GHG Management Institute: We have entered a new era of far greater uncertainty with Pruitt at the EPA

Aim for the best but get ready for the worst

When Trump nominated Scott Pruitt as the new head of the U.S. Environmental Protection Agency (EPA), the most authoritative agency on matters like air pollution and climate change, it was clear that his vision was to dismantle, through major budget cuts, the work accomplished by the Obama administration to mainstream climate change into most federal government programs.

Pruitt has a long history with the EPA. As attorney general for the State of Oklahoma, he sued the EPA 14 times and worked in concert with fossil fuel interests in many of these cases, stressing his close relationship with oil and gas companies.

The Context
Since the 70s when the U.S. Congress enacted the Clean Air Act, the EPA was the agency in charge of defining the air pollutants that can affect human health and welfare. Through subsequent amendments to the Act, the EPA has introduced policies to limit emissions from SO2 and NOx, and in doing so, developed market-based policy approaches such as emissions trading. The idea of putting a price on pollution, where polluters shall pay based on what they emit, originated from economists and was championed by conservative (i.e., Republican) politicians in the early 1990s.

More recently (2007), the U.S. Supreme Court decided that regulatory provisions of the Clean Air Act can apply to greenhouse gases (GHGs) like carbon dioxide, assuming there was evidence that such gases endangered public health or welfare. Since that decision, the EPA has made the regulatory determination that GHGs do endanger humans, and in response the EPA is now legally required to take regulatory action to address this endangerment. Specifically, in 2009, the EPA issued what’s known as the “endangerment finding”, a review of scientific evidence showing that rising GHG emissions would cause deadly heat waves, raise sea levels, hurt agriculture, and more.

Under the Obama administration, the EPA set new fuel economy standards for cars and light trucks and issued CO2 standards for new power plants that effectively denied approvals to build coal plants that don’t bury their emissions underground. It also crafted the Clean Power Plan to regulate CO2 from existing power plants and large industrial sources. This plan is intended to build upon the existing CO2 trading schemes in the Northeast (i.e., Regional Greenhouse Gas Initiative) and California. Yet, the future of the Clean Power Plan is in doubt, as it is held up in the courts due to lawsuits from resistant States and by a new Administration that believes climate change is a hoax. In the meantime, other major polluters like China, Canada, Mexico and South Korea are joining the EU in the development their national emissions reduction initiatives and programs.

Trump’s Plan

The new U.S. administration is sending a clear message to the world that they are not willing to fulfil their commitments under the new climate deal reached in Paris. In one of his comments, Pruitt stated that “we don’t know that yet … We need to continue the debate and continue the review and the analysis”.From the elimination of major climate programs to the shifting of scientific priorities, the Trump administration budget proposal presents a wholesale repudiation of two main Obama administration objectives: fighting climate change and stoking investment and innovation in renewable energy.

Some examples: Trump’s proposed federal budget would dramatically cut or eliminate funding for several research programs aimed at gathering information about climate change. It would discontinue funding for the Clean Power Plan. It would zero out funds for international climate change programs, as well as for climate change research and partnership programs.

New Proposals
Having resisted a federal carbon tax for decades, a small group of veteran Republicans recently pressed the idea with White House officials. But, the proposal received a hostile response from many Republican congressmen. The group also known as Climate Leadership Council, headed by former Secretary of State James Baker under George H.W. Bush, proposed to scrap most of President Obama’s climate policies in exchange for a rising carbon tax starting at US$40 per ton. Revenue raised from the tax would be shared out between every American in the form of a quarterly Social Security cheque. Mr Baker sees it as a sort of insurance policy against climate change. As a tax-neutral measure, it fits Republican philosophy. President Trump has not yet indicated his opinion. Can it work and be in line with Trump’ strategy and vision?

What next?
From an investor’s perspective, financial markets have been on a rally. Yet, after only 100 days since the new president settled in the White House, Trump’s momentum is already losing steam. Investors and businesses should now be skeptical of Trump’s competency in governing and whether he will be effective at achieving his anti-regulatory and anti-climate aims. Executive orders have limited effect where regulations and law are established. Expect four years of intense lawsuits that resist Trump’s attempts to claw back Obama era regulations.

Businesses are looking for consistency of direction, philosophy and regulation. Unfortunately, we have now entered a new era of far greater, not lower, uncertainty. In addition to intelligently monitoring the situation, business and investors should look farther into the future and consider the changes that will come post-Trump, when the impacts of climate change become more tangible. And consider the kind of massive regulatory shifts that may come when cities begin flooding regularly. “Aiming for the best and ready for the worst”. This is an old but still applicable motto.

Eros Artuso is the EU Liaison Officer at the GHG Management Institute