The following was written by James Coan, research associate at the Baker Institute Energy Forum
The big energy news in Washington today is that Sen. Harry Reid wants to introduce a bill with both a cap-and-trade program and new regulations and oversight for offshore drilling. As a freestanding bill, cap-and-trade would a very low shot at passage, but the offshore regulations are extremely popular in the wake of the Deepwater Horizon disaster and that might give a combo bill some play.
If Reid follows such a plan – and there’s no certainty he will – it is unclear how Republicans will respond. The most likely scenario is that the cap-and-trade provision for Republicans would become like provisions to drill in ANWR for Democrats, immediately tainting the rest of the bill. Yet some Republicans may be concerned about opposing some of the popular measures that might wind up in the bill. It is unclear if limiting the cap-and-trade program to utilities, as has been recently discussed, might help win Republican support. Sen. Lindsay Graham (R-SC), who walked away from earlier talks, voiced support for such a plan, as have some other Republicans in the past. And surprisingly, a limited cap-and-trade even is gaining acceptance among certain environmentalist progressives.
Still, with the midterm elections looming, it seems unlikely that Republicans will want to give Democrats such a policy victory. Cap-and-trade is anathema to many conservatives, whose views of the validity of climate change science has grown more skeptical in recent years. The Congressional calendar is already quite tight, and even if the Senate passed a new, more innovative combo bill, it would need to be reconciled with a House version. The conference committee just finished its meetings over six weeks after the Senate passed the financial reform bill, and Obama signed health care reform three months after initial Senate passage. Finally, Deepwater Horizon curtails the possibility of a compromise of increased offshore drilling for the support of more moderate members.
Without cap-and-trade, the other main option is to pursue an energy-only bill. According to a recent presentation I made in Tokyo, this is the most likely outcome because more Republicans support these measures, and the public is extremely enthusiastic about most of them. Right now two main versions of energy-only bills are in the Senate: the “American Clean Energy Leadership Act” reported out of the Senate Energy and Natural Resources committee last year and the “Practical Energy and Climate Plan” Senator Lugar (R-IN) released earlier this month. They both share incentives for nuclear power and carbon capture and storage, many efficiency measures, and a mandate for low-carbon electricity and efficiency.
After Deepwater Horizon, interest is growing in reducing oil use, and Lugar’s plan mandates at least 4%/year improvements in light duty fuel economy standards as well as heavy duty standards. Sen. Merkley (D-OR) wants 6-7%/year fuel economy improvements, and President Obama just backed a proposal for $6 billion for electric vehicles.
The fuel economy standards could substantially reduce oil use. If they increased 6%/year from 2016, fuel economy standards would be 60 mpg in 2025. Today’s Prius would be considered inefficient.