The November 2010 mid-term elections in the United States are now over. At the national level, the Republicans took majority control of the House of Representatives, while the Democrats retained a reduced majority in the Senate (though as a practical matter, a small majority one way or the other is of little import, given that regional interests trump party affiliation) What are the implications for “energy and the environment” – a key file in both Canada-US and Federal-Provincial relations?

  1. It is now more likely (though not a “done deal”) that the proposed Keystone XL pipeline from Alberta through the American heartland to the Texas Gulf Coast will receive a Presidential Permit in early 2011. Influential Montana Senator Baucus and key unions have come out in favour of the pipeline; the job creation impacts are substantial; and Secretary of State Clinton has indicated that the US Government was “inclined” to issue a permit based on energy security considerations.
  2. The “green” Rep. Henry Waxman of Southern California will be replaced as the Chair of the House Standing Committee on Energy and Commerce by oil industry champion Rep Joe Barton of Texas (if he secures a time extension waiver from the Republican leadership), or failing same, by either “moderate” Rep Fred Upton of southwest Michigan or Rep John Shimkus of southern Illinois. Rep. Barton is a climate change skeptic, Rep Shimkus is a biofuels champion, while all three were vigorous opponents of a “cap and trade” carbon emissions scheme. Ironically, the recent Enbridge pipeline spill occurred in Rep Upton’s district, while Rep. Shimkus’ district contains the US terminus of the phase one Keystone pipeline to the Midwest.
  3. While the notion of pricing carbon via a national Cap and Trade system was actually killed long before the election, the death has now been confirmed by President Obama.
  4. The EPA is on course to implement regulations governing GHG emissions from large stationary facilities in 2011, with an incremental expansion of coverage over the subsequent four years. It is likely the EPA regulations will face numerous legal challenges from affected emitters. The policy of the Government of Canada is that it will match the US Government’s effort via “legislation or regulation”. One should note that the EPA regulations pursuant to existing Clean Air legislation could involve something akin to a “cap and trade” regime for industrial emissions.
  5. Some legislators in both the House and Senate will push hard for legislation that would delay the commencement of EPA stationary emission regulations. Sticking such a rider into a continuing budget resolution that is necessary to keep the US government operating would put the President in a very awkward position.
  6. US energy and environment legislative initiatives in the immediate future are likely to focus more on popular clean energy “supply side” initiatives, as well as energy efficiency standards (appliances, buildings etc). One potential measure could be a Renewable Electricity Standard, though many Republicans would want a standard that included not just low impact renewables like wind,solar and small hydro etc, but also baseload nuclear and large hydropower (the latter being of considerable importance to Quebec, Manitoba, and Newfoundland & Labrador).
  7. Expectations are now not just low, but non-existent for the upcoming UN climate change meeting in Cancun. Already, some are looking beyond to next year’s meeting in South Africa. Others are looking beyond the UN altogether to the Major Economies Forum of major national emitters.
  8. Politics makes strange bedfellows and misery loves company. The environmentalists in the Obama administration, who have been loathe to be associated with Canada on the climate change file, will now be wearing the blackest hats at global climate change meetings. The lack of legislative progress compared to the substantial progress made via US-Canada regulatory cooperation, suggests the US administration may find it useful to raise the profile of a more integrated bilateral approach to energy and the environment. For example, vehicle performance standards could be complemented eventually by a North American low carbon transportation fuel standard designed to balance economic, environmental and energy security considerations. Recall that a “California-style” national low carbon fuel standard (without an energy security factor) was part of President Obama’s 2008 campaign platform.
  9. Environmental activists are likely to focus their efforts on advancing cap and trade schemes and carbon taxes at the state/provincial level. The defeat of Proposition 23, (which as a practical matter would have deferred California’s climate change law ad infinitum), and the election of Governor Jerry Brown means California is likely to be the driving force for climate change action in general, and for the Western Climate Initiative (WCI) in particular.
  10. The WCI’s cap and trade system is scheduled to commence in January, 2012 for certain WCI members, with others joining “later”. Ironically, with the other western US states becoming increasingly reluctant partners in this initiative, the principal remaining allies of California in the regional WCI would appear to be Canadian jurisdictions, particularly British Columbia (which is at least located in the West) and distant Ontario and Quebec. It is reasonable to assume that the resignation of BC Premier Campbell due to voter anger over the imposition of the harmonized sales tax may cause his successor to revisit the notion of participating in a WCI cap and trade regime that would commence in 13 months, particularly since an opposition NDP party that opposed the imposition of both a carbon tax and the harmonized sales tax could also oppose a cap and trade regime.
  11. The Governments of Ontario and particularly Quebec have both consciously chosen to differentiate themselves from the Harper government in the eyes of their electorates through a more aggressive Canadian approach to GHG emission reductions, including the imposition of a cap and trade regime. The Federal Government has volleyed the ball back into their court by praising the two provinces for their leadership on the WCI’s regional cap and trade initiative, while reaffirming that Canada will not impose such a scheme at the national level in the absence of comparable American action, which is now not going to happen.
  12. It is unlikely that the imposition of a cap and trade system by Ontario and Quebec in 2012 would be matched in the foreseeable future by a scheme of comparable scope and stringency in adjacent (coal-dependent) states, with Pennsylvania, Ohio, Michigan, Illinois, Indiana and Wisconsin all having tilted significantly towards the Republicans in the Mid-term 2010 Congressional and State-level elections. It is also unlikely that Ontario-based industries will welcome the imposition of such an additional cost burden in the current economic environment, and in the absence of a similar burden on competitive facilities located not only across the Pacific Ocean, but “across the river or lake”.
  13. The fixed date for the next Ontario election is October 6th of 2011, just months before the scheduled start of a WCI cap and trade regime in January, 2012. Recent polls indicate that the “green” measures taken to date in Ontario (eg higher utility prices due to the Green Energy Act et al, and the aborted attempt to impose “eco- fees”) have not been well-received by Ontario voters, particularly in conjunction with sales tax reform. It remains to be seen how Ontario Premier McGuinty will manage this issue through 2011, since the current October/January schedule described would appear to be perfect timing for an effective “Stop the Cap” election campaign by the opposition Progressive Conservatives.