Last night, during his victory speech, President Obama made note that in the coming years we must take notice and attempt to neutralize the threat posed by global warming. Of course, this raises the question of how this will be undertaken and how it will affect the economy. When we looked at this election cycle, we did not see climate change brought up as a campaign point, so to sketch out the next four years, we must look at the past four. With regards to climate change and the economy, we can see some key areas that Mr. Obama has at least focused on, if not attempting to enact policy, namely fuel efficiency, green energy and jobs, high-speed rail, and oil subsidies. Let’s take a quick look at each one of these and see how the President’s policy regarding them could affect the economy.
The Obama administration set new standards in fuel efficiency. These standards will increase fuel economy to the equivalent of 54.5 mpg for cars and light duty trucks by the model year 2025. These standards are projected to save US consumers $1.7 trillion at the pump, while decreasing US oil consumption by 12 million barrels. The adoption of these measures alone will cut down on one of the most painful costs for American families, allowing them to spend more on more beneficial sources of consumption. Furthermore, these standards increase incentives for hybrid and electric vehicles, as well as charging stations. These incentives could help to reduce costs, and as such, decrease barriers to entry into the market. Government assistance also could help propel the US into the coveted position of world leader in the electric vehicle market. The President has made a point to increase exports and promote electric vehicles, and this certainly could play into this.
Concerning green jobs, the President had in the past secured a tax credit for clean energy jobs, research, and production. Many manufacturers awaited the outcome of the elections with trepidation, as Gov. Romney stated multiple times he would end all subsidies to green energy. We will likely see the President push for a continuation, if not an expansion, of these tax credits over the next four years. Justification for these subsidies would be the infant industry theory, wherein the industry would likely not survive for the time being without the subsidies. Another green sector in the economy would be mass transportation. The Administration has laid plans for national high speed rail lines in the past. The stimulus included funds for the upgrading of creating “high speed railroads” as they are known in the rest of the world. The Administration will likely push for high speed rail for both economic and political reasons. Politically, the promise of jobs and a more centralized connection and access to major population centers could entice blue collar voters to go Democrat in rural and economically depressed counties.
Finally, the President has made a continuous push over the last year to end subsidies for oil and gas companies. While it was not discussed much in the election, the fiscal cliff is still on the horizon. It presents a perfect opportunity for the President to press for an end to oil subsidies. Simultaneously extending and or increasing green energy tax credits, while getting rid of oil subsidies, could give the green energy market more of an advantage and make costs of production and prices more competitive.
Regardless of what’s undertaken, transitioning one’s economy is a difficult task. Climate change is very much real, and it presents a very credible threat to our standard of living and economy. However, it also presents new opportunities for economic success. We can either go down with the sinking ship that is fossil fuels or we can jump ship and transition to a green economy. The US has been the hegemonic power for the past century because of its economic might, which has been driven by an innovative spirit and position as the most competitive player on the world stage in the most important industries. For the 21st century, that is green energy. I believe the Administration sees it this way, yet the realities of the world may replace restrictions on what can be done. The President has made climate change an issue. now he must convince the people and Congress it really of the same.
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By Sean McGuire