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Here’s What to Expect from Congress on Climate and Energy Policy

Dec. 29, 2022, 9:00 AM

This year, a precariously balanced Congress is not going to respond to evolving energy and climate needs with course-altering legislation. Today’s political landscape, current events here and abroad, and our fiscal condition make policymaking extremely challenging. Therefore, regulators, the executive branch, and private industry are likely to play a greater role.

Still, several issues are ripe for debate for this Congress.

Energy Subsidies

To date, the Inflation Reduction Act is the pinnacle of Democrats’ efforts to address climate change. Former Congressional Budget Office Director Douglas Holtz-Eakin rightly called the policies “a costly, uncoordinated set of clean energy subsidies that will yield tremendous economic inefficiency.” These will be challenged by Republicans.

Not, however, because of the policies’ core attributes or the fact they will not achieve the administration’s commitment to emissions reduction. Instead, the principal objection will be to non-climate provisions, such as the one that, in the Republican view, provides 87,000 additional Internal Revenue Service agents.

While they may have success modifying such details, the $369 billion in energy and climate-related subsidies will be overlooked, as the subsidies enjoy the broad backing of the influential businesses and environmental groups that advocated for them and will enjoy their largess. Fortunately, these are not likely to be expanded in the next, debt-burdened Congress.

Over time, however, shifts will occur in our energy subsidy framework due to the declining influence of Iowa and ethanol, which has enjoyed a long run of political support from Senate majority leaders—including Bob Dole and Tom Daschle—Senate Finance Committee Chairman Chuck Grassley, and almost anyone who aspired to be president.

Ethanol is the long pole in the tent around which all other energy subsidy policy deals are structured, but Iowa’s demotion in the Democrats’ primary process will shorten that pole and usher in a renegotiation of energy subsidy deals in a changed political environment.

Energy Permitting Reform

Reform of the energy permitting process will remain at the forefront of energy and climate policy discussions. Except for those wedded to the status quo who want to avoid disruption in their current markets, almost all energy interests are constrained because they simply cannot build enough of their favored technology. Therefore, permitting reform is necessary.

The issue intriguingly divides parties. Some from each party want new construction, and others oppose federal streamlining because it preempts state and local authorities or grassroots-level disapproval. As a result, permitting reform could be a bipartisan deal, but politics and a multitude of committees with jurisdiction provide no current path to a deal.

If there is to be a permitting deal, it needs to do substantially more than Sen. Joe Manchin’s recent proposal. The deal needs to amend and align core provisions of the Endangered Species Act, National Environmental Permitting Act, Natural Gas Act, and other statutes.

Such a deal could occur if Congress first authorizes an expedited legislative process akin to fast-track trade negotiations authority or the base realignment and closure process. Yes, that would be a heavy lift for a Congress mired by divisive politics and committee jurisdictions and an overall lack of trust in Washington.

Emissions Trading, Climate Fund

The EU’s implementation of a carbon border adjustment mechanism, or CBAM, to complement its emissions trading system will spur discussions within Congress. In fact, a CBAM, or the US version of it, might be the climate policy with the most bipartisan support.

This year, several Republicans embraced it as a weapon against China and other climate bogeymen, and Democrats saw it as their opportunity to engage on climate change with their colleagues across the aisle.

While this is encouraging, a US CBAM imposed without a corresponding domestic price on carbon is likely a tariff that violates World Trade Organization rules. Consideration of a domestic price on carbon is unlikely, despite growing support from business and economic leaders.

Another new, relatively unexplored international issue up for discussion is the commitment made by the US at the recent United Nations climate change conference to support the establishment of a new “loss and damage” fund to aid climate-vulnerable countries. However, assigning responsibility and financial obligations will be contentious.

Democrats are more inclined to support it, while Republicans want to avoid sending more taxpayer money overseas. But both parties know we are $31 trillion in debt and simply do not have a substantial amount of money to contribute to a new UN program.

Agency Watch

In the absence of major legislation, the role of federal regulatory agencies, the executive branch, and non-government actors will be more important.

The outlook for the Federal Energy Regulatory Commission is uncertain, as Manchin’s objections to the renomination of FERC Chairman Richard Glick means the commission will have four commissioners—two Democrats and two Republicans—in January.

The impact of John Podesta, the president’s clean energy adviser, will be interesting. Podesta dramatically shaped President Barack Obama’s climate agenda. Most notably, when cap-and-trade legislation failed to pass Congress, he orchestrated a muscular executive branch strategy of international commitments pursuant to the Paris Agreement and expanded climate regulations derived from only tangentially applicable statutes.

But today, the Paris Agreement is not the forceful function it was in the past, and courts have hampered the strategy of repurposing existing statutes, so Podesta’s masterstrokes remain to be seen.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Alex Flint is executive director of the Alliance for Market Solutions. He was previously staff director of the US Senate Committee on Energy and Natural Resources, senior vice president of governmental affairs at the Nuclear Energy Institute, and a member of President Donald Trump’s transition team.