Energy companies should keep abreast of potential changes to U.S. energy policy under an Obama administration.
The election of Barack Obama as president of the United States is one for the history books. Now, the eyes of the world are turning toward the future. Businesses in the energy sector in particular are concerned about what an Obama administration will mean to the U.S. power, gas and oil industries during a time of unprecedented economic turmoil.
Over the course of his campaign, President-Elect Obama described clear energy priorities that provide a strong indication of what he intends to achieve once being sworn into office. While it is impossible to predict the future, it is evident that President-Elect Obama will focus on two distinct but interrelated issues that will have a direct, combined effect on energy companies: climate change and energy independence.
Climate change is a global concern with political and economic dimensions. While there is still some dispute over the rate of change and the exact effect of human activities on levels of greenhouse gases (GHGs), it is clear that carbon emissions from consumer and industrial activity play a key role in the equation. The major questions for President-Elect Obama will be the degree to which he must seek cooperation from other major carbon-emitting countries—such as India and China—in order to have an effect on climate change, and the effects of GHG-reduction strategies on the U.S. economy.
Energy independence, on the other hand, is both an economic concern and a national security issue. Dependence on foreign sources of oil and gas expose the United States to the political and policy whims of other sovereign nations. Likewise, rapid, unpredictable fluctuations in oil prices and supply have a direct negative effect on both consumers and businesses.
Based on a number of policy statements issued during his campaign, it appears likely that President-Elect Obama will focus on at least five key initiatives.
Reducing GHG Emissions Through a Cap-and-Trade System
Given the political importance of taking major steps during the first months of a new president’s term in office, the Obama administration is likely to push for a national cap-and-trade system in 2009. Such a system could preempt existing regional initiatives such as the Regional Greenhouse Gas Initiative (RGGI) and programs in California and western and midwestern states. It is also possible that President-Elect Obama will move forward unilaterally, with or without the cooperation of India and China, to commit to an 80 percent reduction in emissions, to allocate a high percentage of emissions licenses through an auction process, and to have a cap-and-trade system cover a large proportion of the U.S. economy. However, given the popular backlash against a proposed carbon tax in Canada, it is unlikely that the next president will follow a similar course in the United States.
Reducing Demand for Energy
Future government solutions are likely to include a mix of conservation measures, tax incentives and direct government mandates. During the campaign, President-Elect Obama routinely talked about “shared sacrifice” with regard to energy consumption; as president, he will likely promote alternative forms of transportation and the creation of communities that are not built around the principle of cheap gasoline. Tax incentives for consumers, public entities and businesses may range from tax credits for replacing inefficient home appliances to the placement of solar panels on schools and re-tooling the auto industry to produce more efficient cars. Government mandates may include higher fuel economy standards for vehicles and national building standards or goals for mid- to large-scale projects.
Promoting Self-Renewing and Low-Carbon Energy Sources
States have already taken the lead in enacting renewable portfolio standards; providing for trading in renewable energy certificates (RECs); and instituting production tax credits, rebates and other incentives for renewables, such as Governor Schwarzenegger’s Hydrogen Highway and Million Solar Roofs plans in California. The new administration is likely to follow suit in promoting wind, solar, geothermal, hydro, biofuels and (to a lesser degree) nuclear power.
Developing Clean Energy Technology
Under President-Elect Obama, the push for clean energy technology is likely to take a number of forms, including the following:
- Carbon allowances and emissions credits
- Incentives for improving and implementing carbon capture and storage (CCS) technology
- Increased direct government spending on the development of cleantech solutions, some of which may be funded through a “windfall tax” levied against oil company profits
Increasing U.S. Energy Supply
In contrast to Senator John McCain’s campaign mantra of “drill, baby, drill,” President-Elect Obama’s proposals for increasing U.S.-generated energy included a “use or lose” policy for the millions of acres of exploration land controlled by the oil companies; development of solar, wind, thermal and biodiesel sources; and highly fuel efficient cars. President-Elect Obama is also likely to allow some increased energy production using nuclear sources, but this will be limited by his concerns for safety and storage of spent materials.