The Obama Administration: prospects for alternative energy

Don C. Smith

Few expected an unknown first-term senator to become a US presidential candidate, much less be elected in November 2008. Despite this remarkable achievement, many wonder whether winning was the easy part. Don C Smith, US Policy correspondent for Renewable Energy Focus, considers Barack Obama's election and looks in depth at what the new administration may mean for the alternative energy sector.

What will happen under the administration of Barack Obama, a US Senator from Illinois, who defied long odds to become the 44th president of the US? Of course, undertaking a successful political campaign is not the same as governing. And yet policy positions staked out in a campaign often provide valuable insight into the way in which, once elected, an official may govern.

Obama has certainly set off at pace. As we go to press, the US Senate has already agreed a US$838 billion stimulus package, which, though different to the House version agreed several weeks or so earlier, gives considerable support for renewables.

The Democratic-controlled Senate voted 61-37 to approve the measure, with few Republicans opting to back it.

Tough negotiations are now expected in order to reconcile the Senate bill with the House of Representatives's version, with Obama having set a date of February 16 for a final version. So by the time you're reading this, in all likelihood the package will have been finalised (we will keep readers up to date with the news on this website – www.renewableenergyfocus.com).

The American Wind Energy Association (AWEA) hailed Senate approval, which includes several provisions designed to create incentives for wind and other renewable energy industries. “This stimulus package is a critical down payment on long-term policies to enhance energy security, encourage new economic investment in jobs, and address climate change,” said Greg Wetstone, AWEA's senior director for governmental affairs.

The Senate-passed bill includes a US$7 billion renewable energy loan guarantee program (an amount that is $1 billion less than the level provided in the House version of the bill), a 3-year extension of the federal production tax credit (PTC), an additional year of bonus depreciation for 2009, elimination of the cost caps for the small wind investment tax credit, and targeted provisions to encourage construction of new transmission lines to deliver electricity generated from renewables.

Wetstone noted that the industry would be pushing for inclusion in the final legislation of a Department of Energy (DOE) grant program included in the House bill. “The House DOE grant program is absolutely essential to continuing the growth of wind power and other renewable energy sources through the down economy,” he commented.

Solar enthusiasts, still pleased with the recent 8-year extension of the Investment Tax Credit (ITC), were also happy, though also state they'll be lobbying hard in the coming days for a renewable energy grant program (an alternative to tax credits that are tricky in the current economic climate); an extension to Federal long-term power purchase agreements from 10 to 30 years; subsidised energy financing; a loan guarantee program and a manufacturing investment credit.

So, if, as Wetstone commented, this stimulus package is a down payment on long term policies, what might we expect as we move forward into the 100 days of Obama's Presidency and beyond?

This much is clear: in America, the energy-related proposals that Obama campaigned on include some of the most far-reaching and significant ideas ever put forth by a mainstream American presidential candidate. As described in his campaign, America faces “one of the great challenges of our time: confronting our dependence on foreign oil, addressing the moral, economic and environmental challenge of global climate change, and building a clean energy future that benefits all Americans.” The contrast of these sentiments with those heard from the White House during the last eight years is, in a word, stark.

This was confirmed in a speech of 8 January, in which he made it clear that renewables would play an important part in “saving” the US economy. Outlining his American Recovery and Reinvestment Plan, which could see spending of up to US$775 billion and the creation or saving of three million jobs, Obama promised that energy is one of his priorities.

As well as using “clean energy” as a job creation tool, he addressed the need to upgrade the American transmission system pledging to start building a new smart grid. According to a report from consultancy KEMA, an investment of US$16 billion in smart grid incentives over the next four years could work as a catalyst in driving associated smart grid projects worth up to US$64 billion. It also predicts that by the end of 2009, over 150,000 of the 280,000 new direct jobs will have been created.

In short, what Obama has proposed represents a monumental shift in direction from the energy plan crafted by America's outgoing president, George W Bush. A snapshot of Obama's plan reflects the sea change that America is about to undertake:

  • Implementation of an economy-wide cap-and-trade system to reduce greenhouse gas emissions by 80% by 2050;
  • Ensure that 10% or even 15% of the country's electricity comes from renewable sources by 2010-2012, increasing to 25% by 2025 (currently more than half the States have a mandated renewable portfolio standard, but none exists at the federal level as the result of Bush Administration opposition);

  • Put one million American-built plug-in hybrid cars on the road by 2015;

  • Help create five million new jobs by strategically investing US$150 billion over the next 10 years to catalyse private efforts to build towards a clean energy future.

Obama's campaign statements also reveal his energy philosophy. Perhaps, in some instances, he may regret that in his quest to win the Presidency he made such aggressive statements, but they do serve to underscore his likely approach to governing. For example, last year he said, according to The San Francisco Chronicle, that “electricity rates would necessarily skyrocket” under the cap-and-trade programme he envisions. He has also voiced strong support for investing in the necessary infrastructure to enable alternative energies to be more viable. “One of…the most important infrastructure projects that we need is a whole new electricity grid. Because if we're going to be serious about renewable energy, I want to be able to get wind power from North Dakota to population centres like Chicago.” This was said on TV network MSNBC.

And in respect to a different challenge, three weeks before the election, Obama said, “we can't drill our way out of the [imported oil] problem. That's why I've focused on putting resources into solar, wind, biodiesal, geothermal. It is absolutely critical that we develop a highly fuel-efficient car that's built not in Japan and not in South Korea, but here in the USA.” And a few days after his election, Obama, in a taped speech, told American Governors that his presidency “will make a new chapter in America's leadership on climate change.”

So far so good, many may think, and if a stimulus Bill is on Obama's desk this month, there could be real grounds for optimism.

But with the US, and the rest of the world for that matter, facing the most significant financial and economic crisis in nearly 75 years, what are the prospects that the new president can actually carry through all of his ambitious plans?

There is not much time for legislators in Washington to reach agreement, as the budget has to be ready by mid-February, and the road will be bumpy. According to the Associated Press, Republicans warn against increased spending and both parties say they want their stamp on the economic recovery effort. The one thing they all agree on, is the need for action.

The worry is about the deficit, which according to the Congressional Budget Office (CBO), could reach US$1.2 trillion in 2009, and as the Economist puts it: “Mr Obama faces three sceptical constituencies: Republicans, fiscal conservatives in his own party, and the markets.”

So, in short, Obama's key to success will be his ability to link three separate but related objectives:

  • First, he must reinvigorate an ailing economy;
  • Second, he needs to address America's energy security challenges;

  • And finally, he has committed his administration to addressing climate change.

While no small tasks by any measure, there are indications that America's financial problems will open enormous opportunities for Obama to drive ahead with his energy plans. While the incoming Administration has not, of course, welcomed the economic crisis, it must now attempt to find the best in a bad situation.

The three phases of Obama's blueprint

Obama's plan will most likely be implemented over three time periods. The first period will run from 20 January 2009, the day he takes office, through to the first of May 2009. Arguably in this first 100 days in office his political power will be the greatest. During this period his actions will focus on executive-level decisions that he can make without the involvement of Congress.

Among other things, observers should look to see how his energy team interacts with his economic stimulus team. To be sure, all signs point to a close working relationship since John Podesta, the former chief of staff to President Bill Clinton, has played a key role in Obama's transition efforts and understands the need for such a partnership.

Podesta, a well-regarded Washington insider, has called for an energy policy overhaul that takes account of alternative forms of energy. Moreover, despite the economic downturn, the new president seems poised to ask for at least US$1.5 billion in alternative energy research and development funds as a “down payment” on his campaign pledge to invest US$150 billion in this sector over 10 years. Finally, his economic stimulus package is likely to include significant levels of funding for his “green jobs” commitment.

The second phase will run from May 2009 through the mid-term elections of November 2010. During this period Obama will seek legislative action to implement his plan. Key components to watch for are a cap-and-trade system for carbon emissions as well as investment in a smart grid. The Obama Administration must be careful, however, to manage the public's expectations about policies that in the short term might result in some economic dislocation.

The third phase will begin in January 2011. At this point Obama will face re-election in just over 20 months, ie, November 2012, and he will be faced with shoring up already enacted legislation that needs fine-tuning as well as looking at the horizon to see what challenges are in place at that moment.

Of course, not everyone agrees that the new Administration is taking the right approach. The new President will face opposition from powerful organisations such as the US Chamber of Commerce, which argues that a new energy plan such as that envisioned by Obama will hurt American competitiveness. And while Democrats will control both houses of Congress, it bears mentioning that some of these individuals are considerably more conservative when it comes to reforming energy policy than Obama. But perhaps his greatest challenge will be overly high expectations. In the wake of 8 years of indifference, neglect, and error on the part of the Bush Administration, the new man will need to manage the expectations of those – particularly environmentalists – who will see anything less than 100% success as somehow a failure.

However, to the degree he is able to link the energy plan efforts with the economic stimulus package, Obama may find the level of opposition considerably muted. He can point out that the current energy policy, such as it is, has left the county in an extremely compromised position from both economic and security standpoints.

The road ahead

Several weeks after his election, and with the country reeling from months of bad economic news, Obama reflected on the road ahead. “We'll put people back to work…building wind farms [and] fuel-efficient cars,” adding that investments in alternative energy projects are “long term investments in our economic future.”

Without doubt, it will be difficult to implement a new energy plan that takes account of the economic challenges on one hand and the environmental and security ones on the other. And, of course, unforeseen events can and will put the new administration to the test.

But Obama has travelled this road before in his quest to be elected president. Indeed, he may be able to turn the nation's formidable challenges into opportunities and in the process strengthen his reputation as a transformational political figure. And with the stimulus Bill already nearing his desk, he is certainly showing his desire to bang heads together on both sides of the political spectrum.

About the author
Don C. Smith is renewable energy focus' US correspondent. He serves as Director of the Environmental and Natural Resources Law & Policy graduate programme at the University of Denver Sturm College of Law, and as Editor in Chief of Utilities Policy, a peer-reviewed journal focusing on the performance and regulation of utilities. He can be reached on +1-303-8871-6052.


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