Transmission  belts  hinder  steady  federal  leadership

Alaska’s giant Prudhoe Bay field more than four decades ago” (Krauss, 2012). Lizza (2010) argues that he invested his political capital rather in health care than renewable energy.

This lack of emphasis on the topic reflected during the Presidential debates in 2012 when climate change was not explicitly discussed for the first time since 1988 (Gillis, 2012). At the same time, the natural gas boom shifted the energy discussion from renewable energies to a cheaper domestic alternative. The low-cost, sufficient domestic availability and positive GHG emissions balance compared to coal are key arguments in fostering a perception that natural gas cannot coexist with renewable energies. However, recently, the argument that natural gas in combination with renewable energies can enter the low-carbon energy era has gained popularity. For this scenario to become reality, renewable energies need to become cost-competitive with other conventional fuels in order to compete with coal rather than with natural gas (Channell et al., 2012). Hence, President Obama put the issues back on the agenda with a prominent call for US leadership on renewable energy in his second inauguration address (Obama, 2013a). He wants to achieve progress with measures at his disposal, such as executive orders, that do not require congressional support. For example, he signed for the first time a bilateral accord with China that includes GHG emissions reduction targets (Landler, 2014). The negotiations took place on the highest political level demonstrating the importance that the White House attributed to the issue.

Governing the Transition to a Green Economy 183 Lastly, Democrats held majorities in all three organs from 2009 to 2011. While President

Obama tried to enact the mentioned climate legislation, it could not overcome a filibuster in the Senate, which increased the threshold of yes-votes from 50 to 60 out of 100 requiring Republican support (Lizza, 2010). Hence, most of the time, the system requires compromise between the two parties, which is currently not given. This significantly hinders lasting political change and favours the fossil fuel era status quo.

The electorate reflects the political divide between the parties (McCright and Dunlap, 2011b).

Hence, politicians cater to the expectations of their voters by taking a clear position on the issue. In addition, US election campaigns are very costly. Politicians depend on donations, which increases the influence of wealthy donors and interest groups (Repetto, 2011). So far, this has largely benefitted the incumbent energy utilities since the fossil fuel lobby is an economically important player that is capable of influencing elections. For example, in the 2012 presidential election the fossil fuel industry spent more than 153 million USD (117 million EUR) mostly attacking Obama and clean energy whereas only 41 million USD (31 million EUR) were spent to defend renewable energies (Lipton and Krauss, 2012).⁷⁸ Direct campaign contributions show a similar trend: Romney received 13 million USD (10 million EUR) from the fossil fuel lobby whereas Obama collected less than a million USD (760,000 EUR) from this interest group (Lipton and Krauss, 2012). It is a promising strategy for Republicans to represent the interest of the fossil fuel industry and receive their campaign contributions. While commentators argue that the American electorate paved the way for “a new energy future” (Flavin, 2012) by re-electing President Obama, it remains to be seen which consequences this election result really holds; in particular as it has not changed the majority conditions in Congress.

The electoral system emphasises the local background of candidates since local constituencies elect both the House and the Senate. Hence, politicians are “to a large degree expected to defend the economic interest of their local constituents” (Harrison, 2010: 77), which can limit their focus on energy policy towards economic rather than environmental consequences. This is in particular relevant in the Senate to which each state sends two Senators despite large size differences between the states. Since a majority of states is closely attached to the coal industry (either through mining or generation), the votes for climate change and renewable energy that threaten coal are by design in the minority (Roberts, 2012). This means that

78 The 2008 election marked a significant exception to this rule as climate change was very high on the international agenda, and both candidates, Barack Obama and John McCain wanted to implement carbon pricing. Hence, spending for green ads outweighed the fossil fuel lobby.

Democrats from traditionally Republican states rather oppose climate and renewable energy legislation (Lizza, 2010). Independent candidates that focus on environmental issues could help overcome this institutional blockade, but the majority voting system has prevented independent candidates from reaching office since they would have to defend candidates from both major parties. Hence, the political system strengthens the legislative status quo on energy issues.

The key role of the states counteracts this federal blockade as they can take charge on progressive energy policy. They have key competences in the field of energy policy because of regionalised energy markets. For example, the Federal Energy Regulatory Commission is the key federal regulatory instance but is only in charge of intra-state trade which limits its reach given the state-wide policy (Schmalensee, 2011). Hence, states can push forward with liberalisation efforts and implement a variety of other policy instruments to strengthen alternative technologies. They can function as niches in which renewable energies develop, reduce their production costs and realise the employment potential. When the federal level blocks their emergence, this is an opportunity for renewable technologies to nurture and experiment within a variety of frameworks. If they prove successful, this increases the chances of successful diffusion of these policy designs. This holds in particular true since the federal politicians largely depend on the economic strength of their home regions. Hence, when renewable energies can assume a key economic role in certain states, this will likely affect the voting behaviour of the states’ representatives on the federal level.

5.2.2.1. Horizontal  environmental  policy  integration  

While the role of the federal government in promoting renewable energies is limited, a variety of actors carry out initiatives in the field. The U.S. Government Accountability Office (2012) identifies 23 agencies with 130 sub-agencies that have carried out 679 initiatives to foster renewable energy in 2010. While this number is inflated by the stimulus funding in 2009, it demonstrates the importance for a variety of public actors, which is a promising sign.

However, with a lack of economic policy instruments in place, they are mostly preoccupied with running particular projects rather than steering a larger transition process. The Department of Energy is most important, other key organs are the Departments of Defense, Agriculture and the Interior that administer programmes with a shifting focus between the various technologies and technological maturity. The Department of Energy focuses mainly on innovation of all technological solutions while the Department of Defense focuses on innovation of solar and biofuels technology in order to reduce the fossil fuel dependence of

Governing the Transition to a Green Economy 185 the military. The Department of the Interior controls the federal land needed for wind and

solar plants and the Environmental Protection Agency is the key regulator. The Department for Agriculture focuses on commercialisation of biomass. Hence, a focus on innovation is obvious.

The diversity shows the necessity for horizontal coordination, in particular since various ministries mirror differing mindsets mostly reflected within the industries that they interact with. A possible source for coordination within the administration would be the climate czar as the head of the Office on Energy and Climate Change Policy in the White House.

However, this position has remained open after the failed legislative attempt. As a result the leading person on climate change and renewable energy within the White House has been a rather low-ranking officer (Goodell, 2013). A high-level position that is often called for should be established to fill this void and ensure a coordinated approach from the federal government given the already difficult political situation. In this situation, it is a promising sign that key members of Obama’s second term administration are closely involved with climate change and renewable energies (Goode, 2013).

5.2.2.2. Vertical  environmental  policy  integration  

Several states have filled the federal leadership void left by George W. Bush with bottom-up initiatives. While the political polarisation has reached the state legislators as well, more Republicans vote in favour of green legislation than at the federal level (Coley and Hess, 2012). For example, California began a strong push for renewable energies under Governor Arnold Schwarzenegger, a Republican albeit the state assembly was Democratic-controlled.

The number of states that source more than 10% of their electricity from non-hydro renewable sources has risen from two to nine during the last ten years (Renewable Energy Policy Network for the 21st Century, 2012). The states are key laboratories during times of federal political stalemate albeit with limited scope. Furthermore, while some states implement measures, others do not do anything.

Clean Edge (2012) compares state activities fostering clean energy technologies (including electro mobility for example). It finds that California is the ultimate leader by establishing itself as the “world’s preeminent testing ground for clean technology of all kinds” (Clean Edge, 2012: 4). It has earned this position by passing a law in 2006 that requires it to reach 1990 GHG emissions levels by 2020 (Burtraw and Woerman, 2012). The primary tool to achieve this is an ETS. Furthermore, it has established a goal of reaching 33% renewable

energy generation by 2020 (Lester and Hart, 2011). Besides California, the leading states are located at the West Coast followed by the Northeast and Midwest, with the South being the laggard. This is particularly troublesome as in the Southern states costs for increasing energy efficiency and shifting to renewable energy would be very low (Clean Edge, 2012). Hence, the United States leaves the low-hanging fruits on the tree while harvesting the higher hanging fruits, which are more difficult to reach. Besides state action, various local and city governments are also taking action. However, if all municipalities switch to renewable electricity, this would be a strong political signal but would only have a small impact on US GHG emissions (Krause, 2012).

The states experiment with various policy instruments: Some states implement regional ETS but RPSs are the most often applied instrument (Palmer et al., 2011).⁷⁹ As of November 2012, 29 states plus Washington, DC and two territories had binding RPSs and eight states and two territories had non-binding RPSs in place (U.S. Department of Energy, 2012). Since the details of the RPSs differ widely, they have created a scattered regulatory landscape. For investors, it is a major challenge to decipher the framework (Sovacool, 2009b). In addition, RPS favour cheap and more mature technologies (in general wind and biomass) since utilities continue to follow the least-cost principle. This leaves little room for technologies such as solar that remain relatively expensive. In order to stimulate these technologies, several states have included set-asides for certain sources that would otherwise not be competitive (Wiser et al., 2010). Hence, these RPSs include two quotas, one for renewables in general and a sub-quota for more expensive generation sources.

Empirical evidence on the effectiveness of RPSs is mixed. Carley (2009) finds that RPSs do not necessarily result in a higher share of renewable energies. Shrimali and Kniefel (2011) point out negative effects of a RPS when the set target is already achieved without adding additional capacity. While this is not surprising, such window dressing is taking place in some states. On the other hand, Yin and Powers (2010) conclude that RPSs have a positive effect on renewable energy development. Palmer et al. (2011) follow this line by arguing that RPSs are more efficient than tax credits and it is best to combine both measures. When reviewing these studies, Shrimali et al. (2012) find that the contradicting results are due to data inconsistencies and outliers. They conclude that RPSs do not necessarily foster renewable energy but have the potential to do so.

79 See ‘5.2.3.1.1. Regional steps towards a carbon price’ for more details.

Governing the Transition to a Green Economy 187 While it remains unknown whether these state-led bottom-up activities can initiate significant

change at the federal level, the emerging landscape creates coordination challenges in case a nationwide system is to be put in place. One example is integrating a potential national RPS with existing state-based RPSs. While Cooper (2008) argues that this would overcome the challenges of the scattered landscape and ensure more security for investors, Goulder and Stavins (2011) state that the reliance on quantity-based rather than price-based policies can create problems when state and federal policies overlap as leakage could occur. Nonetheless, it is a good sign that at the state level initiatives are taking place that can generate support for federal action.

5.2.2.3. Time  inconsistency  is  the  dominant  characteristic  

Because of unpredictable political leadership, time inconsistency is the dominant characteristic of the US renewable energy framework. For example, implemented tax credits have been temporary and expired repeatedly whereas tax credits for other technologies are without temporal limitations. Similar trends have become visible for R&D funding (American Energy Innovation Council, 2011). This results in boom and bust cycles, which have been a major challenge for domestic renewable energy companies. This has challenged investments in innovation because companies were unsure for how long their business model would work.

Hence, this lack of market stability has challenged the development of the industry and hampered a reduction of production costs to gain cost competitiveness with other generation sources.

The polarised political climate has also prevented comprehensive legislation, which could stabilise the framework in times of lacking political support. Targets or strategies in the fields of renewable energy and climate change do hardly exist on the federal level. While president Obama (2011) announced in his ‘State of the Union Address’ that by 2035 80% of US electricity should stem from clean energies, this is not legally binding. Furthermore, the term clean energy has not been defined more closely and likely includes other low-carbon technologies such as nuclear and clean coal (carbon capture and storage) besides renewable energies. However, the rhetoric is considerably more ambitious than the ‘Energy Policy Act of 2005’ passed by a Republican majority in support for George W. Bush’s re-election efforts that wanted an RPS of 10% by 2020 that was ultimately dropped from the legislation (Holt and Glover, 2006).

The accord with China signed by Barack Obama in the fall of 2014 includes the goal to reduce US GHG emissions between 26 and 28% by 2025 compared to 2005 (Landler, 2014).

This is a significantly stronger target than the only legally binding target from the Copenhagen Climate Conference in 2009. It stated that the United States pledge to reduce GHG emissions “in the range of 17% by 2020” (Obama, 2009) and by 80% in 2050 compared to 2005 levels. Despite the inconsistent policy framework, the United States are currently on a path to reach 16.3% GHG emissions reduction, which is very close to the promised target (Burtraw and Woerman, 2012). The key reasons are the natural gas emergence that is taking away market shares from the dirtier coal electricity generation and the economic recession after the financial crisis. Hence, the United States is capable of ensuring significant GHG emissions reductions under favourable circumstances. However, the future pathway is dependant on the economic recovery, further rulings by the Environmental Protection Agency on GHGs, and regional abatement programmes. The Obama administration assumes that GHG emissions will start rising again showing that progress is not ensured over time (The Economist, 2013d).

President Obama (2013b) has chosen to take administrative measures that do not require approval by Congress to circumvent the lack of legislation. The Environmental Protection Agency, that assumes many roles of a traditional environmental ministry, plays a crucial role in regulating GHG emissions. The basis is the 1970 ‘Clean Air Act’, which was enacted to ensure clean air and now also covers GHG emissions (Burtraw and Woerman, 2012, Goodell, 2013). While the Environmental Protection Agency started by tightening vehicles standards, it currently imposes regulations on new power plants and has proposed tight regulations for existing power plants upon the request of President Obama (Shear, 2013). These standards for new power plants are most important from an environmental perspective and costly for the coal industry from an economic perspective (Burtraw and Woerman, 2012). Hence, the strict standards put forward by President Obama’s serious efforts to follow up his rhetoric with measures that do not require Congressional approval. Furthermore, Obama wants to give more federal land to renewable energy projects and increase federal demand for electricity generated by renewable sources. While these measures are weak in ensuring a stable policy framework over time, they are the current planning basis for power plant developers and can have a lasting impact.

Governing the Transition to a Green Economy 189