A few observations as to what we can expect from the incoming administration: What they ultimately get done may be a function of what they do first.

First off, our economic downturn is going to be long and deep. The headlines about over-leveraged companies going bust or paying down massive amounts of debt essentially mean that there is a lot of money that will not be invested in the U.S. next year. And by “a lot,” think trillions of dollars. This may be conservative, but in all cases the investment loss is in excess of the $700 billion bailout being provided by the feds.

I have no ability to say how long nor how deep, but money not invested into the economy = factories not built = capital equipment purchases not made = people not hired to service, deliver, and build stuff (green or otherwise). Some recessions driven by temporary external factors, like 9/11, or single-sector bubbles, like the dot-com collapse, are shallow. Recessions driven by a seize up in the financial markets have a habit of being pretty deep.

Why does this matter to the environmental agenda?

The Obama camp has made it clear that energy and environment will be a priority when they get into office. That’s great news.

That said, it’s probably also safe to consider that there will be a massive backlash against Congress in 2010. Let’s hope I’m wrong about the severity of the economic meltdown. But if I’m not, then we’re going to have lots of angry, comparatively impoverished, and jobless voters come November 2009, with a throw-the-bums-out plan in the voting booth. I’m willing to guess that next year’s Karl Rove is already putting strategies together with that math in mind. So let’s assume significant Republican gains in 2010. That essentially means that the big, meaty issues that can only be accomplished so long as Obama has majority control of congress will have to be done quickly. So what are the priorities going to be?

What comes first?

It seems to me that on the energy/environment front, there are three key political issues: GHG policy, Clean Air Act reform, and a national RPS. Those may or may not be the most important long-term issues, but they all have natural constituencies, political inertia, and existing legislative language that on standby waiting for the next administration. Add those up, and my guess is that those issues become the cornerstones of a “what big stuff can we get done quickly” plan.

What’s interesting is that whichever one you start with tends to interfere with one’s ability/scope for addressing the rest. To wit:

  1. GHG policy. I’m being very broad here. Maybe it’s a cap-and-trade, maybe it’s a tax, maybe it’s something else. But in any event, there’s a clear mandate to (finally!) do something. So let’s stipulate that something is done. That immediately creates a quandary for the other two issues. An RPS then becomes a tad redundant and raises a host of double-counting questions. Should a solar panel be eligible for carbon offset credits and renewable energy certificates? Should carbon prices have any market relationship to renewable energy certificates? Who shall administer? I’ve heard some in Washington oppose a national RPS on environmental grounds, arguing that an RPS is simply a sloppy way to do carbon. That argument is not without it’s merits, but without taking any sides, it’s clear that the push for a national RPS loses much strength if we already have a GHG policy in place.
  2. Clean Air Act overhaul. New Source Review is busted. Massachusetts v. EPA provides a clear path to amend the CAA to include CO2. Historically, politicians have been reluctant to open up the CAA since there is no guarantee that the forces of darkness don’t find a way inside the tent. That said, there does seem to be a growing consensus that something needs to be done. So let’s now assume that this is done first. That immediately makes CO2 a pollutant as regulated by the executive branch, removing Congress’ ability to pass a bill of their own. That might be good, but it probably supplants GHG policy, at least of anywhere near the scale contemplated by Lieberman-Warner. Does it then also remove the impetus for an RPS, for the reasons outlined above?
  3. National RPS. The Dems seem to think that they may finally have the votes for a national RPS. As I noted here, I’m not so sure, as the pros/cons tend to split more along geographic than party lines. But let’s assume we get one passed anyway. What does that then do to GHG policy and CAA overhaul? Given some of the goofy ways that some states have chosen to define renewability (see Conn, re: Natural gas fuel cells), it is not entirely implausible that a technology could simultaneously be incentivized under an RPS and penalized under a GHG policy. What about biomass? The PTC rules are weird enough as it is when biomass cofired with coal is not eligible, but biomass commingled with coal is eligible. Might the same confusion come to affect an RPS, with ramifications for New Source Review?

I don’t claim to have any answers, but it seems to me that there is an innate political and legal conflict between each of these activities, if taken to their logical extreme. And so I come again to my question: which do you do first?

My hope

Economically, I like the simplicity and purity of an RPS and fear the complexity and unintended consequences innate to GHG policy (at least in every jurisdiction to date that has tried to do it.) On the other hand, I’m idealistic enough to be concerned about any system that provides a higher value for CO2 reductions in some applications than others. Existing GHG policies have been far from perfect on this front, but they at least start from the premise that all CO2 shall be taxed/capped/priced equally, while an RPS is founded on the premise that some CO2 reductions are more worthy of incentive than others.

Ultimately though, I think the larger issue is legal. So long as the current Clean Air Act remains unchanged, there is a massive legal liability awaiting anyone with the temerity to pass GHG-reducing legislation. Namely, anything one is presently mandated to do under the CAA to reduce criteria pollution causes a demonstrable increase in CO2 emissions by lowering overall fuel efficiency. It is a near-certainty that lawsuits will be filed if companies are federally-compelled raise their CO2 emissions and then federally mandated to pay a penalty for same.

Given this, it would appear that you have to start with CAA overhaul. Use Mass. v. EPA as a motivation to add CO2 to the list of regulated pollutants. Shift the regulatory metric for all regulated pollutants to an output-basis, so that CO2 increases need no longer be a mandated consequence of NOx reduction. One can then separately (and sequentially) decide whether all regulated pollutants ought to be reduced via mandate or economics. I prefer the latter, but this approach at least separates the need to regulate CO2 from the methodology by which it is regulated.

Taking this tack would piss off Congress, who would suddenly lose the ability to regulate CO2 on their own. It would also put a national RPS in jeopardy. But the alternatives all seem worse.