President Obama’s new Clean Power Plan is not just a step towards a US economy that does less damage to the climate. It will also encourage further action by other countries and improve prospects for this year’s international negotiations – and will make countries like Australia think even harder about their own strategies.

Listening to Obama announcing the plan earlier this week, you might think he has succeeded in solving the climate change dilemma. Well, not so of course. But the policy is likely to make a difference to the US energy system, and it will bolster confidence in the pledges for the Paris climate negotiations. And it raises questions for Australia’s climate and energy policy too.

Obama is clearly looking for a legacy on climate change. The United States has already announced an emissions target of a 26-28% reduction by 2025, relative to 2005. That’s less of a cut than would be expected from the US as part of strong global climate change action. But it is nonetheless a significant pledge, doubling the annual rate of emissions reduction from the existing 17% reduction target for 2020.

Talk can be cheap of course, and the question is always how to deliver on a given target. The United States is on track to meet its 2020 target, thanks in part to cheap natural gas and the recession, but also manifold policy efforts. The next step could be a little harder, depending on gas prices, the cost of renewables, and progress in energy savings. But emissions savings usually come cheaper than expected, so the 2025 target is not at all unrealistic.

The new target for the power sector is a 32% emissions cut by 2030, relative to 2005 – so is roughly in line with the overall national trajectory. US power sector emissions account for a little less than a third of overall US greenhouse gas emissions, and the Clean Power Plan might contribute a quarter of the reductions needed to reach the US national target. Much more is planned, including in industry, agriculture, transport, and housing.

But crucially, the power sector plan is a strong expression of political will – and political will is the fuel of the negotiating process. US leadership throughout Obama’s second term has helped move the international process towards a meaningful new climate agreement.

Policy as assurance

At the Paris negotiations in December, it is unlikely that national emissions targets will be a part of a legally binding treaty. But that is not a problem, as long as countries can reassure each other that they are serious in achieving their targets. The best way to do that is to lay out a credible plan complete with policy instruments.

The Obama administration’s earlier strategy was to go for a national emissions trading scheme. California already has one in place, and the northeastern states have traded power-sector emissions for many years. But getting a national emissions trading scheme through Congress is a political impossibility.

The Clean Power Plan is Obama’s answer to the political blockage: using executive powers under the Clean Air Act to mandate maximum emissions at the state level. Targets are differentiated, and it is left up to each state how to achieve it. That could turn out to be a smart move to help with acceptability, as it will give each state leeway to arrange things in a way that deals with the specific local political economy, as well as economic and technical aspects.

But will it live?

Probably, yes. First though, it will undergo ordeal by litigation, a common feature of serious reform efforts in the United States. As Lynette Molyneaux has already observed on The Conversation, efforts to reduce air pollution in the 1990s faced repeated and lengthy legal challenges before they succeeded. The new plan allows for this, with states not being required to finalise their strategies until 2018.

Neither will it be easy for a hostile future administration to torpedo the plan. This would require a repeat of the arduous consultation process the Environmental Protection Agency has carried out since 2013, in order to publish new draft and then final replacement regulations. Assuming the plan survives the litigation planned by political and industry opponents over the next couple of years, chances are it will remain in place – and perhaps in time achieve the same iconic status as the 1990s legislation.

Meanwhile, back in Australia…

…the Government is in the last stages of preparing its post-2020 climate target (called an intended nationally determined contribution, or INDC) to take to the Paris climate negotiations in December. To be credible to other countries, this must include a target at least as ambitious as the American one and commitment to a set of policy instruments that can demonstrably deliver the target.

If the government does this it will confound those who see it as a lost cause, provide the basis for stable national policy on climate change that business is calling for and boost prospects for a substantial result in Paris. Most importantly, it would place Australia and its people on a pathway to prosperity in the new global economy that every day turns further away from the fossil fuel dependency of the past.

Frank Jotzo has received research funding from various organisations.

Howard Bamsey does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.