ENERGY POLICY:

Status quo results mean recent battles will be revisited and gridlock may reign

The most expensive election in U.S. history came to a relatively quick end this morning, with President Obama surging to re-election after a campaign that was marked by sharp divisions over how Americans should continue to power their homes and cars while protecting air and water quality.

The president won a solid victory, prevailing in most of the hotly contested swing states, including Pennsylvania and Ohio, whose economies have benefited from new discoveries of oil and natural gas, as well as Colorado and Iowa, where support for renewable energy became a key campaign issue. In all, the president took 50 percent of the vote and 303 electoral votes, with only Florida's 29 electoral votes still up for grabs as of early this morning. Republican Mitt Romney took 48 percent, and was sitting at 206 electoral votes.

But Obama will continue to face a divided Congress -- with Democrats retaining control of the Senate and Republicans still dominant in the House (see related stories).

Policymaking in the environment and energy realms has been on hold through much of this year, but Obama's re-election is expected to free regulators at U.S. EPA and other agencies to complete stalled rules addressing climate change and industrial pollution amid continued division between the White House and Congress. And if the 2012 campaign has proved anything, it's that energy development will continue to be a hot-button issue for the foreseeable future.

In his acceptance speech early this morning, Obama vowed to continue to work to free America from its addiction to foreign oil and spoke of passing on a country that "isn't threatened by the destructive power of a warming planet."

The latter statement earned praise from environmentalists, though some wondered why he stayed away from specifically using the words "climate change."

After the speech, environmentalists vowed to maintain pressure on climate change issues, and some noted that the purest test of Obama's commitment to the cause will be his upcoming decision on the Keystone XL oil pipeline.

Hurricane Sandy, the superstorm that pummeled the East Coast a week before the election, also elevated the consequences of climate change in the political discourse at the end of the 2012 campaign, although its long-term implications remain to be seen.

"Clean energy emerged a big winner. The American people chose many candidates who campaigned on renewable sources of energy -- starting with President Obama, who took unprecedented actions in the past four years to protect our air and produce clean energy jobs," Frances Beinecke, president of the NRDC Action Fund, said after Obama was declared the winner last night.

"Now it's time to take decisive action to create the clean energy future that will address climate change -- an urgent need amplified by Hurricane Sandy's devastation," she added.

Other activists greeted the election results as an opportunity to keep up pressure on the Obama White House. Opponents of the Keystone XL pipeline, led by the climate group 350.org, announced a demonstration planned for Nov. 18 in front of the White House to urge Obama to put a final nail in Alberta-to-Texas oil pipeline's coffin, following his decision last year to initially deny a needed permit.

"Even if it doesn't spill, it would add 900,000 barrels of oil worth of carbon each day to the earth's atmosphere, or as much as the new auto efficiency regulations would save," Keystone opponents said in an open letter last night announcing the demonstration. "It would, in other words, cancel out the whole long fight to increase auto mileage. Those tar sands are still the dirtiest energy on the planet."

EPA unleashed

Short of a change of heart among senior lawmakers in both parties, the partisanship that has gripped the Capitol and prevented much legislation from advancing is likely to continue when the 113th Congress convenes in January.

"I think the time for big congressional legislation on climate change is gone," said Kenneth Green, an energy expert with the American Enterprise Institute. "That boat sailed with the last failure of cap and trade."

William Ruckelshaus, who was EPA's first administrator under President Nixon, said that he also doesn't see much chance of Obama moving new legislation aimed at addressing greenhouse gases through a divided Congress in his second term. But he said that the aftermath of Hurricane Sandy has the potential to change that dynamic in the coming weeks and months.

"The only thing that could change that equation would be if the public demand became so strong that no matter how skeptical you were ... it would be pretty hard to resist doing something to control greenhouse gases," Ruckelshaus said. "That pretty much is what happened when the environmental movement started back in the late '60s and early '70s."

But barring such a scenario, Obama's actions on climate change in his second term will likely be limited to the executive branch agencies that can exercise their existing authority to address the issue.

While EPA, especially, has been largely dormant in the months leading up to last night, the conclusion of the election is expected to bring action on numerous rules that have been waiting on the back burner.

"We would expect him to move forward fairly quickly on a bunch of EPA regulations, including some greenhouse gas regulations," said Manik Roy, vice president for strategic outreach at the Center for Climate and Energy Solutions, formerly the Pew Center on Global Climate Change.

Perhaps the highest-profile rule awaiting action at EPA is its proposed New Source Performance Standard to address greenhouse gas emissions from new power plants, which was proposed last March. That rule is expected to be finalized relatively soon after the election with few modifications from the proposal, which limited carbon dioxide emissions to 1,000 pounds per megawatt-hour for new facilities, effectively requiring the construction of either natural gas-fired power plants or coal plants able to capture and store their CO2 emissions.

Also on the climate change front, Obama's re-election largely clears the way for the implementation of a joint rule developed by EPA and the Department of Transportation to control CO2 emissions from vehicle tailpipes and improve fuel economy standards. The rule, which was finalized in August, requires cars and light-duty trucks to meet an average 54.5 mpg standard by 2025.

A bigger question mark surrounds yet-to-be-proposed rules that would limit heat-trapping emissions from existing power plants and oil refineries. EPA has agreed in court settlements with environmental groups to promulgate new regulations on those facilities, but has yet to act. Agency officials said throughout the year that they were focused on the new power plant rule, but other sources are widely expected to garner new attention after the election.

Roy said he will be watching to see how much flexibility EPA would include in potential existing-source greenhouse gas rules, including whether the agency allows the use of market-based mechanisms to achieve the emissions reductions.

Beyond climate-focused rules, EPA has plenty of additional unfinished business that is expected to be completed in a second Obama term, including rules governing disposal of coal ash, limiting hazardous emissions from industrial boilers, reducing the sulfur content of gasoline and diesel fuel, and establishing new air quality limits for soot and smog.

One Republican aide on Capitol Hill said members in the House and Senate know that Obama has a massive agenda of regulations he wants to move in his second term and that GOP members of Congress are prepared to call attention to them and make sure the public knows what their cost will be, "because once they get started, it's hard to get them stopped."

Keystone XL in the balance

While EPA focuses on domestic sources of greenhouse gas emissions, Obama will face a key early test on an international climate change question that attracted nearly as much attention from environmentalists this year.

The Keystone XL pipeline project, which would link Canada's oil sands with Gulf Coast refineries, has put the Obama administration squarely between environmentalists and Republicans. While Republicans see the project as a crucial way to boost North American energy security and bring some stability to gas prices, the environmental community has warned that the heavier bitumen-based crude that would move through the pipeline poses a greater risk of pipeline leaks. Environmentalists also argue that Keystone XL would encourage further development of Canada's oil sands, thereby exacerbating the climate change problem.

In the end, Obama was able to carve a middle path through the thorny issue, without making a final decision on the project before the election.

While the TransCanada Corp. has not received approval from the State Department to build its pipeline across the U.S.-Canada border, the Obama administration earlier this year greenlighted the southern leg of the project. It was a move that insulated Obama from attacks that his administration wasn't interested in the jobs or energy benefits of the pipeline. Meanwhile, Romney's full-throated support of the pipeline on the campaign trail helped Obama keep the support of environmental voters who believed Obama might kill the project after the election.

Obama campaign surrogates have said a decision on Keystone XL is likely in the first three months of next year. Republicans -- while unsuccessful in driving a wedge between Obama and the environmental community over the pipeline in the 2012 election -- have vowed to continue the fight.

Meanwhile, TransCanada has yet to walk away from the project -- as Republicans warned earlier this year when Obama punted his decision -- and the company continues to work its way through the state and federal permitting processes.

The president of TransCanada, Alexander Pourbaix, told the New England Cable News Network earlier this week that though Romney was more supportive of the project on the campaign trail, Obama's endorsement of an "all of the above" energy strategy gives him hope that the entire Keystone XL pipeline will eventually be built.

"We think the argument in terms of energy security for the United States, the jobs, the stimulus that are going to be created from the Keystone XL are equally compelling, regardless of what party ends up having control of the White House," Pourbaix said.

Pourbaix said he "absolutely" believed that the pipeline would get approved in a second Obama term.

Without another election for Obama to worry about, some political and energy policy experts have questioned whether the president will have much incentive to take into account the concerns of the environmental community when it comes to the pipeline.

"It strikes me that he punted [the pipeline issue] through the election," said Trey Grayson, director of Harvard's Institute of Politics.

"I wouldn't be shocked if that was revisited and put back on line," said Grayson, a former secretary of state in Kentucky who co-chaired the energy subcommittee during the drafting process of the 2008 GOP party platform.

Daniel Weiss, an energy expert at the left-leaning Center for American Progress Action Fund, said that the environmental community has high expectations for Obama in his second term.

When it comes to Keystone XL, Weiss expects that Obama will remember that "the interests that oppose the Keystone pipeline have worked themselves to the bone to help him get elected. The interests that want the Keystone pipeline have spent millions and millions of dollars to defeat him."

"I think completing the analysis of Keystone and hopefully understanding that its security and economic benefits are vastly overstated and its potential for pollution is understated so that it leads him to veto the permit would be a very important symbolic action," he said.

Managing a continued gas boom

Another key issue for a second Obama term will be the surge in natural gas production sparked by the massive expansion in the use of hydraulic fracturing technology that reshaped the energy landscape over the last four years.

Obama's first term brought rules from the Bureau of Land Management governing fracking on public lands and EPA regulation of air pollution generated during the process used to extract gas from shale deposits. Those rules generated relatively little grumbling from industry, compared to other aspects of Obama's regulatory regime, although it remains to be seen whether the president gets tougher on fracking in a second term once he is free from electoral pressures.

The president's re-election also will largely maintain the current trajectory of an ongoing interagency study examining the health effects and other impacts of fracking. That study, being led by the Department of Energy, is on track to be complete in the next term.

Throughout the campaign, natural gas was a key part of Obama's "all of the above" energy strategy. Some analysts credited the economic boost fracking provided to the economies of states like Ohio and Pennsylvania with aiding Obama's victory last night, suggesting the president would be unlikely to overtly obstruct the gas boom in a second term.

And that could be another issue that might cause friction between Obama and the environmental community in a second term.

Fracking "strikes me as the kind of issue we'll see a lot more engagement in now that you don't have to worry" about re-election, Harvard's Grayson said.

Solyndra

Among the biggest headaches of Obama's first term was the bankruptcy of solar panel manufacturer Solyndra LLC, which received $535 million in federal stimulus money through a DOE-managed loan program.

It's less certain that the company will continue to plague Obama's second term.

The House Energy and Commerce Committee's probe of Solyndra became front-page news after the company announced it was filing for bankruptcy last fall, and it produced a few embarrassing hearings for the Obama administration. But Republicans were never able to make their charges of political interference stick, and the probe ended with little more than a GOP messaging bill.

House Oversight and Government Reform Chairman Darrell Issa (R-Calif.) is leading a separate probe of the same DOE loan program, and he has signaled that that investigation is far from over (E&ENews PM, Oct. 31).

That effort could gain new traction in the coming weeks and months if additional loan program-backed companies file for bankruptcy. Since Solyndra, two other companies that received DOE loans have gone bankrupt, and each one has given Republicans the opportunity to blast the Obama administration's investment of federal dollars in the emerging green energy sector.

Meanwhile, DOE Inspector General Gregory Friedman has acknowledged the existence of an ongoing investigation related to the collapse of Solyndra. That investigation became public when IG officials, in conjunction with the FBI, raided Solyndra's corporate offices last fall after the company announced that it was filing for bankruptcy. The outcome of that investigation could potentially reignite the entire Solyndra debate and deny Democrats the defense that criticism of the program stems from a partisan witch hunt.

Obama isn't likely to push for major new funding for another program to support the deployment of green energy technologies, and he probably wouldn't get much support from a divided Congress if he tried.

But Arno Harris, chairman of the board of the Solar Energy Industries Association, said that renewable energy has progressed to the point where it doesn't need the same kind of support it once did from the federal government.

"We've kind of come through a big development in the renewable energy industry in the last couple years," Harris said. "We've hit a turning point where we're in the area of what I call mainstream renewables. We're at a point where no matter who is in the White House, renewables are going to play a significant part in our mainstream energy environment."

Harris said stimulus program efforts targeted at solar and other renewables were focused on plugging the gaps that emerged as a result of the financial crisis.

"What the industry needs is a consistent and stable policy environment to continue this transition to cost-competitiveness," he said.

Tax reform seen as top policy fight

Dim prospects for sweeping legislation do not mean energy and environmental lobbyists can ignore Congress for the next few years. Comprehensive tax reform is still expected to be high on lawmakers' agenda during a second Obama term, and stakeholders across the spectrum will have much to gain or lose if Congress and the administration can reach a deal on overhauling the tax code.

The broad approach that has won some support from both parties would be to reform the code by eliminating targeted tax breaks in exchange for lower overall tax rates on individuals and businesses. But differences remain over what breaks should be eliminated and what rates should be for wealthy taxpayers.

Obama has made eliminating tax incentives for oil and natural gas companies a central piece of his proposal, while favoring higher taxes for wealthy individuals. Republicans have stuck to efforts to maintain tax cuts first imposed by President George W. Bush, while generally defending the tax treatment for oil companies.

Tax incentives for renewable energy companies have enjoyed strong support from the president, as well as a number of Republicans in Congress, although GOP lawmakers are more open to proposals that would eventually phase out those tax breaks.

Obama's re-election means lawmakers will return to Washington next week for a lame-duck session that is expected to provide some clues for how tax reform is likely to play out. A key issue in energy circles will be the fate of the wind production tax credit, which is scheduled to expire at the end of this year. Wind lobbyists plan to huddle later this week to game out their strategy for what is likely to be a "fairly robust lame-duck session," one lobbyist said this week.

Tax credits to support home weatherization, efficient appliances, alternative fuels and other energy-related goals also may be included in a year-end "tax extenders" package.

Next year, calls to impose a tax on carbon dioxide emissions also are expected to echo through the halls of Congress, mostly from environmentalists concerned about climate change. However, the idea is gaining some favor among conservative economists who see a carbon tax as an efficient way to generate revenue to offset other reforms favored by the right, including a corporate tax reduction or elimination of the alternative minimum tax.

"As we go into the discussion of how to deal with tax reform, how to deal with the fiscal challenges that we face, we'd expect to see him at least open to a carbon tax as part of the negotiations," Roy said.

Joe Aldy, who served as a White House energy and environment adviser in 2009 and 2010, said earlier this year that the president likely would consider a carbon tax but that he would need to see a gesture of good faith from congressional Republicans before proposing such an idea himself (Greenwire, Oct. 8).

Prospects for clean energy legislation unclear

Obama has repeatedly called on Congress to enact a nationwide "clean energy standard," which would require utilities to generate more than 80 percent of their electricity from non-emitting sources like nuclear, wind and solar, while also giving credit to natural gas generation. Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.), who is retiring this year, introduced a CES bill this year, but it failed to gain much traction in Congress.

It remains to be seen whether the damage wreaked by Hurricane Sandy spurs Congress to do more on the climate front, but House Republicans especially seem unlikely to show much interest in a CES or similar efforts.

The Senate may be a better incubator for any energy-focused legislation, said Joshua Freed, vice president for the clean energy program at the centrist Democratic think tank Third Way. Freed pointed to the "great working relationship" between Sens. Ron Wyden (D-Ore.) and Lisa Murkowski (R-Alaska), who are in line to be the chairman and ranking member, respectively, of the Energy and Natural Resources Committee, as a reason to be hopeful.

But with the election resulting largely in a continuation of the status quo, it is just as easy to imagine congressional intransigence will continue, he added.

"The election is the political equivalent of trench warfare," Freed said. Enormous amounts of effort and capital have been spent "for very few changes in the map."