November 4th Was a Great Day for Renewable Energy

With President-elect Obama closing the deal in a resounding manner, let’s review his proposed energy policies. Obama has long called for action to mitigate climate change and to decrease foreign energy dependence. Obama has not to my knowledge ever discussed peak oil, but the general rubric of “energy independence” captures some of the key features of the peak oil discussion.

Here’s the summary of Obama’s stated energy policy:

  • Provide short-term relief to American families facing pain at the pump

  • Help create five million new jobs by strategically investing US $150 billion over the next ten years to catalyze private efforts to build a clean energy future

  • Within 10 years save more oil than we currently import from the Middle East and Venezuela combined

  • Put one million Plug-in hybrid cars — cars that can get up to 150 miles per gallon — on the road by 2015, cars that we will work to make sure are built here in America

  • Ensure 10 percent of our electricity comes from renewable sources by 2012, and 25 percent by 2025

  • Implement an economy-wide cap-and-trade program to reduce greenhouse gas emissions 80 percent by 2050

The day after Obama won his historic race, well-placed commentators were already discussing the likelihood of beefing up these plans. Daniel Yergin, perhaps the best candidate for the energy guru’s guru, said on CNBC that Obama would push hard for a “green economic stimulus” package well over $100 billion. Combined with Congress’s recent enactment of new tax credits for solar, wind, geothermal, etc., it’s looking very good for renewables.

Kateri Callahan, with the Alliance to Save Energy, announced on the same day that Obama’s plans for cap and trade would probably be delayed somewhat in favor of a bill to provide additional incentives for renewables and energy efficiency. I’m inclined to agree that it’s a tough political climate right now for an aggressive national cap and trade system.

Two of Obama’s existing proposals stand out as very promising: his proposed windfall profits tax on oil companies and his call for 100% auctions of pollution permits under the greenhouse gas emissions cap and trade system he supports.

Ironically, Governor Palin, the alleged fiscal conservative, did recently impose a windfall profits tax on oil producers in Alaska. Obama’s proposal would impose a higher tax on oil companies when oil prices exceed $80 a barrel (they’re below $70 now, plummeting from their July peak of $147). This is not a new idea — it was, in another irony, in effect for the duration of Reagan’s presidency, collecting $80 billion from domestic oil producers.

The best feature of a windfall profits tax, from my point of view, is a price floor on oil — because additional taxes will be passed on to consumers in the form of higher prices. With the oil price now less than half of its July peak, many new oil projects are already being canceled. This is good from a climate change point of view because it will delay, at the least, the burning of those additional fossil fuels. But it may make the issue of peak oil even worse as new projects fail to come online and help slow the decline rate of existing oil fields. (The International Energy Agency’s leaked 2008 World Energy Outlook concludes, in a first-ever field-by-field analysis, that global decline rates from existing fields are about 9%, which is far higher than previously projected. Globally, we will need huge amounts of new oil to make up for this decline, which simply isn’t going to happen due to the magnitude of the decline).

Obama’s other notable proposal is a 100% auction requirement for pollution allowances under a national cap and trade system. The California Public Utilities Commission recently proposed a 20% auction requirement for California’s own cap and trade system (under AB 32, the Global Warming Solutions Act), ratcheting up 20% each year so that by 2016, all allowances are auctioned. With 100% auctions, the cap and trade system acts much like a carbon tax, which economists widely prefer over a cap and trade system. Due to the perceived political benefits of cap and trade versus a carbon tax (with the “t-word” as part its name), it will be important to include as many beneficial features of a carbon tax in the proposed national cap and trade program. 100% auctions is a very good first step in this direction.

The windfall profits tax and the 100% auction requirement will jointly act as a price floor for fossil fuels. This is very smart policy because it acknowledges that the first round of the renewables revolution, prompted by the oil crises of the 1970s, died a sad death in the 1980s as oil and gas prices plummeted. Yet another irony is that oil and gas prices plummeted due in part to U.S. vehicle efficiency standards, which came into effect aggressively in the late 1970s and 1980s.

It is highly important, then, that price floors for fossil fuels be ensured. This is an overtly anti-free market policy, but it is quite clear from recent events that free market fundamentalism has gone the way of the dodo. Revenue from fossil fuel price floors should be reinvested back into increased energy efficiency and renewables.

Long-term, there is no doubt that fossil fuel prices will go far higher even than recent price spikes, due to market forces alone. But with the global economy apparently in recession, no one can say where fossil fuel prices are going over the next couple of years. And to maintain momentum on renewable energy, climate change mitigation, and the even more immediate threat of peak oil, it’s imperative that Congress and Obama not lose focus on serious action now.

Unfortunately, the American people can be fickle, and with the price of gas down to what most Americans consider a more reasonable range, there is a real risk that political will for aggressive energy policies will diminish. We can’t afford to let that happen — again.

California Ballot Initiatives

California’s energy ballot measures didn’t fare as well as Obama. Prop. 1a, the high speed rail initiative, passed and this is a great step toward a less oil-dependent transportation system.

Prop. 7 was, however, defeated badly. This is unfortunate because Prop. 7 would have provided powerful incentives for renewable energy. It failed due to an aggressive opposition consisting primarily of the utilities, environmental groups and the renewable energy industry. The opposition led with a puzzling claim that Prop. 7 would harm small renewable energy companies, which was patently not the case for a number of reasons, including the fact that the California Solar Initiative governs solar facilities under one megawatt and the Renewable Portfolio Standard law, which Prop. 7 would have changed, covered medium and large-scale renewables.

Prop. 10 was also defeated and this was a positive result. While Prop. 10 had many good features, it was too heavily weighted toward natural gas vehicles. Natural gas vehicles are indeed better in some regards than traditional cars, but electric vehicles and plug-in hybrids are even better and these better solutions would have been short-changed by Prop. 10. Environmental groups were united in their opposition to this measure.

In sum, November 4th was a great day for renewables and energy efficiency. Much work remains to be done, but the trajectory is clear: the arc of history bends toward a more sustainable future.

Tam Hunt is Energy Program Director and Attorney for the Community Environmental Council. He is also a Lecturer in renewable energy law and policy at the Bren School of Environmental Science & Management at UC Santa Barbara.

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