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Magazine / THE INHERITANCE: ENERGY

How Obama and Congress Could Find Common Ground on Energy

Despite divided government, the partisan impasse may be about to end on energy policy. The key lies in a grand bargain.

Sunset for coal? EPA will unveil tough regulations next year.(AP Photo/Charlie Riedel)

photo of Coral Davenport
December 6, 2012

In 2008, Barack Obama campaigned for the White House on the promise that he would pass a sweeping energy and climate-change law and move the country from dependence on fossil fuels to clean, renewable energy that reduced carbon pollution and addressed global warming. In his first term, Obama inched in that direction: The president rolled out regulations to reduce pollution from tailpipes and coal plants, and his stimulus program pumped $40 billion into clean-energy development.

But so far, he has failed to enact comprehensive reform. “Cap-and-trade” crashed in the Senate, energy and climate change became partisan fodder in 2012 campaign attack ads, and even minor energy bills stalled in the gridlocked Congress. Meanwhile, the U.S. still depends on fossil fuels for the vast majority of its energy needs, while the latest scientific reports show that the planet is speeding toward a temperature hike of 2 degrees Celsius or more, which scientists say will melt polar ice sheets, rapidly raise sea levels, induce more destructive storms and droughts, and turn vast swaths of land into places where crops cannot grow.

So what can Washington do on energy and climate change in the second Obama term? The president says that the problem is urgent—and that solving it is an important component of his legacy. “We want our children to live in an America that isn’t … threatened by the destructive power of a warming planet,” Obama said on election night. And at his postelection press conference, he said, “You’ll hear more from me in the coming months and years about how we can shape an [energy] agenda that gains bipartisan support and helps move this agenda forward.”

 

Meanwhile, the partisan impasse may be about to end. Quietly, lawmakers and lobbyists say they can envision a grand bargain on energy and climate change—cutting fossil- fuel use and investing in clean energy in exchange for new offshore drilling or approval of the controversial Keystone XL pipeline. The biggest if, and the heaviest lift, will be getting Congress to enact the policy that economists say would do the most to transform the nation’s energy economy: taxing or pricing fossil carbon pollution. A price on carbon, say economists across the ideological spectrum, will increase the price of fossil fuels and decisively drive the free market toward clean energy. Yet any lawmaker who supports the plan could be accused of supporting an energy tax.

Still, a combination of events—including more droughts, floods, and extreme weather like superstorm Sandy—has increased the sense of urgency. The recent explosion in domestic oil and natural-gas production has helped to create jobs and prop up the recovery while bringing together oil companies and the Obama White House in alliances that could pave the way for new agreements on energy policy. And as Washington grapples with the deficit, many in the capital are more open to the carbon tax as a way to raise revenue.

CLIMATE CHANGE

Over the past two years, Republican candidates increasingly denied the science of climate change, spurred by fossil-fuel-funded super PACs that attacked members of Congress for expressing belief in climate change and a desire to stop it. But the assault doesn’t seem to have worked. Despite all the money spent by the fossil-fuel industry in this cycle, the president won the election handily and Democrats gained two seats in the Senate. Meanwhile, a “Flat Earth Five” campaign run by the League of Conservation Voters to unseat climate deniers helped to defeat all but one of its targets.

That may be in part because voters are less likely to support candidates who deny global warming. In a September poll, the Yale Project on Climate Change Communication found that Americans’ belief in global warming increased from 57 percent in January 2010 to 70 percent in September 2012. The number of Americans who doubt climate change declined from 20 percent in January 2010 to only 12 percent today. The group also found that 77 percent of Americans say that global warming should be a “very high,” “high,” or “medium” priority, and 88 percent believe the United States should accept the economic costs to reduce global warming.

In the poll, 61 percent said they would vote for a candidate who supports a revenue-neutral carbon tax if it created more U.S. jobs in the renewable-energy and energy-efficiency industries. “Denial doesn’t work for us on climate change, immigration, people loving who they want to love, not on the fiscal cliff,” says Bob Inglis, a former Republican House member from South Carolina who has launched a campaign to build support among conservative voters and lawmakers for a revenue-neutral tax swap. “And that change is soaking into some conservatives.”

Meanwhile, the Obama administration faces a key international deadline on climate change. In 2015, the world’s nations will convene a summit to sign a global treaty requiring major cuts in global-warming pollution. The United States—historically the world’s largest contributor to global warming—will be the linchpin. If successful, the treaty will require other major polluters, including India and China, to cut their carbon output; it could represent a global turning point on climate change. But other nations are unlikely to commit to the treaty unless Washington can deliver on legislation at home. That means, if Obama wants to sign a global treaty in 2015, he must enact meaningful policy domestically beforehand.

THE SHALE GALE

Ironically, new U.S. fossil-fuel production could create allies for an energy deal in Washington. During Obama’s first term, a revolution in hydraulic-fracturing technology (“fracking”) unlocked vast new reserves of oil and natural gas trapped in shale, transforming the nation’s energy picture. While just five years ago it appeared that the nation faced growing dependence on foreign oil and gas, it now seems possible that North America will be the world’s biggest energy producer within a decade. The White House is supportive of fracking, because the boom could create up to 1 million jobs and because shale gas produces about 30 percent less carbon pollution than coal. Electric utilities are building power plants to run on gas, not coal, which will also slow the nation’s carbon output.

Obama’s embrace of the shale gale has united the White House and some former foes. Earlier this year, White House energy adviser Heather Zichal spoke at an event sponsored by the American Petroleum Institute, the lobbying arm of the oil industry. Halliburton, now the nation’s biggest provider of fracking services, has held multiple meetings with the White House and the State Department about how to safely expand gas fracking at home and abroad. Exxon Mobil, which is now the nation’s largest shale-gas producer, has even expressed cautious support for a carbon tax.

Democrat Byron Dorgan, the former senator from North Dakota, the state at the heart of the fracking boom, says these new alliances could result in deals that once seemed unimaginable. “It’s one thing to do it in a crisis; it’s another to do it when you have an opportunity. I think energy can be a signature achievement for this president,” says Dorgan, who is frequently mentioned as a top candidate to become Obama’s second-term Energy secretary.

COOPERATION?

As always, the question will be what kind of bill can get through Congress. Obama and the Republican-led House have been at loggerheads for the past two years, while the deadlocked Senate has become a place where even noncontroversial bills go to die. But within that stalemate, the Senate Energy and Natural Resources Committee may be a bipartisan oasis. Its incoming chairman, Democratic Sen. Ron Wyden of Oregon, is a pragmatist who gets along with the ranking Republican, Sen. Lisa Murkowski of Alaska. Their relationship bloomed during trips to each other’s states, where they visited oil-drilling and renewable-energy facilities. “Both of us have made a commitment: We want energy policy,” Murkowski says. “We share the same frustration with partisanship, and we’re making a commitment to one another that we’re going to advance some things.”

Significantly, Murkowski’s GOP colleag–ues in the lower chamber share that view. House Energy and Power Subcommittee Chairman Ed Whitfield, R-Ky., is skeptical of climate change and Environmental Protection Agency regulations, but says, “Ron Wyden is someone I can work with. I’m interested in meeting with him and talking about what we can do.” Rep. Cory Gardner, a Colorado Republican who has also emerged as a leading voice on energy policy, agrees that the two parties can find common ground. His district includes major oil and gas developments, as well as sources of renewable energy. “The mood on energy is improving,” he says. “I’m not just talking about oil and gas—I’m talking about renewable energy. We’re moving from the rhetoric of campaigning to the reality of policy.”

Meanwhile, Obama could make several high-impact moves on energy—with or without Congress. The administration will decide the fate of the controversial Keystone XL pipeline, which would bring carbon-heavy tar-sands oil from Canada to the United States. The administration will also determine whether to open up more federal waters to offshore drilling. And the Energy Department will decide in the next year whether U.S. energy companies can begin exporting natural gas. Republicans and the fossil-fuel industry are pushing hard for Obama to green-light all three proposals. It’s possible, strategists say, that he could use those decisions as chips in a broader grand bargain on energy.

Also in the offing are controversial EPA regulations to be unveiled in the coming months designed to rein in carbon, soot, and smog pollution from existing power plants. There’s no doubt that the coal industry, coal-burning utilities, and congressional Republicans will fiercely push back against those rules. The EPA regulations will also serve as a stopgap for Obama: If, despite the new postelection goodwill, Congress still fails to reach a deal on a big energy bill, he can use his executive power to roll out an aggressive suite of top-down environmental regulations—which, depending on how they’re written, could effectively freeze construction of new coal plants.

AGAINST THE CLOCK

One big obstacle is time. A second-term president has about two years to push through major legislation before the next presidential campaign begins. In addition, two huge issues are already on the docket: immigration and tax reform. A sweeping overhaul of the nation’s tax code, which could easily absorb Congress through 2014, offers the first opportunity for major energy reform. Some lawmakers will probably insert a carbon-tax swap proposal in a broader tax-reform package, although for now the carbon tax seems unlikely to succeed. Democrats will also try to end tax breaks for the oil industry while extending those for renewable energy.

But if the tax-reform debate ends without comprehensive new energy provisions, it may be too late to enact an energy overhaul. “If President Obama has victories on immigration and the deficit, that’s two potentially momentous victories for the president in a second term, where victories are not typical,” says historian Alfred Zacher, author of Trial and Triumph: Presidential Power in the Second Term. “It’s difficult to believe he’d win three.”

Still, Zacher says, “because of his desire for a legacy, and the fact that he won’t need to worry about his base or reelection, he could come up with some unexpected environmental solutions. He’ll have to be a very capable politician, but if he can pull it off, he’ll be revered.” Ultimately, as Dorgan puts it, “there needs to be a will to do it, and it needs to come from the president and the leaders of Congress. If there’s not a will on the part of the president and the leaders of the House and Senate, it won’t happen. He needs to make it a priority.” If President Obama wants a legacy on energy, he’ll have to bring to the issue the same passion that candidate Obama once did.

 

KEY ADVISERS

Heather Zichal: A deputy assistant to the president, Zichal succeeded Carol Browner as Obama’s top energy adviser last year. She has good relationships with environmental and industry groups.

Steven Chu: The embattled Energy secretary championed fighting climate change and promoting clean energy, but his tenure was tarnished by the Solyndra controversy. He will probably step down during the second term.        

Ken Salazar: The Interior secretary’s reputation suffered after the Gulf oil spill. Now he will oversee the administration’s leasing of federal lands and waters for renewable-energy development—as well as new offshore drilling.

Lisa Jackson: Republicans who attacked “job-killing” regulations during the 2012 campaign made Jackson, the Environmental Protection Agency chief, a top target. It’s widely believed that she will depart in Obama’s second term.

 

WHAT’S MOVING

UP: EPA regulations: During the 2012 campaign, the Obama administration sat on a slew of controversial clean-air regulations, including rules aimed at slashing smog and soot pollution from power plants. These are expected to roll out briskly in the new term.

DOWN: Carbon tax: There’s an upswell of support among economists, think tanks, and other Washington influentials to incorporate a carbon tax into next year’s tax-reform effort. But the idea has yet to gain a champion on Capitol Hill.

STATIC: Keystone XL pipeline: The State Department is expected to issue a final decision on the pipeline in 2013. Environmental groups want Obama to reject it, but he may approve it as part of a “grand bargain” with Republicans.

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This is the third in a series of stories on the challenges facing President Obama in his second term.

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