ANYA SCHMEMANN: Thank you. Thank you, everyone. This is Anya Schmemann at CFR. I'm the director of the Task Force Program here. And I'm very pleased to be joined by my colleague, Michael Levi, to discuss energy policy following the president's State of the Union address.
Michael Levi is the David M. Rubenstein senior fellow for energy and the environment at CFR. And he's director of CFR's Program on Energy Security and Climate Change. He's the author of a forthcoming book, "The Power Surge: Energy, Opportunity and the Battle for America's Future," which is due out in May. The book explores developments in American energy and what they mean for the future of the country and the world.
In the State of the Union address last night, President Obama announced an ambitious energy agenda focused on more renewables and more drilling. He called for a doubling of renewable energy production, boosting energy efficiency, more oil and gas permits on federal land, a reduction of oil imports as U.S. oil output grows, and more.
Michael, this sounds a bit like everything but the kitchen sink. Does this all-of-the-above strategy make sense or should the administration focus on regulating greenhouse gas emissions or some other priority?
MICHAEL LEVI: I think the administration is smart to be pushing on both sides and to be taking advantage of both sorts of rapid changes that are under way in American energy. The president, I think correctly, described impressive gains in oil and gas and striking declines in the cost of clean energy and drops in U.S. fuel consumption. There's no reason why we can't continue to push on all of these fronts.
As a matter of substance, the United States can produce more oil and use less of it because it's part of a global market and it makes up the difference by cutting imports. On the natural gas front, we can cut emissions but using gas to replace coal, even though in the longer run we need to have zero-carbon options in order to be able to deal with our climate problems.
So each of these has its place. No one source solves all of our problems. And while there are some conflicts between them that need to be managed, there is no one that is fatal for any of the others, at least in the near term. So this broad philosophy that seeks gains in all fronts makes sense.
The question is, how do you put it into practice? And what I found striking about the speech was its shift from previous ones that were really big ideas -- big policies that, frankly, did not a huge chance of being implemented -- to a series of smaller bore proposals that actually could go somewhere, and that in a lot of cases presented opportunities for both sides -- for proponents of fossil fuels and for proponents of clean energy.
Three stood out in particular: The president talked about how to improve permitting for oil, gas, renewables, nuclear, for power lines and pipelines so that energy development in general could move forward. And there were some very fine details there on electronic permitting process for oil and gas and increased funding for the agencies that have to process these.
There was a proposal to create an energy security trust that would take money from oil and gas royalties and apply it to clean energy innovation, particularly in the transport sector. The fact sheets the administration has put out are a bit ambiguous, but in the past, the way this proposal has been put forward by the organization Securing America's Future Energy and by Lisa Murkowski has tied increased revenues from new drilling to spending on energy innovation and clean energy. And I think that's the political way that that sort of thing might move forward.
And then there's a third piece that the president put forward, not in the speech but in the accompanying documents, calling for a prize of $25 million for the first company to implement carbon caption sequestration, a technology that would take greenhouse gas emissions, capture them and bury them underground on a natural gas-fired power plant, so that you would combine gains in natural gas with new innovation and clean energy and zero-carbon energy technology. I mean, all of these are ways to actually make progress on both sides at once. They're concrete, they're plausible and they can go forward.
There are other smaller pieces that I also find intriguing. There's a proposal to have a race to the top-type effort on housing efficiency. We waste enormous amounts of energy on housing in this country, but it's very difficult for the federal government to get it under control, because housing and buildings are something handled by the states. And the usual technique for going after those things is to create incentives for the states. We've done it in education, and now the -- there's an -- there's this effort to try and do it on building efficiency.
So there are a host of these things. There are -- there are some issues with some of the elements in the speech. There are some places that -- where things won't go forward. There are others where things shouldn't go forward. But overall, what I take away from this is that the president is now going after a handful of tangible proposals that might actually have a chance of succeeding.
SCHMEMANN: OK, thank you. So some familiar themes for the president, but also some new initiatives and some new details.
You mentioned the politics of this. So what do you -- what are the odds that you get for this agenda moving forward? Are there parts of this agenda which can find approval on a bipartisan basis?
LEVI: I think that there are. I think that the energy security trust has the potential to find approval. I think that if it's finessed properly, the president's proposal to make the production tax credit for renewable energy refundable could go forward. It could be combined with a slight reduction in the nominal value of that tax credit, which would actually be a win for renewable energy companies because they do better off it if it's refundable, and a win for the Treasury because they would be spending less money. You could see other elements of the -- of this go-ahead on permitting, for example.
I do think there are pieces that are not going to go forward. The one that stands out was the president's veiled call for some sort of carbon-pricing scheme. He talked about a market-based system similar to what John McCain and Joe Lieberman had proposed a year -- years back. Of course, they proposed a cap and trade system; the president has recently, or in the last couple of years, been pushing something called the Clean Energy Standard, which would function similarly for the power sector. President George W. Bush also talked in a veiled way similarly about a market-based system when he didn't want to use the words cap and trade.
But the reality is that at least in the -- in this Congress, that's not going to be going forward. But the president seems to have wanted to put it down as a marker to say, look, I don't want to use the EPA to regulate existing power plants, but if I can't get this alternative that I prefer, then that's the way I'm going to turn. And if I were to look at the one thing that was not really put out front in this speech on energy, it would be that. It would be the EPA effort to regulate existing power plants. It was mentioned indirectly, but it's likely to be the biggest point of conflict in -- or at least one of the biggest points of conflict in this term. Using existing authority to cut emissions from existing power plants is not an easy thing to do. It's certainly not an easy thing to do if you want to cut deeply, and it's one where while the president has authority, if there's enough opposition in Congress, that authority can be taken away.
SCHMEMANN: OK, well, thank you for that overview. I think we have a number of people on the call, so we'll go right to questions.
Operator, if you want to give instructions for that please.
OPERATOR: (Gives queuing instructions.)
Our first question comes from Andy Revkin with New York Times.
QUESTIONER: Hey there.
SCHMEMANN: Hi, Andy. Go ahead.
QUESTIONER: Thanks for doing this, Michael. A couple of quick questions. They might be speculation on your part, but I'd just be curious to get your sense. The Energy Security Trust, this seems to have a lot of logic to it, but who does it take money away from potentially? Assuming it's not new revenue, it must be taking money away from somebody, so who's going to kill it -- (chuckles) -- is the way to put that.
And then why in the world did he mention the McCain-Lieberman bill when it has really no bearing on anything that will come next, unless you think that it might?
LEVI: Those are good questions. So on the Energy Security Trust, I think there's a lot of confusion out there about what this would be. I've seen some people describe it as something that would levy a tax on production and use it to fund new efforts. That, of course, would upset existing producers. I've heard some just suggest that it would take away from existing revenues and steer that toward clean energy, in which case it would upset everyone who doesn't want to spend money on clean energy. I don't think they would be -- have anymore appetite for it just because it was coming from royalties.
And the way that it has to work politically is the way that SAFE and Senator Murkowski have outlined, which is that it would have to take money from the revenues that would be produced by opening new lands to exploration and production. So it wouldn't be taking money away from anyone. It would engender opposition among those who are primarily focused on the local environment and not on the global environment, because for them, putting new lines into production is not worth it, even if the result is more energy innovation that allows us to move away from oil on the consumption side.
But it does actually hold some promise for building broader political support because it -- because the revenues are genuinely new and you're just taking a portion of them. Again, it will be somewhat controversial, frankly because one side would like to see expanded opportunities for drilling and to have the money not go toward clean energy, and there's another big camp that would love to have support for clean energy but that has zero appetite for increased access to public plans for drilling.
On the McCain-Lieberman bill, I can't say why he -- why he mentioned it. It may be that he wanted to be as specific as possible about what it was he was after without actually saying what it was, and so mentioning McCain-Lieberman gave him a way of really saying, I'm talking about some sort of carbon pricing mechanism. It gave him a way of saying something slightly different from what George W. Bush had several years ago. And it may have been a way of trying to suggest that -- or trying to remind people that this was a bipartisan proposal once upon a time.
I think if the goal was to have broad political effect and to sort of signal to the country that he thought his opponents were being unreasonable now and that therefore he was being forced to go another way, it probably didn't have that much of an effect, because frankly, it was so obtuse and so difficult to penetrate that only people who are deeply immersed in these issues understood what the reference was.
SCHMEMANN: All right, thanks.
Operator, we'll take another question.
OPERATOR: Our next question comes from Stephanie Czekalinski with the National Journal.
QUESTIONER: Hi, there. My name's Stephanie Czekalinski. I just had a quick question. I was hoping you might be able to talk a little bit about whether regulating carbon emissions and pushing out coal would spur a natural gas boom.
LEVI: Everything depends on how you regulate the emissions, but it's an excellent question. And if you look at the proposals that are out there, whether they are the modest proposals or the more ambitious ones, they generally would increase demand for natural gas.
There are some small bore ideas that suggest that existing regulation be used to promote efficiency improvements in existing plants. That wouldn't spur gains in natural gas. If the impact of regulation is to get coal-fired power plants to retrofit so that they're more efficient, that doesn't make people use more gas. It actually make -- puts coal on a stronger economic footing.
If regulations are used to promote fuel switching, whether into gas or into other fuels, then you would get gains in natural gas production in order to supply that. I cannot imagine regulations that forced providers to move from coal straight to zero-carbon energy -- whether renewable or nuclear. And so, unless it's an efficiency push, which you can only get a few percent out of, it's a push that primarily steers things toward natural gas.
If you look, for example, at a recent proposal from the Natural Resources Defense Council -- which I think is a good place to look if you want to have a hint about how the administration is thinking -- they suggest some interesting flexible ideas for implementing existing regulation. But the upshot, when they model it, is that we use a lot more natural gas.
And since the cheap source of gas is right now at home, this would lead to strength in production. I don't know if I would call it a boom. I think we already have a boom. It would be the continuation of that boom because right now the market is largely saturated. We haven't had a big pickup in the use in cars and trucks. It'll be time before new industrial facilities are set up to use this or new export facilities are set up to use this. So power plants could provide an important incremental source of demand.
SCHMEMANN: Thanks. Operator, next question.
OPERATOR: Our next question comes from Bryan Walsh with TIME Magazine.
QUESTIONER: Hi, Michael.
QUESTIONER: Sorry. Hi, Michael. I guess I just wanted to ask really, you know, where does the issue of Keystone fit into what the president was saying last night, fitting into this sort of -- somewhat all-of-the-above, I guess, energy policies, looking to do. I mean, you had mentioned I think when -- during Andy's question, that some of the dispute here could come between those who look globally versus those who are concerned about what happens locally. So I'm just wondering where Keystone fits into that.
LEVI: That's a great question. Look --
SCHMEMANN: And, Michael, I can add to that. Was it odd that the president didn't mention the pipeline project at all last night?
LEVI: I would have been shocked has the president mentioned the pipeline project. There's very little for him to gain from this because I think, Bryan, Keystone fits very ill into this -- into this entire scheme. It's -- at some level, people can accept different pieces of this all-of-the-above strategy, but Keystone, you really have to -- you have to pick one or the other, at least from the perspective of a lot of the big political players in this fight.
To me, if I look at the substance of this, the -- what he is largely talking about is boosting production from all sorts of sources while making sure that what we consume is increasingly lower carbon energy. And if you look at the substance of Keystone, and you've seen me -- seen me write this and heard me say it before -- if you look at the substance of Keystone, you need to think about that on the production side. That's not something that's actually going to reduce emissions in any meaningful way, but it will -- it will constrain supplies and would also strain diplomatic relationships.
So I think that if you were to ask substantively, how should Keystone fit into that strategy? The answer is you allow it to go ahead, but you push forward with policies that reduce consumption hoping that in the long run that brings price -- oil prices down far enough that things like oil sands development don't need to be done and aren't economically profitable.
On the local-global tension, I think that was a huge factor in pushing Keystone up to the top of the agenda just a couple years ago or less than a couple years ago. And a lot of the antagonism toward Keystone was from local communities in Nebraska, some of which would not have naturally been opposed, some of which were deeply offended by how the pipeline operator used eminent domain, some of which were just scared because new issues were being raised on the Ogallala Aquifer that people didn't understand.
But I think at this point, the local part has largely been addressed. There are still people concerned, but the pipeline has been rerouted, the state of Nebraska has essentially dealt with that, so this comes back to the sort of global -- the global issue.
And I don't expect a decision anytime soon, so I wouldn't have thought that the president would have much to announce. There's still procedural steps that need to be gone through. There are new players involved. But ultimately, when the president talks about coming up with procedures that allow for more streamlined development of energy sources of all kinds, that would only be consistent with allowing pipelines that have been well-reviewed and dealt with on the local environmental front to go forward.
QUESTIONER: Thanks very much.
SCHMEMANN: OK, thanks. And I believe we have a follow-on question, Operator.
OPERATOR: Our next question is from Andy Revkin with New York Times.
QUESTIONER: Hey, you mentioned this passingly, but I was curious if you or anyone else at the council had dug in on the economic benefits and risks of increased LNG between the U.S. and Asia, particularly China. I keep seeing kind of conflicting assertions about that, and the more I hear -- one argument I heard was, it's better for us to export our fracking expertise than our gas, but the more I hear about the on-the-ground challenges in China to expanding its own gas, the more it seems like LNG exports are a very -- you know, a great -- have great potential. I just didn't know what your current thinking on that is.
LEVI: Well, that's a good question. I did a study that was published by the Hamilton Project last June. I think the title is "A Strategy for U.S. Natural Gas Exports." You can Google it and download it. That looks at this question and all of its dimensions because it has different consequences across the board for the local environment, global environment, U.S. economy, global economy, U.S. national security and U.S. trade policy. And you have to think about all of these when evaluating the prospects.
I'd say a handful of things. First, I think study after study -- my own included, but also the ones commissioned by the Department of Energy -- have ended up saying that the likely export volumes are small. And that's because it costs a lot of money to ship natural gas from the United States to Asia. You have to liquefy it, you have to move it around the world, and then you have to turn it back into gas, and that's expensive.
So when you add all that together, the low U.S. natural gas prices translate into substantially higher natural gas prices in Korea or Japan or in China. So export volumes are likely to be relatively small. That means that the economic benefits -- and I think there are net economic benefits -- are also likely to be relatively small.
The environmental consequences are mixed. To the extent that LNG exports displace coal abroad, you lower global greenhouse gas emissions, but allowing exports would also expand the footprint of shale gas development in the United States, which would mean more local environmental challenges.
I personally think that should be dealt with by getting better regulation in place on the domestic front, and I think that the slightly higher prices you get should be dealt with by making sure we keep programs in place that protect low-income consumers from rising energy costs -- Low Income Heating Assistance Program.
But the big question here is, what sort of broader trading system do we want to be a part of? We may be looking at exporting natural gas, but there are a lot of other things that we import. We've been fighting against China at the World Trade Organization on raw materials exports -- on rare earth exports that we consider critical to our clean energy industries.
And while I'll leave the legal analysis to a lawyer, at a political level, it's tough to be saying, you should not be allowed to restrict your exports of the following materials, China, because we want them. But we're going to restrict the exports of the materials that we have in abundance. I think that's going to be a very tough argument to carry.
On top of that, if you restricted U.S. natural gas exports, what you would find to a good extent is that those -- that natural gas would flow through Canada or Mexico instead, and so you would still have the price rise, you would still have the expansion of domestic production, you just wouldn't have the revenues and the economic activity that come from developing this resource at home.
So I think it's a -- I think that while there are mixed impacts, trying to micromanage this sort of thing on a case-by-case basis is very difficult. I entirely appreciate why policymakers are thinking about all these dimensions, and I think that is very important. Like I said, we need to know what we're getting into so that we can deal with whatever adverse consequences there are. But on net, I think we'd get ourselves into a pretty ugly situation if we -- if we started to put real substantial restrictions on LNG exports. Thanks.
SCHMEMANN: Thank you. And as a reminder to anyone who may have joined us late, we're having a conversation with Michael Levi about the Obama administration's energy policies and energy agenda. Michael Levi is CFR's senior fellow for energy and the environment. If you're interested in learning more about these issues, Michael has a new blog post up on CFR.org, and there are other resources available there as well.
And operator, if you would just give a reminder about how to get into the queue, and then we'll take the next question.
OPERATOR: (Gives queueing instructions.)
Our next question comes from David Satsky (ph) with Deloitte (sp).
QUESTIONER: Hello. Thanks very much for doing this as well. My question is a follow-up on the discussion on LNG export restrictions or the potential for them. Besides that area of regulation, what other potential regulations at the federal level do you see could have the largest impact on U.S. natural gas market and the investments and economic activity around it?
LEVI: So I think we've hit a couple of really big ones. One is, like you said, the LNG Export issue. The second is regulation on existing power plants, which could drive considerably larger investment into natural gas-fired power, and then on the production side, into natural gas production.
And the federal government is obviously going to be looking at regulations that apply to natural gas development itself. I don't see a significant appetite in this administration for regulations that would put a serious dent in the industry. I think in contrast, they see modest but serious regulation as a way to make sure that bad players in the industry don't ruin the party for everyone. And I think that they are significantly influenced by the experience with the Deepwater Horizon disaster in thinking about how one accident can create problems for an entire industry. So I wouldn't see a large addition to cost coming from there.
The other federal area I would look at is -- that could -- that could provide some surprise is the permitting area associated with natural gas vehicles. There's been a lot of speculation about why it is so much cheaper to get a natural gas vehicle in Europe than it is in the United States. And while there are different theories, as some to do just with the scale of the market, one that floats around is that regulation on natural gas vehicles in the United States is more cumbersome than in Europe, and that makes them less cost-effective. If that's the case, and we found opportunities to make modifications that still protected safety, then maybe that would affect demand in the -- in the transport part of things.
And I should say also on that front, the fuel economy standards that the administration has put out for 2017 through 2025 do have bonus credits for natural gas vehicles, which should increase demand for natural gas there. Those regulations will be reviewed in 2017 or 2018, and I think anticipation of what that review will yield will affect demand in the short run.
But if you want to look at what will affect things on the ground, I think you look at the states. The federal government will have some impact, but I think there's an appreciation at the federal level that there are a lot of idiosyncrasies in land, in zoning, in local geology that mean that the states will have a lot of impact on what's done. So watch New York state for land rules, watch how Ohio's regulations have continued to evolve. And on the oil side of the tight oil boom and the application of fracking and horizontal drilling, watch California to see how things evolve there.
QUESTIONER: Great, thank you.
SCHMEMANN: Thanks, next question.
OPERATOR: Our next question comes from Roger Witherspoon with the New Jersey Newsroom.
QUESTIONER: Good afternoon, a couple of things. I'm curious as to where you place nuclear power in this mix, and you seem at times to be generally conflating clean energy with using our -- with energy independence, which is a bit puzzling, since solar, wind, they have nothing to do with oil, how much oil we use, whether it's more or less. Exactly how are you defining that, and where does nuclear power fit into the mix here?
LEVI: Both great questions, I'll take the second first. I think I've actually driven a lot of my colleagues nuts with the number of times I've written about how clean energy and particularly wind and solar do not provide U.S. energy independence, precisely for the reason you said. You're not putting wind turbines on your car or solar panels on top.
To the extent that renewable energy feeds into energy security, it's if you can plug your car in. And there are the big barriers having the cost-effective electric car not having the particular energy source. So I'm completely in agreement with you on that. I'm happy to talk more broadly about this question of energy independence which has come up, where I think the tougher issues are -- surround whether increased U.S. oil production provides a lot of increased security or minimal increases in energy security.
On nuclear power, the reality is that right now, nuclear power is not cost-competitive with any of the leading options in the market place. Financing nuclear power plants is immensely expensive, there are a lot of -- there's a lot of regulatory uncertainty, there has been for a long time. And so we're not going to be dealing with these issues of safety and waste disposal in a -- in an urgent way if there isn't a lot of appetite for construction.
I think that if you started to put serious climate policies in place, whether through a carbon price or through some sort of flexible regulation that allowed nuclear as an alternative way of complying with the rules, then you would have to confront these local safety and waste disposal challenges. There was a blue-ribbon commission on waste disposal that a lot of -- I haven't studied carefully -- but that a lot of people seem to think is wise in its recommendations, but they're very broad. And no one's translated them into legislation. So we might see some effort to move forward on that front.
But again, the urgency isn't there because the economics aren't there. Ultimately if you put in place a serious policy that drives emissions from the power sector down, then nuclear is the one technology that is established at a very large scale, a source of consistent rather than intermittent power, and it would get a very serious new look under those conditions.
SCHMEMANN: All right, a new question, please.
OPERATOR: Our next question comes from Ben Potter with the Australian Financial Review.
QUESTIONER: Hi there. Hope you can hear me. Thanks for doing this. Have two questions: One, does the fact that the prize announced by the administration for carbon capture and sequestration applies only to gas means that the administration has given up on CCS as it applies coal?
And two -- the second question is in relation to the sort of international diplomatic spin offs that are supposed to come from increased energy independence in the United States where there's a lot being said about that at the moment but the president doesn't seem to address it. And I'm wondering if you think that the administration is doing a lot of work on the potential diplomatic spin offs behind the scenes or that it hasn't really formulated much of an opinion about it at this stage.
LEVI: Those are both great questions. On CCS, I think that reality is that had the president announced a $25 million prize for CCS and a coal-fired power plant, anyone who understood the industry would have laughed, because $25 million is nothing in the context of coal-fired power plants. They're just too large and too capital intensive for that kind of money to make a difference.
Natural gas-fired power plants are cheaper and applying carbon capture and sequestration equipment to them is cheaper. They also -- so that makes the $25 million potentially something that actually moves the needle. I'm still skeptical that $25 million moves the needle. And I would be interested in seeing more money put forward and put forward for multiple projects so that different technologies could be tested and lessons could be learned. But I don't think this means they have given up on coal. I think it means that they see another opportunity to move CCS forward and natural gas does provide a way to do it in more bite-sized chunks.
On the international spin off of decreasing U.S. oil imports, there certainly are conversations within the administration about what that means. I think -- I'm confident that they exist in the White House, in the State Department, in the Defense Department. I don't think they're conclusive yet. And I think that reflects the same debate that we're all having outside of government over what this means.
The United States is still part of a global oil market, prices spike on the other side of the world and they will spike here in the United States. And because our vulnerability stems from what spiking oil prices do to consumers, a lot of that vulnerability would remain. Importing -- substantially reducing our imports would help. It's better if money is transferred from U.S. consumers to U.S. producers during a shock. But that's still not a good situation. It still hurts the economy, it still hurts consumers and it still constrains U.S. freedom of action in the world.
In an extreme case, the United States could essentially seal the borders to oil imports -- or to oil exports in order to trap oil here if the country became independent. But that's an extreme measure that would inflict a lot of pain on allies and cause the United States a lot of problems because a lot of those allies are importers of other U.S. goods and services.
So I think this is a complicated set of developments. It's also a speculative set of developments. People are talking about projections for 2020 and 2030. That may or may not come true. But I have no doubt there's a lot of discussion. I think the president is not at a point where he is going to say, here are fundamental changes to our foreign policy because of this, particularly given all the uncertainty surrounding these developments that are still a decade or two out.
QUESTIONER: Thanks for that.
SCHMEMANN: OK, thanks. Michael, I wonder if I could ask you just to take a little step backwards for a minute. The president spent some time in speech yesterday convincing the American public that climate change is real. You know, he did that in his inaugural speech as well. It seems that he has sort of stepped up his own remarks on this issue. And he said, you know, we can make meaningful progress on this issue, and I will direct my Cabinet to come up with executive actions that we can take to reduce pollution, prepare our communities for consequences of climate change, et cetera, et cetera. Do you think this is a new focus in the second term for him, a new priority? And in terms of sequence, what do you think is likely to come first? When he talks about executive actions, what are we likely to actually see in the next few weeks and months?
LEVI: I think the most important thing that has happened, first in inaugural and then here, is this willingness to frame climate solutions as part of the response to climate change. For several years, there was a real allergy to doing this. There was a focus on talking about clean energy as a jobs engine, as a competitiveness issue, maybe as a security issue. But ultimately, the strongest case for decarbonizing the U.S. economy and working with other countries to reduce their emissions is that climate change presents large and real risks to U.S. prosperity and to the prosperity and security of other countries. So talking about the problem is a prerequisite to building support for doing something about it.
And I'm thrilled to see the president really starting to talk about this. I think it's a long road. I think this has really been in the background for a long time, and it needs to come back forward. Not everyone will be convinced and not everyone has to be convinced. You can have broad progress and a broad package of actions that has something for everyone but doesn't necessarily in every one of its details satisfy every single person or constituency. So I think it's important, but I think it will require a lot more effort in the coming months and years to really build a sense of urgency about the problem.
When it comes to actions that will be taken, I don't think anything much will happen in the coming weeks. If you look at coming months or at least the coming year, I think that the focus is on figuring out how to deal with existing power plants. I think that is the big potential opportunity for this, let's say, two years of Congress at least, though this isn't executive action we're talking about. That's where the attention needs to go, and that's an area that will take a lot of effort just among the president's staff and the agency staff to get right.
I think this race to the top idea is also going to take some serious effort to get into place, to flesh out, to figure out how it works. That's not purely an executive action. It needs funding. But I think a lot of work will have to happen there.
On the consequences side, the federal government has limits on what it can do. It is continually taking steps to make sure that federal infrastructure, including defense infrastructure, is more resilient. But its ability to influence what happens at the state and local level is limited, and a lot of that -- a lot of what it can do involves providing information and perhaps changing some of the incentives so that states and locals actually deal with these problems.
But frankly, the more intense motivation to actually do something will often reside in the places that know that they're threatened. In New York City, you have a mayor and an administration that is very much seized with resilience to climate change, frankly far more than any policymakers in Washington are going to be. And you'll see that in other places as they -- as they deal with extreme weather that, while as the president you said, you can't pin down any one instant to climate change, at least tells them what it's like to suffer some of the kinds of events that they might see more frequently in the future.
SCHMEMANN: Thank you.
Operator, if you could give one more reminder about how to get in the queue and we'll take any last questions.
OPERATOR: (Gives queuing instructions.)
SCHMEMANN: While we're waiting for the queue, Michael, one more question. I was intrigued by this idea of an energy security trust, which I understand is to help fund research. Where does the funding for that come from? What's the idea behind that?
LEVI: The idea would be to take money from oil and gas production royalties and apply that to energy innovation activities. The question mark is whether that comes from royalties on existing production activities or on new production activities, and I think for that to fly politically, it would have to be on new production activities. So that's the basic theory that several different studies have laid out. The question is whether you can -- whether the fact that there's something in it for everyone means that you can get a broad consensus or whether the fact that there's something in it that everyone dislikes means you can't get anyone to support it.
Any questions, Operator?
OPERATOR: We have a question from Julio Rausseo with WGCN Radio Chicago.
SCHMEMANN: Thank you.
QUESTIONER: Thank you so much. A couple of -- couple of questions, first, we have Senator Boxer and Sanders tomorrow set to announce potential legislation that could have carbon taxes. How -- if legislation is passed, say, before the 2014 elections, how quickly could we see some sort of carbon trading market in the U.S.?
Secondly, with extreme weather, Sandy and what just took place last week with Nemo out in the Northeast, various university scientists are considering techniques such as climate engineering, cloud seeding, as a way to help prevent extreme weather. Is that something the president may look into with research and development?
And finally, there's going to be a lot of push obviously from skeptics, deniers as they're -- as they're called. What sort of action can the administration do to help clear the debate a bit more against skeptics of climate change?
LEVI: Those are all great questions.
I'll say first, I don't anticipate a carbon trading market in the next couple of years, so I'm not going to speculate as to how quickly it will be put in place. The Sanders-Boxer legislation looks at creating carbon taxes, which means you would not have a trading market, and I'm not seeing appetite right now for a carbon tax. That might change if Congress decides to go forward with further substantial deficit reduction.
People may look for other alternative sources -- carbon tax is one, my colleague Dan Ahn and I published a study last week looking at the economic impacts of an oil tax as part of a -- or a higher oil tax as part of a deficit reduction package. We found that depending on how you use it, you could not only reduce oil consumption, but also get greater economic growth and lower unemployment compared to deficit packages that don't take advantage of that option. But I'm not seeing a big carbon trading system emerge soon.
On the geoengineering side, this climate engineering side -- look, it's something that people have been talking about for a while, this idea that if you can't stop adding to the greenhouse gas layer that traps heat inside the planet or inside the atmosphere, you might take steps to block some of that heat from coming in in the first place.
It's an extreme set of measures; I think some people would like to pretend that that set of options doesn't exist. Others would like to see more activity on it so at least we understand it both technically but also internationally, so that one country doesn't go ahead and do it by itself.
Right now, I think sort of -- institutions on the periphery of the government are taking the lead on this, the National Academy of Sciences, for example, and others. But I wouldn't expect to see a large push from inside this administration. It would raise an enormous amount of controversy.
On people who are skeptical of climate science, there are two important points: First, you do need to talk about it more, and people do need to be informed about it more. Number two, I think it's important to talk about it in terms of risk. People often will say, well, what if it's -- what if climate change is not as disastrous as people say it might be?
The answer is it might not be as bad as some people say it will be, but you have to think about this in terms of managing risk and ensuring gains risk. And climate policy should be about reducing risk. It's not about determining our precise future outcome; it should be about protecting against the possibility, not the certainty but the possibility, that climate change could be very dangerous if we don't cut emissions as deeply as people are saying that we should.
But the other piece I'd say is you don't always have to convince everyone. There are two ways to get broad support for action on climate change. One is to convince everyone that climate change is the problem that they need to tackle aggressively, and the other is to package action on climate change with steps that those people are eager to see pursued.
To me ideally, that is what an all-of-the-above energy strategy should be. It should provide enough for everyone that they can support it even if they don't get enthusiastic, or have some concerns about individual pieces. Now, that requires fine-tuning, you can't throw everything at the problem because there are some steps that will be simply intolerable to the different parties.
But in addition to trying to bring over people who are skeptical of climate science, I think we need to get back to old-fashioned politics and find ways to craft packages that are good enough for enough people so that they can move forward.
SCHMEMANN: All right, thanks. Are there any other questions?
OPERATOR: At this time, I am showing there are no further questions.
SCHMEMANN: All right, I think we can wrap it up there. I just want to thank my colleague again, Michael Levi, thank all of you for participating. Again, stay tuned for Michael Levi's forthcoming book, "The Power Surge: Energy, Opportunity and the Battle for America's Future," which is out this spring. And do check out CFR.org for more from Michael and others on these issues. And thank you all for participating today. And thank you, Michael.
LEVI: Thank you.
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