Thursday, April 1, 2010

Obama Shifts Focus to Energy

Obama Gas Nozzle Offshore Oil Rig

With health care reform finally in tow, the Obama administration has shifted its focus to passing long-awaited energy and finance reform bills before the end of the legislative year. Yesterday, Obama proposed an end to the offshore drilling moratorium that he so staunchly defended as a candidate�even in the face of record gas prices and Sarah Palin's memorable "drill baby, drill" refrain. Today, the government finalized an accelerated increase in Corporate Average Fuel Economy standards that the President first announced last May. President Obama has also been touting the greening of the federal fleet, which has added around 2,500 hybrids during the first 14 months of his administration and soon will include 100 electric vehicles.

Yesterday's offshore drilling announcement was met with disbelief and outrage by many environmentalists, but a closer look at the policy reveals that it is unlikely to have much of an impact on energy prices or ecosystems in the near future. The expanded exploration will be limited to the gulf and southeast coastal areas—at least 50-125 miles offshore—and is still a long way from being a sure thing. Some major oil companies' stock prices actually fell yesterday despite the news and there's no guarantee that the recoverable oil in these areas will actually merit drilling, or that congress or the EPA won't act to block the exploration in lieu of a blanket ban. Even if everything goes according to plan, production may not even begin for at least another decade.

The timeline for CAFE standards is a lot clearer. Beginning in 2012, carmakers will phase in a 40 percent increase in average fuel economy, culminating in a 35.5 mpg standard by 2016. Various estimates have the policy resulting in decreased emissions of between 20-30 percent. Don't expect the government to stop there though—the Alliance of Automobile Manufacturers said today in a press release that the industry is already gearing up for further CAFE increases in 2017 and beyond.

An important step in raising those averages will be the launch of dozens of new hybrid and electric models over the next few years and the federal government plans to support these new releases with subsidies and fleet purchases. Currently, the government offers a $7,500 subsidy toward the purchase of an electric vehicle, owns more than 5,000 hybrids, and plans to purchase the first 100 EVs sold in the United States. It's very likely that there will be further announcements on those fronts as the administration rolls out a series of energy proposals in the coming weeks.

Politics As Usual

What is expected to be missing from any new energy bill is the creation a comprehensive cap-and-trade system. Republican lawmakers have pledged to filibuster the legislation, and with many congressional Democrats already battered by a prolonged health care debate and facing tough reelection battles this year, the administration reportedly doesn't think it has the votes to enact cap-and-trade this year. Whether Democrats revisit the plan next year will likely depend on the outcome of the November elections.

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