence in the long run, Obama accurately noted during the campaign that “there’s going to be a price to pay in transitioning to a more energy-efficient economy.” Federal mandates raise costs for energy firms, which will be passed on to consumers in the form of higher prices; taxpayers must be willing to finance investments in alternative energy and conservation either directly or via increased prices at the pump. Furthermore, restricting emissions may result in increased reliance for energy on countries with less regulation, unless Obama is able to successfully negotiate agreements over similar standards with other countries.
Most notably, the new President is demanding sacrifices at a time when people are more worried about paying their bills than protecting the environment. Obama is right to prioritize energy reform, but he and Congress must continue to be straightforward about what costs the policies will entail, and realistic as to how much progress can be expected in the middle of a painful economic downturn.
Given the specter of global warming and the dangers posed by oil dependence on potentially hostile countries, energy policy reform has taken center stage as both an environmental issue and a national security issue. President Barack Obama has an ambitious agenda for tackling these challenges, including plans to limit carbon emissions with a cap-and-trade system, provide incentives for fuel-efficient cars, encourage development of new alternative energy sources, and promote energy efficiency. Though this agenda offers reason for optimism in the effort to reduce emissions and move toward self-sufficiency, Americans should be prepared to accept the high costs of this strategy.
Enacting Market-Based Reform
In order to most effectively offset carbon emissions, Obama plans to institute an economy-wide cap-and-trade system. History validates the wisdom of this approach, as a cap-and-trade regime established in 1990 reduced electrical utilities’ sulfur dioxide emissions below mandated levels while allowing for increased electrical output.
It may prove impossible to replicate those successes entirely; as energy expert Henry Lee of Harvard’s Belfer Center for Science and International Affairs explained in an interview with the HPR, “The magnitude of Obama’s proposal will make it difficult to regulate,” which may make it “necessary to cap the auction price of carbon permits” or give some away to make the plan politically viable. Nevertheless, if regulation is to be enacted, cap-and-trade mechanisms have proven successful in minimizing the economic impact.
Obama would invest much of the funding from cap-and-trade auctions in alternative energy research and efficiency improvements, an endeavor that will be fruitful only if the funds are invested wisely. The most obvious stipulation, according to Lee, is that grants for research and development be made according to genuine innovation potential instead of rewarding lobbying clout.
Charles Ebinger, Director of the Energy Security Initiative at the Brookings Institution, told the HPR that the incoming administration will likely fund a number of relatively simple measures to increase energy efficiency, such as “weatherizing” homes and reforming the setting of utility rates to encourage conservation. Though most funding for research and development will be oriented toward wind, solar, and geothermal energy, Ebinger notes that such sources will probably not be viable in the near future. Significant resources must be dedicated to building a new national energy grid to promote the reliable storage and transport of clean energy.
Toward Cleaner Transportation
With respect to the transportation sector, Obama has proposed increasing fuel economy standards in the automobile industry, providing tax credits for the purchase of fuel-efficient cars, and creating tax incentives and subsidies for the development of biofuels. David Pumphrey, a senior fellow at the Center for Strategic and International Studies, pointed out to the HPR that “the plan requires the government to provide auto companies with funding for retooling production facilities to build environmentally-friendly vehicles.” Given the financial state of the American auto industry, government assistance will be necessary.
Biofuels will provide some reduction in emissions and oil demand but are not a permanent solution. Ebinger pointed out that the utility of corn-based ethanol has been virtually maximized and that the economy might conceivably be able to produce up to four million barrels of biofuels per day, while current needs would require about 13 million. The best long run strategies, therefore, require entirely different concepts such as electric-powered cars, which Lee told the HPR will require substantial “technological improvement and infrastructural change.”
Results Require Sacrifice
Though the new administration’s energy agenda will likely succeed in cutting emissions and reducing energy dependence in the long run, Obama accurately noted during the campaign that “there’s going to be a price to pay in transitioning to a more energy-efficient economy.” Federal mandates raise costs for energy firms, which will be passed on to consumers in the form of higher prices; taxpayers must be willing to finance investments in alternative energy and conservation either directly or via increased prices at the pump. Furthermore, restricting emissions may result in increased reliance for energy on countries with less regulation, unless Obama is able to successfully negotiate agreements over similar standards with other countries.
Most notably, the new President is demanding sacrifices at a time when people are more worried about paying their bills than protecting the environment. Obama is right to prioritize energy reform, but he and Congress must continue to be straightforward about what costs the policies will entail, and realistic as to how much progress can be expected in the middle of a painful economic downturn.
