President Obama Throws Down the Gauntlet on Federal Climate Change Action

June 26, 2013

Yesterday President Obama publicly reengaged the climate change debate in a speech announcing a series of big and small executive branch actions comprising his administration’s new “Climate Action Plan” (or CAP). The CAP follows on the promise made in his February State of the Union speech to act to address climate change if Congress is unwilling or unable to adopt market-based legislation to put a price on carbon or establish a comprehensive program to reduce greenhouse gas (GHG) emissions and invest in a transition to a low-carbon economy.

But make no mistake. Yesterday’s speech and the suite of CAP actions should not be characterized as an announcement of executive actions that bypass Congress. It is a document explaining how President Obama intends to pick a political fight with Congress over climate change legislation. In fact, the vast majority of the CAP actions being discussed are not new. What is new is the administration’s willingness to tackle the issue more forcefully. It is not at all clear how this fight will play out, but it does appear to be clear that President Obama intends to see it through — including asking EPA to set GHG standards for existing fossil fuel power plants.

The administration is limited in its ability to generate significant emission reductions through executive actions, however. The complicated challenges posed by seeking reductions under existing legal authorities remain the same after release of the CAP as they were before: the Clean Air Act, for example, does not readily provide sufficient levers to generate the magnitude or types of GHG emission reductions necessary to effectively “combat” climate change. But this alone does not make the emissions reductions the president will seek through the Clean Air Act inconsequential, or the CAP an empty promise.

The import of the president’s CAP is that it lays out a systematic plan for future action domestically and internationally. The multiple initiatives mentioned in the CAP are a political roadmap for how President Obama intends to engage Republicans and foreign governments between now and 2015. One might even characterize yesterday’s announcement as the first real policy speech ever on climate change by a U.S. president.

The CAP has several key components: (1) a call to action; (2) an announcement of several new and existing executive branch measures to reduce GHG emissions throughout the economy (with specific emphasis on the production and use of energy); (3) a suite of measures to speed up planning and investment in efforts and infrastructure to adapt to climate change impacts; and (4) a central focus on international climate negotiations. Without discounting the impacts and costs of 2 and 3, the crux and perhaps most interesting parts of the CAP are components 1 and 4 and their political and legal interrelationships.

Taking on Climate Change. The CAP starts with a “Case for Action,” in which the president sets forth a detailed case for addressing climate change, based on scientific evidence and risk management. Long gone rhetorically speaking is the Waxman-Markey 2010 reliance on “green jobs” and “leading the world in innovation.” In its stead is a declaration that the U.S. has a “moral obligation” to future generations to address climate change, coupled with a recitation of recent extreme weather events and an assertion that climate change is no longer a “distant threat,” but is something affecting the U.S. today and, most importantly, imposing enormous costs on taxpayers and the economy. Those points are coupled with directives to collect new data and publish new studies on climate science, assessment of likely impacts and costs of climate change in the U.S. and engaging the insurance industry and other private-sector entities that foot the bill for adverse impacts of inaction.

The president is reaffirming his commitment to an “all of the above” to energy sources, including bolstering several energy efficiency programs, increasing clean energy production on federal lands, committing $6 billion of existing funds for carbon capture and sequestration, and supporting additional research funding for new types of nuclear plants.

Read in entirety, the CAP does not seem like a discussion aimed at building support for a few executive branch measures. It seems much more like the opening salvo in a longer-term political plan to frame the climate change debate within the context of every industrial sector, and to tackle the issue of “climate” head on with Congress. Moreover, the framing decisions seem significant and forceful: a “moral obligation” coupled with the assertion that inaction is going to cost more than market-based efforts to reduce emissions undertaken to avoid them (as well as efforts to begin to quantify these costs). The moral obligation prong targets Democrats; the cost-benefit analysis targets business. The very public focus on the reality of climate change and its impacts might also be seen as political hardball with Republicans that do not agree. President Obama’s speech confirmed as much when he asserted that his administration would veto approval of the proposed Keystone pipeline if the net climate impacts of building it surpassed those of not building it. Writ large, someone is going to be “right” about U.S. climate change politics, and President Obama’s speech indicates his administration is confident science and economic impacts have already made that decision.

International Negotiation Timelines Are Political Guideposts. The second interesting element of the CAP is its prominent treatment of ongoing international climate change negotiations. Obama has rarely, if ever, acknowledged the state of those negotiations in the past with more than a passing reference. But efforts to secure bilateral and multilateral standards and commitments occupy more than a quarter of the CAP. The reason for the prominence is quite simple: in 2012 all participating nations agreed to negotiate, by the end of 2015, a new binding agreement for post-2020 climate action. Those negotiations are ongoing and subject to international politics that are even more complicated than working with Congress.

Critical to the administration’s view of these international negotiations is that they propose to obligate all countries, including China, India and Brazil, to undertake some level of emission reduction obligations. It will be recalled that in 1997 the U.S. Senate passed 97-0 the Byrd-Hagel (yes, that Hagel) Resolution, rejecting the Kyoto protocol and calling on the U.S. not to agree to any international climate change regime that did not require emission reduction obligation for all countries, including China and India. But it is also important to note that the world has shifted on climate change since 1997, even if U.S. political dynamics have not. China, for example, has already begun a process of launching several domestic carbon markets.

The administration therefore clearly believes it will secure emission reduction commitments from China, Brazil, South Africa, South Korea and other key middle-class countries in 2015, likely through a flexible, bottom-up, rules-based foundation implemented through several bilateral and regional agreements. While the addition of China, India and others to a new international accord in 2015 does not on its own resolve U.S. domestic politics on climate change, if the U.S. economy is effectively isolated internationally on this issue as the lone major holdout, the dynamics of climate legislation in the 2014-2018 timeframe change. The CAP therefore should be viewed in many ways as ensuring that the U.S. maintains a credible seat at the international table to continue leading those discussions, particularly on reduction targets, measurement and verification standards, and flow of billions of dollars in climate finance.

President Directs Existing Power Plant GHG Rule to be Proposed. The CAP outlines a host of executive actions to actually reduce GHG emissions. Of the suite, five are most consequential. A GHG standard for existing power plants, new GHG (fuel economy) standards for heavy-duty vehicles, energy efficiency standards for household appliances, phase-out of certain hydrofluorocarbons (HFCs) and targeted programs for methane reductions. Implementation of these measures has been estimated to place the U.S. at or near a trajectory to reduce GHG emissions by 17 percent by 2020 from 2005 levels, which is the target the administration committed to internationally as part of the 2009 Copenhagen Accord.

The GHG standard for existing power plants and the methane action plan will likely prove most controversial. EPA has already proposed GHG emissions standards under Section 111(b) of the Clean Air Act for new power plants, although it is expected to re-propose those standards in September of 2013 before finalizing them. The administration had been widely expected to begin work this year on an existing power plant GHG standard under Section 111(d), and the CAP simply memorializes that expectation.

Taking the first step on the CAP action items, immediately after yesterday’s speech the White House released a presidential memorandum (“Carbon Memo”) directing EPA to propose “carbon pollution standards, regulations, or guidelines, as appropriate” for modified, reconstructed, and existing power plants by no later than June 1, 2014 and to finalize the same by June 1, 2015. Any EPA rule to follow from the Carbon Memo can be expected to be controversial because to produce meaningful GHG emission reductions (some have suggested, e.g., a phased in reduction between 20-25% by 2025) will ultimately require EPA to take a very unique and unprecedented approach to emission reduction standards. Along these lines the Carbon Memo directs EPA to develop the proposed rule through direct engagement with states and industry stakeholders. It further directs EPA to develop the rule consistent with achieving regulatory objectives taking into account environmental regulations, grid reliability and cost considerations. But most notably it instructs EPA to develop approaches “that allow the use of market-based instruments, performance standards and other regulatory flexibilities.”

The reason the mention of market-based instruments is important because it would be an unprecedented step for EPA to take. A “conventional” approach to a power plant emissions reductions rule would just focus on what reductions power plants can achieve directly. Those types of reductions would come from a variety of energy efficiency and technology improvements bolted onto the resource, and tend to top out at 5-10% in reductions nationally – i.e. not very much. To surpass that threshold, EPA would need to develop a rule that includes “flexibilities” alluded to in the Carbon Memo. Such flexibilities could include renewable energy mandates, fuel switching, end use energy efficiency improvements, and less likely potential carbon offset credit programs. While the Clean Air Act may certainly allow for use of such measures as compliance options, EPA has never set an emission standard based on those types of indirect emission reductions. The reason is that at the end of the day, an emission standard based on what can be achieved indirectly is effectively a standard that orders the regulated source category (i.e., power plants) not to operate (replacing the power with efficiency or renewables). It is clearly questionable whether an emissions standard under the Clean Air Act can legally survive challenge if it amounts to a directive not to operate as the only real compliance option. Hence, the existing source standard, and whether that standard can be fashioned lawfully in ways that achieve more than nominal reductions will be a challenge for EPA and the administration.

Any rule proposed by EPA under 111(d) can be expected to take 2 or 2.5 years to complete even in the most optimistic scenario. Due to the impacts of sequestration and additional budget cuts at EPA, the proposed timeframe should be viewed with healthy skepticism. The reason for pushing may be that the President clearly seeks to finalize such a rule in 2015 just prior to the lead up to the December 2015 international climate change meetings scheduled to take place in Paris, France.

Adapting to Climate Change Requires Measuring Costs. Of interest is the CAP’s extensive treatment of adaptation. Much of this effort focuses on identifying and developing “best practices” for adaptation as new infrastructure is built, and on providing funding and research support to state efforts. The CAP calls for various federal agencies to identify and report on impacts of climate change on key sectors under their jurisdiction. While such planning can be seen as prudent, publication of that sort of information it is also likely to put pressure on private industry and state governments to begin to assess and address their own climate change costs, impacts and vulnerabilities. Indeed, the CAP specifically contemplates engagement with the insurance industry and other stakeholders who will bear some of the costs of climate change to develop “best practices” to account for climate change and “incentivize policy holders to take steps to reduce their exposure to risk.” What is noticeably absent in this vein is any additional executive action to obligate public companies through SEC authority to disclose climate change risks.

The CAP, however, does call for a new assessment of climate change impacts in the U.S. It covers a litany of programs to assess and address climate change impacts on the health sector, water supplies, agriculture, drought, wildfires and floods, perhaps representing the first time the U.S. government has specifically linked climate change with specific types of impacts in the U.S. These approaches also feed into the administration’s cost-benefit arguments for climate change mitigation. As climate change risks and vulnerabilities are assessed, measured and quantified, the economy-wide costs of inaction become more visible.

Conclusion: You Can’t Address Climate Change without Talking About Climate Change . The administration’s CAP is certainly a comprehensive attempt to bring all the resources of the executive branch to bear by taking actions to mitigate climate change and measure its cost impacts. It is a necessary stage in the development of a long-term comprehensive plan to make the case for climate change legislation based on cost impacts. That, coupled with a new, bolder, “gloves-off” approach to the politics of climate change, suggests that this is the first salvo in what will likely prove to be a multiyear chess match that will literally touch every economic sector. Whether President Obama’s renewed fight is successful is entirely unclear and subject to myriad domestic and international forces.