E2 Assesses 2012 Post Election Impacts on National Energy/Environmental Policies

Bob Deans (NRDC Moderator): Today we will drill down on two themes. One is, what did the voters tell us about where they might like to see changes in our energy and environmental policy? And two would be, what did this election leave us in terms of the ability of the two parties to work together in new ways, maybe finding common ground in areas?

As a prelude to that, we would want to note the following: while there was a lot said about the fact that climate and energy weren’t center stage in any of the debates, what was said did show us two starkly different candidates. We had one candidate who said climate change is a joke; we had another who said it is a threat. We had one whose energy policy was fundamentally, “Drill baby drill,” and another who said, “We’ve got to invest in domestic sources but also renewables and efficiency, and we need to do it in a way that protects our future.”

So we had two starkly different visions of our climate and energy future, and overwhelmingly, the voters said, “We’re with the guy who sees climate as a threat and wants to do something about it.” That’s what they said in Virginia, Florida, Ohio, Colorado, Wisconsin, and every single battleground state around the country. So we start with a question: If this isn’t a mandate, is it, at least, a historic opportunity for change?   

Against that context, we’d be grateful to hear your thoughts, and let’s start with you Dr. Galston.

Bill Galston (Brookings Institute): I just want to make five points, quickly.         

First of all, “overwhelmingly” is not the adverb I would choose to describe the results of this election. It was a very close election, and it has been a very, very long time since an incumbent was re-elected smaller than his initial election victory. Going along with that, this election, unlike elections that have confirmed mandates in the past, has left us with divided government. If you look at big mandate confirming elections, like Reagan in ‘84, Roosevelt in ‘36, or McKinley in 1900, they have all featured not only very large and expanded margins for the incumbent but also unified government with which the incumbent could work. That is not the case in this election.

We have divided government, and the president claims his majority. But you might call this election James Madison’s Revenge; John Boehner claims his majority with equal conviction. These two different American majorities are now going to have to negotiate, and the president cannot simple run over the House of Representative and vice versa.

Obviously the president has some executive authority, and he’s already demonstrated that he’s prepared to use it in this area. But there are limits to executive authority. To the extent that we’re talking about legislation, we’re also talking about negotiation across a gap of starkly different visions in the area of energy and the environment, as we pointed out, as well as a lot of other things.

The second point I want to make is that there is a threshold issue now confronting the president, the congress, and the country, which will have to be addressed, if not fully resolved, before anything else can happen. I’m referring, of course, to our complex fiscal issues. That is job one. It’s not job one necessarily because either party has chosen to make it job one; it’s job one because the calendar of expiring legislation, known collectively as the fiscal cliff, forces action of some sort or, in the case of inaction, will force actual changes in the legislative status quo. That’s just a fact.
 

Now, my final three points address energy more specifically. Point number one: the development of the technology of fracking is a real game-changer. It is enormously significant. This new technological fact, with economic consequences, is going to exert, in my judgment, a profound, gravitational force on the conversation in the Congress of the United Sates. There’s no way around that, especially in a period where the question on the table is, “Where is the next area of growth in the American economy going to be?” From the standpoint of many legislators, providentially, an answer has appeared almost out of the blue. It will not be easy of the Congress of the United States to turn its back on this opportunity.

Second of three points under this energy-specific heading: energy and the environment, as I’m sure you know, are issues that tend to divide, not along starkly partisan or ideological lines, but along regional and sectoral lines. It is very instructive to look at the list of senators up for reelection in 2014, and you’ll notice that many of them come from energy sector states. They will be responsive to those concerns not exclusively, but they will be responsive to those concerns, and that’s something to bear in mind.

Finally, I don’t say this with any pleasure, but I think it’s a fact: events in the past four years—legislation, implementation, and economic events—have raised some new questions about strategies of subsidy for clean energy. That’s another fact. And that strategy is now more on the defensive than it was when Barack Obama took office, in my judgment—not only for fiscal reasons but because some of the assumptions on which that subsidy has been based haven’t panned-out very well. I just read a report yesterday on global over-capacity in the solar panel industry, which is phenomenally large. So, those are the initial points that I wanted to put on the table for this group’s consideration.

Steve Mufson (Wahington Post): I’d like to start with your first question, which is, “What did the election tell us, and what are the voters trying to say?” I think that voters are mostly thinking about other things. If you look at the results in Ohio, very clearly, the auto bail-out was the key issue—50 percent of people said that was a good idea. They voted three-to-one for Obama. 22 percent of voters said they came from union households; they went three-to-two for Obama, while the rest of the electorate split almost evenly.    

Similarly, Ohio was part of the big fight about coal, and whether or not the administration was trying to kill coal. I’m not sure that the election actually tells you that much. I’ve interviewed people afterward, and of course the American Petroleum Institute says the election was a victory because Obama’s talking about all of the above, oil and gas first. And when you talk to the American Wind Energy Association, they said it was a great victory for them. So it’s a little hard to say, but I do think that the way that people talked about the climate issue changed during the campaign. The impression that it was not being talked about at all, I think, was really true until the Republican Convention.

I think the President was happy to let this issue slide into the background a little bit and saw a threat from people who were going to suggest that he was anti-job creation. Romney, by mocking the issue of climate change during the convention with his line, “the president was busy worrying about the level of the ocean while I’m worried about your job,” I think, really forced the issue. And the president responded by reiterating his positions on climate change, and the conversation about it really changed after that. And I think that it might have made some change, especially with Hurricane Sandy and Bloomberg’s endorsement. It’s possible that the president may have picked up a little ground there at the end.

In terms of where we go from here, and what possibilities there might be for common ground, of course the divided congress limits the scope of action. What Juliet Eilperin and I can discern from the reporting we did is that what we expect will be some combination of efforts to use the executive and regulatory power that the administration has, and possibly some opportunistic things on the tax side, even though I think the administration’s not really talking about those sorts of things right now.

Just to start with the regulatory issues, EPA obviously needs to make more decisions that will affect the state of coal plants. Some of these have been slow in coming but might still be on the way. They’re planning to finish a study by the end of next year.

Something that they also don’t seem to have rushed into much is fracking guidelines. I think there are guidelines that could be issued that wouldn’t stop fracking, but might conceivably make it a little tidier, maybe a bit more consistent. One possibility, it seems to me, is that the Governor of New York might try to at least protect the New York City watershed, even if he allows fracking to go ahead in other parts of the state.

I think the administration is going to make a push on the issue of energy efficiency. That’s a little tricky because building regulations are mostly state and local prerogatives, and therefore it seems as though the administration is thinking about ways it could use the Clean Air Act to set some sort of baseline and federal standards.    

The carbon tax would seem like the kind of thing that might come up, but I don’t think it’s going to come up. We talked about the fiscal cliff earlier—it has a lot of political obstacles, but I can’t help thinking that if they get to a figure that’s half a trillion dollars short of what they want to get to, and they’re not sure what to do, I would think that’s the kind of thing that could come up on the table.

Obviously it has a lot of Republican support, and most Republican supports say that the money should be given back to tax payers, either through lower social security taxes, which would offset the regressivity of the tax, or by lowering corporate income taxes. But perhaps, you know, if it’s part of a package, and that package includes some elements that might be more progressive, or choices between raising corporate income taxes or having them higher than they would be otherwise, that carbon tax might become more attractive at the late stages.

On the wind tax credit, we just had 28 governors endorse renewing the wind tax credit. We obviously have a lot of people lobbying against it, including Exxon, and I think it’s possible that it could get extended with a phase-out period. I think there are even some people in the oil industry who aren’t necessary opposed to renewing it but who might try and negotiate some kind of phase-out. So that’s what we’re expecting on the energy and the environment front going forward.

Chris Frates (National Journal): I agree with almost everything our panelists have said. So far, I don’t think that this election told us a lot about energy other than the fact that we still remain divided as a country. I was going to focus my remarks on the fiscal part because I think you have to look at what congress is consumed with and how energy could play a role in that. I would’ve said that it wasn’t going to have a very big role, up until this morning.

I just came from the Chamber of Commerce where Tom Donahue, the president, and Bruce Josten, the chief lobbyist there, sat down with a few reporters and said that they are pushing a third bucket in the fiscal cliff. There is, of course, taxes and entitlements, and now they feel energy development should be the third bucket. I was a little bit late here because I was filing a piece about that, and I think that that’s very interesting because, as you guys know, the Chamber has big resources. They are clearly pushing for more drilling, more opening of public land, the kinds of things that make environmentalists nervous. And they’re pushing the best way to create jobs, the best way to create more revenues through taxes, through royalties. If you open up more energy development in the United States, then you ease the burden on having to cut taxes or entitlements, and you give politicians more choice. I believe that they are taking it seriously and will push hard to insert energy into that fiscal cliff debate. That is something that happened just a few hours ago that I thought was pretty noteworthy.

When you look at the fiscal cliff, some folks had talked about the carbon tax. I certainly think that could come up again, if only to get batted around. I’m not sure the political class is quite there yet, but to talk about it, and to have Grover Norquist say that replacing a corporate income tax and off-setting it with a carbon tax wouldn’t violate his pledge, he’s given Republicans a little bit of leeway there.

Steve Mufson: That would be one hell of a carbon tax!

Chris Frates: It would be! I think that’s interesting because it does signal to Republicans that you can at least have this conversation without getting slammed by the Wednesday Club.

I think corporate tax reform is going to be something to watch as well. That whole debate will include some of the biggest energy companies. Oil and gas, coal—how those subsidies are dealt with, how their tax rates are dealt with, how their capital investments are dealt with—those are all things that will keep that sector well occupied. When we talk about corporate tax reform, of course you talk about oil subsidies.

I think API has their hands full fighting back against Obama’s push to repeal some of the oil and gas subsidies, and I think it’s going to happen. I think API’s ready for it to happen, and they’re looking for offsets somewhere else in corporate tax reform so they don’t end up net losers. Where else can they play where they could offset some of those subsidies with better tax treatment, whether for offshore profits that they can repatriate, or other ways to kind of make sure that their balance evens out—I think they’ll be very occupied with that.

Renewable energy subsidies, I think, suffer the same fate as oil subsidies. In a time where revenue is tight, you’re going to see a lot of discussion around renewable energy, despite the president’s commitment to it. I think it’s difficult to continue to push those subsidies to make them permanent. You know, each year we have a fight over extending them. It’ll be tough to make them permanent in this environment in particular.