As the US prepares to elect its next president in November the issue of energy and climate markets will be higher up the election campaign agenda than for previous presidential elections. With rising energy prices, concerns over supply security and global pressure for the US to take a more responsible role on climate leadership the next president will have to convince the electorate that he has the best climate and energy policies.
The energy/climate challenges faced by the US are not much different from those facing the EU, but the approaches being discussed are. Or are they? In July, ex-vice president Al Gore caused some amusement by saying the US should aim to generate all of its electricity from zero-carbon energy sources within a decade. Gore argued that only by making such a commitment could the US solve the pressing problems of the high oil price, the export of jobs abroad and climate change. ‘Our dangerous over-reliance on carbon-based fuels is at the core of all three of these challenges – the economic, environmental and national security crises. We are borrowing money from China to buy oil from the Persian Gulf to burn it in ways that destroy the planet. Every bit of that's got to change.’
Gore’s interjection in the energy/climate debate was rebuffed by critics who argued that as Gore was an investor in renewable technologies he was placing sustainability over security at a time when supply security concerns are more important to the US economy.
Yet Gore’s comments clearly resonate with the European environment lobby and some socially liberal EU politicians. In August, the UK’s Liberal Democrat party published its ‘energy vision’, which called for the UK to be zero carbon, and a net exporter of renewable energy, by 2050. The party dubbed its energy vision an ‘Apollo’ challenge, arguing that the successful challenge of putting a man on the Moon was similar to creating a zero carbon energy market, yet some observers suggested the Liberal Democrats policy bore a stronger analogy with the challenge of putting a man on Mars.
The fundamental difference between US and EU policy over the past decade is that the US has focused on security while the EU has focused on sustainability. Both are important policy objectives, and arguably neither should take precedence over the other. Yet in any policy one of these objectives has to take the lead, with the challenge being that the other objective must not be undermined. Clearly this has not been the case on either side of the Atlantic.
US reluctance to consider carbon constraints is fuelled by concerns over how such constraints will impact on the economy, of which the energy market is a primary driver. The EU has argued that carbon constraints will not, in the long-term, undermine economic growth although it concedes that there may need to be a little economic pain before there is climate gain. Unfortunately the current global credit crunch exposes both policy rationales as flawed.
Neither the US nor EU can claim with any confidence that its energy market is in a better state than the other as both economies struggle with the credit crisis. Yet as a consequence of the credit crisis both the US and EU are coming under pressure to amend their policy priorities. Faced with a market that is no more secure through the avoidance of carbon constraints, the US is coming under increasing domestic pressure to elevate the importance of sustainability in its energy policy, with both the Democrat and Republican presidential campaigns competing for the climate vote.
Broadly speaking the respective energy and climate policies of the Democrats and Republicans differ little, with the exception of oil. Both parties favour carbon cap and trade schemes, both support the development of clean coal through carbon capture and storage, and both believe nuclear has an important role to play in the future energy mix.
But below these policy headlines there are some subtle policy differences. Take 2050 emission reduction targets. The Republicans are targeting a 66% reduction in CO2 levels compared to 2005 while the Democrats call for an 80% reduction below 1990 levels. The Democrat view is more aligned with the EU in using 1990 as the benchmark and the Democrat target will also be more challenging as emissions have increased appreciably between 1990 and 2005.
Then there is the issue of the free market. It is anathema to US politicians, whether they be Democrat or Republican, to reject the free market philosophy, yet while the Republicans believe strongly in renewable energy development competing with other generation sources, the Democrats call for stable, long-term tax credits to encourage investment in, and the use of, renewable energy. Again the Democrat view closely follows the EU, and in particular UK, approach to renewable energy.
But has the EU approach on emission and renewable targets been successful? Many would argue it has not. Take the UK as an EU example. CO2 emissions are higher today than in 1997 when the current government came to power, with the government accepting defeat on its 2010 reduction target, while the government is also forecast to fall short of its renewable target. In addition the subsidies used to attract renewable investment have increased industry energy bills by a fifth in the UK as energy suppliers look to recover renewable costs.
So following a UK/EU climate policy may not be the best approach and the Democrats are potentially falling into the same policy trap that has proved costly to the UK/EU, namely setting medium and long-term targets without first making sure they can be efficiently (and economically) achieved. This being so the Republican policy approach seems more workable.
And as the US looks to EU policy so some EU companies are looking across the Atlantic for some inspiration. One of the key concerns among EU energy users is the impact of carbon constraints on competition, with the steel and cement sectors rejecting European Commission proposals for auctioning allowances and effectively calling for a more protective market. Meanwhile a number of EU member states want to increase the cap on the use of carbon offsets from the Commission’s proposed 35%, with a leaked UK government paper calling for the cap to be increased to 50% which would mean half of the UK’s compliance would be ‘bought’ with offsets, with only half of the target coming from actual UK emission reductions. In other words, this would effectively reduce domestic carbon constraints.
For all the political rhetoric there are signs that the EU is starting to become less climate bullish, just as US climate bullishness grows ahead of next month’s presidential election. With both economies keen to learn from the other it is clear that neither has got its energy/climate policy right yet. The Commission should observe the US election from an energy/climate policy perspective, given that the EU goes to the polls next summer.
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