With Senate legislation announced this week and leaders of the most industrialized economies agreeing to phase out fossil fuel subsidies last week, energy and climate policy has returned to the center stage.  Yet it is likely to return to the backburner soon, with hopes for major action this year fading.

Senators John Kerry (D-MA) and Barbara Boxer (D-CA) unveiled climate legislation today in a bid to regain some momentum that was lost after the House approved much-maligned legislation in June.  The Senate proposal is similar to the House-passed bill that has been criticized from many sides for giving away emissions allowances to sectors that are the most politically-connected.  The Senate version does mandate a slightly higher reduction in carbon emissions by 2020 than that called for by the House (20% versus 17%).  According to the sponsors it will also help guard against severe rises in energy prices by keeping more emissions allowances in reserve to be made available if prices climb.

Senator Boxer plans to pass the bill out of her Environment and Public Works Committee by the end of October.  Even with today’s announcement it is unlikely that legislation will clear Congress this year.  Whatever passes Boxer’s committee will have to be combined with measures from other committees before it reaches the Senate floor, where it faces a tough vote.  With health care legislation still moving slowly and financial regulatory reform and Afghanistan on the agenda, energy and climate policy is being crowded out.  Next year may not even be feasible because 2010 is an election year and legislators will be reluctant to take risky votes in that environment. 

On the international stage, leaders at the G20 Summit in Pittsburgh last week issued a statement agreeing “to rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.”  However, no definite timetable was set for reducing the subsidies.  With the U.S. unlikely to approve climate legislation before the December international climate summit in Copenhagen, expectations for that gathering are being reduced from forging a new global compact to simply setting the stage for one down the road.

Progress towards the smart grid is providing something of a bright spot as comprehensive reform stumbles.  The issuance last week by NIST of its first round of smart grid interoperability standards signals that real progress is being made towards realizing a modernized grid that will be critical to achieving energy and environmental sustainability.  However, many obstacles, not the least of which are public acceptance and cost, still remain.

In his remarks to the GridWeek conference last week Secretary Chu offered some sound advice as the smart grid moves forward.  He told attendees that demand response and dynamic pricing will initially meet consumer resistance because they will involve a cultural shift.  Chu said that in order to get consumers to embrace energy efficiency, energy savings has to be made as easy as possible for them.  In addition to ease-of-use, a great deal of outreach needs to be done to educate consumers and actively engage them in conservation and efficiency.  President Obama and his administration must be leaders in this outreach effort.  There is also a role for the private sector in this and GE has taken a lead role with its new It’s Your Smart Grid website.

Secretary Chu’s GridWeek presentation focused a lot on smart grid related funding in the stimulus package.  However, it was widely acknowledge at the conference that the stimulus funds are just a “down payment” for grid modernization.  A provocative commentary by utilities analyst Stuart Ravens examines whether stimulus funding is actually delaying smart grid implementation nationwide.  He contends that poor financial results of smart meter manufacturers indicates that utilities are postponing planned projects as they await word on whether they will receive government funding.

The stimulus has helped increase public awareness for the smart grid, but a compelling case can be made that the stimulus may indeed delay its deployment by creating expectations, even a sense of entitlement, that the government will finance grid modernization.  Requests for smart grid funding have already exceeded the amount provided by the stimulus.  With mounting federal budget deficits, it is unclear where more public funding can come from. 

Reaching out to the public and being honest about costs will be essential to moving the smart grid and comprehensive energy reform forward. 

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