The US acts—finally

June 6, 2014
Finally, the US has done something in response to climate change. The country has done nothing about global warming, of course. Global mean temperature won't change measurably because one country cut power-plant emissions of carbon dioxide by 30%.

Finally, the US has done something in response to climate change. The country has done nothing about global warming, of course. Global mean temperature won't change measurably because one country cut power-plant emissions of carbon dioxide by 30%. But for 25 years the government has been under pressure to do something. Now, in fulfillment of a longstanding promise of President Barack Obama, it has acted. What a moment.

For the oil and gas industry, the Environmental Protection Agency's Climate Action Plan delivers a mixture of problems and promises.

Commandeering choice

The ability of a federal agency to commandeer energy choice is an obvious problem. Oil and gas, like coal—the EPA's main target—fare best when consumers have the freedom to pick energy forms that serve their interests most efficiently. When governments intervene, they create problems. A government does not, for example, trim supplies of economic energy by 30% without generating costs certain to propagate through the economy. EPA has done precisely that even though Congress, which represents the popular will, would not. This is the biggest problem with EPA's move—for the coal industry, for the oil and gas industry, for energy consumers, and for Americans. Ultimately, the problem will be resolved in courts and elections.

Three other elements of the EPA's move are especially pertinent to the oil and gas industry. One of them is a looming paradox concerning natural gas. While coal will suffer most, gas generates CO2 when combusted in power plants, too. In special cases, the lighter hydrocarbon might come under pressure, especially if the administration later decides to pursue further emission cuts. Speculation has arisen about requirements for carbon capture and sequestration for gas-fired plants such as those EPA has crafted for new coal facilities. Yet restrictions on gas use would hamper development of power generation with intermittent renewable energy, such as solar and wind, which requires back-up by conventional plants, increasingly fueled by gas.

The oil and gas industry also should find intriguing the delegation of carbon-emission regulation to states. The EPA proposes to impose emission reductions state-by-state and allow the states to determine how to meet them. This approach represents an admission that environmental regulation at the federal level has weaknesses when applied to a large, diverse country. EPA should apply this thinking to pending decisions about federal regulation of hydraulic fracturing.

A third concern for the industry is the moderated ambition of EPA's move. The agency undershot the administration's 42% goal for lowering greenhouse gas emissions by 2030. Shutting down much of the country's coal-fired power generation won't achieve everything the administration says it wants. Oil and gas are likely next targets.

Yet the administration might have feared that a 30% reduction was all it could hope to achieve in one move. In fact, the cut might be all that's politically achievable for a long time. If the program survives legal and political challenges, the costs it generates will be met through a combination of direct increases in electricity prices and subsidization of nonfossil energy. What consumers don't pay in elevated electricity costs they'll eventually pay through higher tax rates and damage to the economy.

Strengthening opposition

Economic pain will strengthen opposition to any further effort to lower CO2 emissions. A political backlash is under way now, for example, in Europe, where governments face growing pressure to retreat from once-bold campaigns to lead the world toward low-carbon energy.

The American step onto this altar could have been worse. The EPA might have tried to meet all of Obama's emission-reduction aims for 2030 with its assault against power plants fueled by fossil energy. As it is, the measure—if it survives in its current form—will hurt enough to teach important lessons. The US then will have done something in response to climate change and decided that a larger threat is rushed sacrifice on behalf of poorly understood problems.