If you were to believe the ABC or Fairfax, Obama is introducing the world’s best climate change policy which somehow puts Australia to shame. Sure.
The truth is very different. Having been thwarted in his attempt at introducing an ETS, including by plenty of Democrats in Congress, Obama has opted for the extremely inefficient approach of regulation – in other words, direct action.
And if you listen too much to the head of the EPA, you would believe you were in church listening to a sermon being delivered by a Baptist preacher rather than a serious regulator.
While the target sounds impressive (although note that 30% of 40% is 12%), there has been a deliberate choosing of the starting point – after the massive shift to gas as a means of electricity generation, in turn the result of a massive fracking program which has driven down the domestic price of gas.
(Please note: I am no fan of Abbott’s ridiculous direct action policy – pretty much a waste of money, but less damaging than the carbon tax, RET and assorted other interventions that are being unwound (hopefully).)
Here is Robert Samuelson’s informative article published in The Fin yesterday:
President Barack Obama and his harshest critics – business groups and Republicans – have a shared interest in exaggerating the impact of Obama’s plan for climate change.
By 2030, he wants to cut the electricity sector’s greenhouse-gas emissions by 30 per cent from a 2005 base.
For Obama, it’s all about legacy. He wants to be the president who took bold action on the great environmental challenge of the century. For critics, it’s about showing costly mandates would hurt family incomes and job growth.
There’s much hype here. The truth is that, love it or hate it, Obama’s plan will only modestly cut greenhouse gas emissions, mostly carbon dioxide from current levels. Assuming no major glitches – a big assumption – the economic effect will be muted. It won’t be a huge net job creator or destroyer. It won’t catapult “renewables” (solar, wind) into major electricity sources. The real significance is, if blessed by the courts, it will create a complex and costly regulatory apparatus that might govern much of the US economy.
True, the headline claiming a 30 per cent cut in CO2 emissions sounds impressive. The electricity sector is undeniably crucial to cutting emissions. In 2013, power plants caused nearly 40 per cent of energy-related US CO2 emissions. Coal-fired plants represented about 75 per cent of this; natural gas accounted for most of the rest. Unless many coal-fired plants are shut or retrofitted to capture CO2, meaningful cuts are impossible.
Still, Obama’s 30 per cent target by 2030 is misleading. It overstates the size of the cut, because the reduction is compared with 2005 and since 2005, there has already been a big shift away from coal; shrinking the need for added cuts by about half.
Let’s do the math. In 2005, power plants produced 2402 million metric tons of CO2. A 30 per cent reduction is 721 million metric tons. This is the target. But by 2012, CO2 emissions had already dropped to 2023 million metric tons, a 379 million metric ton decline. That’s 53 per cent of the 2030 target. All this has occurred without federal regulation of greenhouse gases.
The average coal-fired plant is 43 years old, says the Edison Electric Institute, the trade group for utilities. Many older plants have been retired, it says, for reasons “including plant age, fuel prices (ie: low natural gas prices), decreased demand, and the projected cost of complying with pending EPA [non-greenhouse gas] regulations”. By the institute’s count, utilities have plan the closure of coal units equal to 20 per cent of the coal total. Some have already shut; others will shut between now and 2022.
Obama would continue these trends. Coal’s share of electricity generated (including nuclear, hydro power and renewables) has dropped from 50 per cent in 2005 to 39 per cent in 2013; in the same period, natural gas’s share rose from 19 per cent to 27 per cent. By 2030, the Environmental Protection Agency projects coal will fall to 31 per cent and natural gas will increase to 32 per cent. Renewables’ share, led by wind and solar, goes from 5 per cent to 9 per cent.
This is not aggressive. Some environmentalists hoped for deeper emission cuts. The Natural Resources Defence Council did a study assuming a 39 per cent cut by 2025. But the modest goals weaken business objections that the costs will be steep. (Of course, unexpected surges in electricity demand or losses of generating supply could change that. Both risk power shortages.)
None of this will matter much without technological breakthroughs. Emission increases from China and other developing countries will swamp US cuts. Poor countries will not stop using more fossil fuels needed for electricity and to reduce poverty. Unless technologies can reconcile more energy with fewer (or no) greenhouse emissions, the crusade against climate change will continue to fail.
The best approach is to tax carbon emissions. If you want less of something, tax it. Stimulate competition to conserve energy or produce it without greenhouse gases. An energy tax would also help close US budget deficits. But there’s little public taste for it. In fact, support for any anti-global warming legislation is weak. In 2009 Democrats controlled the House and Senate, and could not pass a bill.
So Obama resorted to regulatory fiat money: The EPA sets emission limits under the Clean Air Act. The proposal is hugely complex. Each state receives a target that can be met in many ways, subject to agency approval. This would be challenged in court and, if upheld, would strain the EPA’s administrative capacity. Winners and losers would be determined as much by political pressures as by market forces. It would be a bonanza for lawyers, lobbyists, economic consultants and public relations advisers. Whether it would affect the world’s climate is more questionable.