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Obama’s second term: What it means for cleantech

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President Obama was virtually silent on climate change and environmental issues during his 2012 campaign, but he surprised many last week when he gave the most amount of time during his inaugural address to climate change (a whopping 8 sentences).

But even as climate change advocates may have been pleased with the surprise attention, there’s a broad consensus that any climate action that requires legislative action will be nearly impossible to pull off. So let’s take a look at what actions we may actually see from Obama and what the impact on cleantech will be.

 

Making use of the EPA: It’s clear that Obama will be maximizing his use of executive power as his first term showed him that ambitious legislation like a carbon cap wasn’t happening. Hill watchers are already expecting a nasty confirmation fight over whoever Obama nominates to succeed outgoing EPA head Lisa Jackson.

So what might Obama do via the EPA? Well, most folks have accepted that the EPA will finalize emissions standards for new power plants that will effectively make it impossible to build new conventional coal plants. But more controversial is the possibility that the EPA will set new standards for existing power plants, using legal arguments that the Clean Air Act allows it regulate greenhouse gases. This will ignite multiple legal challenges but if Obama succeeds via the EPA, this will force the shutdown of some coal plants, accelerate adoption of natural gas plants and potentially make wind and solar more attractive.

The tax credit game: The wind power lobby successfully managed to get the Production Tax Credit (PTC), which gives a subsidy of 2.2 cents per kilowatt hour of wind power produced, slipped into the 11th hour fiscal deal. It was due to expire but will run another year so expect continued fights over its expiration and potential rough times for the wind industry if it eventually meets its death. Similarly the PTC for geothermal and biomass expire at the end of this year.

Perhaps most important for the solar industry is that the investment tax credit, which is critical to project finance at companies like SolarCity, moves from 30 percent to 10 percent in 2016. I’ve noted it before, but solar installers that are heavily dependent on cheap capital to bankroll their ability to waive up front solar installation costs, in exchange for long term leases or power purchase agreements. They will have to find a new source of cheap capital. And I’ll expect they’ll fight for extending the 30 percent investment tax credit level but more probably, those installers will be looking for new avenues of low cost capital like securitizing solar contracts.

Department of Energy: The DOE has the ability to issues energy efficiency standards for home appliances, based on the premise that the benefits of the standards outweigh the drawbacks and costs to consumers. The DOE has issued 16 new or updated standards for home appliances, commercial buildings, and industrial facilities resulting in reductions of 6.5 billion tons of carbon dioxide.

Many of these standards could hit the power hogs like furnaces, heat pumps and air conditioners. And critics will cry that the measures raise the cost of appliances. 65 percent of electricity consumption comes from buildings in the U.S., and if Obama can’t get sweeping climate change legislation done, ratcheting up the efficiency requirements for the appliances and infrastructure that fuel this electricity consumption is one option. Look for a potential opportunity here for smart appliances and HVAC systems that are easily networkable and can take advantage of data analyses to lower energy consumption.

 

In the end, none of this is the sweeping climate action that Obama wants. But he’s limited because he needs Congress for anything significant. The one potential black swan here is a series of erratic weather events that might turn the tide of opinion the way Newtown has reopened the gun debate. Only time will tell, but one hopes it won’t take dramatic changes in weather to spur Congress into passing climate legislation.