President Obama Unveils Climate Action Plan

Today President Obama released his Climate Action Plan and highlighted the key components of the Plan at a speech at Georgetown University. The Plan has three primary goals: (i) cutting greenhouse gas (GHG) emissions in the U.S., (ii) preparing the United States for the effects of climate change, and (iii) leading international efforts to mitigate climate change. During his speech, President Obama listed three measures to address the first two goals: use more clean energy, waste less energy, and cut carbon emissions. The Plan includes some important new directives from the President, it incorporates some initiatives that are already underway and outlines some of the Administration’s intentions, without providing hard timelines or goals. 

The Climate Action Plan is limited to initiatives that the President can implement without Congressional approval.  Nevertheless, it has the potential to significantly affect a broad range of energy sector interests.  A summary of the Plan's key components follows. 

Using more clean energy:

  • The Interior Department is directed to support deployment of 10,000 MW of renewable energy on public lands by 2020. 
  • The Department of Defense (DoD) is directed to build 3,000 MW of renewable energy at military installations by 2025.
  • Federal agencies will aim to install 100 MW of rooftop solar on federally-subsidized housing by 2020.
  • The federal government commits to obtain 20% of its electricity from renewable sources by 2020.
  • The Red Rock Hydroelectric Plant, on the Des Moines River in Iowa, will be placed on the federal Infrastructure "Permitting Dashboard" for high-priority projects.
  • Federal agencies will streamline the siting, permitting, and review process for transmission projects.
  • The U.S. will seek a global agreement in the World Trade Organization modeled after the 2011 agreement among 21 Asia-Pacific Economic Cooperation economies to reduce tariffs to 5% or less by 2015 on 54 environmental goods, including solar panels and wind turbines.
  • The FY2014 budget will include $7.9 billion for clean energy research and development.
  • The Department of Agriculture’s Rural Energy for America program will provide renewable energy and energy efficiency grants and loan guarantees directly to agricultural producers and rural small business.
  • Natural gas will continue to be relied upon as a “transition fuel” while America works to develop an “even cleaner” energy economy.

Wasting less energy:

  • $8 billion in loan guarantee assistance will be allocated to advanced fossil energy projects. A draft solicitation will be published by the Department of Energy in the coming weeks.
  • More stringent fuel economy standards will be applied to heavy-duty trucks, buses, and vans post-2018, to improve upon the Model Year 2014-2018 standards adopted in 2011.
  • Targeted GHG emission reduction goals of a total of 3 billion metric tons by 2030 to be achieved through energy efficiency standards for appliances and federal buildings.
  • The Department of Agriculture's Energy Efficiency and Conservation Loan Program will make available to rural utilities $250 million in loans to finance energy efficiency. 
  • Expansion of the Better Buildings Challenge – for commercial and industrial buildings to achieve 20% greater energy efficiency by 2020 – to multifamily housing.

President Obama’s remarks were focused on carbon emissions and their impact on the environment. The President stated that oil and gas production will continue to be an important part of the U.S. economy, even though elements of the Climate Action Plan would negatively affect hydrocarbon energy companies. The Plan directs EPA to finalize new rules on GHG emission limitations for new and existing power plants.  In a separate memorandum released today, the President sets a timeline for EPA to propose a rule for existing power plants by June 2014, and to finalize it by June 2015.  The memorandum also directs EPA to issue a new proposal for limitations on new power plants by September 20, 2013. EPA has been working on a GHG emissions limitation rule for some time, releasing a draft rule in April 2012 that would have limited CO2 emissions from new power plants to 1,000 lbs of CO2 per MW-hour. In the face of two million comments on the draft rule, EPA stated in April 2013 that the rule would not finalized that month, as originally planned. The Plan does not dictate the substance of the new emissions rule.  As a result, the extent to which EPA’s proposed and final rules will commercially affect fossil fuels (particularly coal) remains to be seen.

 

As part of the Administration’s efforts to provide international leadership, the Plan calls for eliminating fossil fuel tax subsidies in the FY 2014 budget and public financing of new coal plants overseas, except where there is no other economically feasible alternative or carbon sequestration systems are used. The Plan also commits to working towards an “ambitious, inclusive, and flexible” international climate change agreement at the next United Nations Climate Change Conference in 2015.

 

As noted above, the Climate Action Plan commits to install 3 GW of renewable energy on military installations by 2025.  Renewable energy procurements at military facilities have been proceeding at a measured pace for some time.  For example, in September 2011 the U.S. Army announced plans to solicit and award multiple indefinite delivery, indefinite quantity contracts aimed at awarding Power Purchase Agreement task orders for up to an aggregate amount of $5 billion.  In order to timely achieve both the Army's goal and the Plan's goal of 3 GW by 2025, the DoD will have to consider alternatives for accelerating the pace of  renewable energy deployments.  In this regard, we have identified three categories of issues that threaten to delay timely renewable energy deployments by the DoD:

  • Economic Issues: Issues concerning the parameters for setting rates payable by DoD pursuant to power purchase agreements.  These issues have, in some cases, caused renewable energy sponsors to conclude that the DoD is unwilling to pay market rates for their energy, thereby raising project viability concerns.
  • Procurement Issues:  The DoD currently utilizes a "two track" system where renewable energy procurements can be initiated both at the Base Command level and through a centralized process administered by the Pentagon.  This approach has led, among other things, to duplication of effort and uncertainty on the part of some renewable energy sponsors.
  • State Regulatory Issues: Issues regarding the extent to which franchised electric utilities are entitled to pre-empt sales of  renewable energy to DoD bases.  Because the ability to pre-empt would effectively invalidate power contracts between the DoD and renewable energy sponsors, these issues have diminished the interest of some sponsors in pursuing contracts with DoD.  

Any effort to accelerate the pace of renewable energy deployments will likely confront these issues (among others).  Thus, clarification of DoD's position on these matters should be a priority.  Equally important, a "standardized" set of terms, conditions, or guidelines for specific categories of renewable resources should be developed to provide a baseline approach for addressing recurring legal or commercial issues.

 

If the existing initiatives and new directives and goals set forth in the President’s Climate Action Plan all come to fruition, the energy economy in the United States could be transformed on many levels.

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