From a practical standpoint, the U.S.-China agreement on reducing carbon emissions, hailed by many as historic and ‘game-changing’ probably will not have much effect on either nation's day-to-day progress toward a clean energy future.
On the U.S. side, essentially all commitments were ones previously announced in other less spectacular venues. On the Chinese side, there is no real deadline to achieve anything until 2030. At the same time, such political theater is seen as communicating real policy goals that do indeed influence the renewable energy market, particularly in the U.S., where the political winds are shifting.
‘I don't think this changes any existing U.S. commitment per se, but it probably does fuel momentum for these initiatives,’ says Laura Stern, president of Nautilus Solar Energy LLC, a solar energy developer based in Summit, N.J. ‘It absolutely has a halo effect on the financing community.’
Stern points out that a lot of the bankers who are financing wind and solar today used to finance coal-fired plants. To have U.S. and Chinese presidents jointly declaring that reducing carbon pollution is a national priority sends a message that financiers won't miss.
‘Banks and investors are going to gravitate toward investments and transactions that are not only environmentally friendly and the right thing to do, but because there could be costs to investing in transactions that might not be viable due to the pending regulations,’ she says.
According to Tom Wood, a partner at Stoel Rives LLP, President Obama's visit to China also sends a message to the U.S. Congress that he, as president, is willing to make greenhouse-gas emissions a cornerstone of his presidency. As such, the joint declaration serves as a warning to the incoming Republican majorities in both houses that there is a limit to how far they will be able to change the current course, at least over the next two years.
‘If we had any doubt on this subject, I think his China visit dispels it,’ Wood says. ‘That, to me, just totally gelled the idea that this is where he sees his big legacy. Not to make a direct comparison, but Nixon went to China and sealed that into his legacy. Obama goes to China, whatever comes of it – it may be something, it may be nothing; one never knows in international politics – but even having discussions at the level that they are at now, I think Obama sees that reducing carbon emissions can truly be his legacy.’
In order to fulfill its commitments, the U.S. is going to have to use all of the tools in its policy toolbox. Right now, potentially the sharpest tool in that box is the suite of regulations the U.S. Environmental Protection Agency (EPA) is proposing to reduce carbon emissions under Section 111(d) of the Clean Air Act.
‘The states that have a lot of coal plants have a vested interest in them and are going to have a more difficult time,’ Stern says. ‘The strongest utilities are going to put a lot of political pressure on state policymakers, but that said, most people acknowledge that we are not building new coal plants. We are transitioning to cleaner energy.’
Describing Section 111(d) as the ‘8,000-pound gorilla,’ Wood says the importance of the proposed regulations governing existing power plants completely overpowers any of the potential influence a new Congress may have over carbon emissions policy. Along with Section 111(b) governing new power plants (‘merely an 800-pound gorilla’) and the carbon accounting rules that will affect how emissions from biomass-fueled generation are calculated, 111(d) has the potential to transform the energy generation landscape in the U.S., tilting it decisively toward renewable sources.
‘There are a number of people who want to see some hammering on the EPA emissions issue,’ Wood says, alluding to some members of the incoming majority. ‘And I'm sure that there will be some bills that get kicked around. But also, I think it's pretty clear that Obama has every interest in making carbon emissions be his legacy. Everybody knows fully that if they get anything on his desk gutting greenhouse-gas regulations, he's going to veto it.’
Nautilus Solar's Stern, who also is an elected member of the Solar Energy Industry Association's board of directors, says 111(d) is important as much for the potential transformational effect on the U.S. energy economy as for the practical effects of its regulations on emissions if they are adopted.
A playing field that is strictly price-per-kilowatt-hour imposes a distinct disadvantage on renewable energy generation in competition with fossil-fueled sources. This, Stern says, is both unfair and not reflective of the real-world costs of each form of energy. A comparison that is both more fair and comprehensive would factor the cost of carbon emissions and other environmental effects into the price per kilowatt-hour.
As the states figure out how they are going to implement 111(d), and as the natural evolution away from dirtier plants progresses – as they age out, don't get permitted and are decommissioned – the new capacity will, almost by definition, have to be cleaner. The question is this: Can renewables still compete relative to the environmental impact of even newer fossil fuels, such as natural gas?
‘A carbon tax would be the simplest and most effective and transparent way to make renewable energy compete on a more even playing field with fossil fuels,’ Stern says. ‘The way that 111(d) is implemented will support – eventually, hopefully – the case for a carbon tax. Once all of the externalities are built into the price of fossil fuel, there will not be a need for policymakers to create specific rules to promote renewable energy, and solar in particular.’