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Obama's New Course on Energy, Climate

Tackling Climate Change and Peak Oil

Posted January 28, 2009 at 12:20PM

President Obama is wasting no time in tackling the twin devils of climate change and peak oil.

On Monday, he ordered the EPA to review (and presumably, grant) California's application to set more stringent standards on tailpipe emissions than are allowed under federal law.

After years of EPA's stalling and stonewalling under the Bush administration, it's a breath of fresh air, literally and figuratively.

To review, EPA's fight with the public began in 1999 when environmental groups and officials from twelve states petitioned EPA to begin addressing global warming by limiting the emissions from new cars of four greenhouse gases: carbon dioxide, methane, nitrous oxide, and hydrofluorocarbons.

In 2003 EPA refused, using the Bush team's favorite excuse—"scientific uncertainty"—to avoid taking action on emissions. The agency argued that they lacked the authority to regulate greenhouse gases, and claimed that greenhouse gases don't qualify as the "air pollutants" that they are mandated to control.

The coalition group sued, arguing that the Clean Air Act required EPA to take regulatory action, but in 2005 a D.C. federal appeals court upheld EPA's decision. Then in 2007, the Supreme Court overturned that decision in Massachusetts v. EPA, ruling that Congress's clear intent was for EPA to guard the public health by reducing and controlling agents that cause air pollution, including greenhouse gases.

California has prosecuted a separate but related fight with EPA over its right, dating back to the Clean Air Act, to set more stringent emissions rules. For over 30 years the state was granted a waiver from federal standards to set is own, but the Bush administration denied that waiver in 2007.

A California law passed in 2002 requiring automakers to reduce their average fleet greenhouse gas emissions by 30 percent by 2016 has been on hold since then, with 15 more states waiting to implement it until EPA issued the waiver.

But all that has changed now. Lisa Jackson, a highly qualified former head of the New Jersey Department of Environmental Protection, has replaced Stephen Johnson, a Bush political crony and fundraiser who was accused on the Senate floor of "putting the interests of corporate polluters before science and the law." Johnson had worked for various biotech companies before joining EPA because "regulations were really frustrating."

The contrast could not be more stark. Obama's comments upon issuing the new orders were clear and direct: "Year after year, decade after decade, we've chosen delay over decisive action," he said. "Rigid ideology has overruled sound science. Special interests have overshadowed common sense... My administration will not deny facts. We will be guided by them."

New Standards on Fuel Efficiency

Obama gave the Department of Transportation until 2011 to set new fuel efficiency standards that will raise the average to 35 miles per gallon by 2020. That modest proposal (by comparison, European cars get an average 40+ mpg and Japanese cars 45 mpg) was last raised by the Democratic leadership in 2007.

In response, the US auto industry fell back on its old fearmongering ways. Enacting the California emissions standard today "would basically kill the industry" said David E. Cole, chairman of the Center for Automotive Research, a nearly perfect echo of the cry the auto industry issued in response to the higher efficiency standard proposed in 2007, which they claimed would "destroy the domestic auto industry." Only now, their argument is that the lower profit margin on smaller cars isn't sufficient to sustain their bloated businesses.

Methinks the lady doth protest too much.

The plain truth is that by focusing on the short term profitability of behemoth SUVs and luxury cars that were a complete mistake to begin with, the Big Three squandered an opportunity to build a sustainable, albeit lower-margin business around efficient cars suited to a future of declining fuel supply and higher fuel prices-an opportunity that their European and Asian counterparts seized. And when their shortsightedness left them with a business in collapse, they flew off to Washington in their private jets to beg for bailouts.

US automakers are scrambling to catch up with reality now. Nearly two years ago, in an article about the EPA fight over emissions, I anticipated that "in the next year or two, the Big Three will become much more simpatico to the issue, and start offering cleaner and greener vehicles." Today, all major automakers are planning to release electric sedan models in the next two years. Two days ago, GM issued a statement that it was "working aggressively on the products and the advance technologies that match the nation's and consumers' priorities to save energy and reduce emissions."

Politics v. The Public

Meanwhile, Congressional toadies to the oil and auto industries have revived their high-minded objections to stricter emission controls. As I wrote in 2007 when the issue was last on the front burner, they argued that granting the California waiver would result in a "patchwork quilt" of conflicting regulations, creating "vast gridlock," when in reality there would be exactly two standards: California's, followed by at least 15 other states, and the federal standard.

That canard aside, to claim that it's more important to ensure that America's vehicles befoul the air consistently than it is to make automakers improve their products for the benefit of the public health is fundamentally silly.

The fact is that California has always led the nation in cleaning up the air and demanding higher efficiency, and it has paid off handsomely. As my colleague Jeff Siegel detailed in his article yesterday, California has managed to reduce its carbon emissions per capita by 10 percent since 1990, while increasing its GDP per capita by 28 percent. The state's commitment to efficiency and renewables has likewise resulted in lower utility bills, and a full 68 percent more energy productivity, than the rest of the nation.

But politics is what it is, and it's still a tough slog within California. Yesterday the Union of Concerned Scientists reported that a small group of state legislators and special interest groups were demanding environmental review waivers for highway building projects, hindering progress on AB 32 (the state's landmark global warming legislation), and trying to weaken air pollution standards on diesel trucks and construction equipment in exchange for their support on a critical budget deal to address the state's financial crisis.

My regular readers know what I think about building more highways here at the top of Hubbert's Peak: it's insane. And as a California resident I know full well how serious our financial crisis is, and how chronically broken our balance sheet, thanks to legislators just like them. To hijack the budget deal now for the sake of increased air pollution is the height of idiocy, and they should be run out of office for it.

Climate Change, Meet Peak Oil

The effort to reduce greenhouse gases is no doubt urgent and necessary. A new study by a US team of environmental researchers, sponsored by the Department of Energy and published in the journal Proceedings of the National Academy of Sciences, found that even if carbon emissions were halted, global temperatures would remain high for another 1,000 years. Humanity's uncontrolled, unplanned, and unexamined experiment with the global climate already may be "irreversible."

Yet try we must. We will have to play catch-up with a vigorous effort to not merely stop but reverse climate change. For investors, it also offers an incredible opportunity to ride a rising tide of innovation in everything from cars to industrial machines to home appliances to carbon capture technology, all in pursuit of a healthy environment.

At the same time, I can't help but feel that we're making the right moves for the wrong reasons. Studies by professor Kjell Aleklett (Uppsala University) and professor David Rutledge (Caltech) have called into question whether we will even burn enough fossil fuel to reach the 450 ppm target on CO2, given their models of the peaking and depletion of oil, gas, and coal.

The real focus should be on energy, not global warming. If we can solve the peak oil, peak gas, and peak coal problems—all of which are likely to occur by 2025—by switching to an all-electric infrastructure increasingly powered by renewable energy, the CO2 problem will take care of itself.

President Obama seems to understand this. "At a time of such great challenge for America, no single issue is as fundamental to our future as energy," he said on Monday. "It falls on us to choose whether to risk the peril that comes with our current course or to seize the promise of energy independence. And for the sake of our security, our economy and our planet, we must have the courage and commitment to change."

He also knows that it's going to be a long and difficult path, admitting "I cannot promise a quick fix. No single technology or set of regulations will get the job done."

Let me tell you, for an energy analyst who has beaten that drum for years against a constant din of voices who want simple answers and quick fixes, that statement is music to my ears.

Obama asks that we "commit ourselves to steady, focused, pragmatic pursuit of an America that is freed from our energy dependence and empowered by a new energy economy that puts millions of our citizens to work."

The obvious first step in that pursuit is improving efficiency. Accordingly, the Obama stimulus package includes funds to weatherize two million homes with better insulation and windows, and to improve the efficiency of 75 percent of federal buildings.

Even more importantly, it will fund 3,000 miles of new electric transmission lines to carry the renewable energy produced from new wind and solar installations, making it possible to send wind power from the Midwest to New England, and solar power from the Southwest to the rain-drenched Northwest.

To be sure, the stimulus package is a short-term effort to create jobs, not a comprehensive long-term energy plan. We still need to do the extremely hard work of figuring out how the world might live on half its current energy budget by 2050, and executing a plan to get there.

But it does take several important steps in the right direction—steps that spell "profit" for those who play the nascent boom in solar, wind, efficiency, and electric infrastructure wisely.

Until next time,

chris nelder

Chris

Energy and Capital

P.S. The financial crisis isn't just putting a dent in our portfolios and retirement plans. For the parents of today's 13 million-plus American college-bound students, sending their kids to college is getting harder and harder. Given the recession, poorly performing college savings plans, lower home values, tougher credit standards, and steep tuition costs, more parents are finding themselves with less money for college than they'd ever imagined.

For those of you who have one or more college-bound students, we'll be publishing a controversial new report, furnished by one of the country's leading college funding advisors. Stay tuned for this special report on how to substantially cut the rising cost of college, and still send your child to the college of their choice.

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