Obama Budget Erases Fossil Fuel Subsidies, Ramps Up Nuclear Spending

U.S. President Barack Obama proposed a federal budget today that would begin to tip the scales away from fossil fuels and toward greater government investment in clean energy.

It would eliminate several fossil fuel subsidies, a move expected to generate about $36 billion for the federal government over the next 10 years, and increase clean energy research and development spending by about $6 billion.

To sweeten the deal for Republicans and fossil fuel-state Democrats, the president piled on loan guarantees for nuclear power and reiterated his support for a nuclear revival, more off-shore drilling, and “clean coal” technology, which was heavily funded through the recovery act last year. In addition, the new budget offers only a passing reference to a future cap-and-trade program, describing it as carbon neutral rather than assuming it would generate revenue.

Whether Congress can carry through on the president's recommendations remains to be seen, however.

Obama pushed for similar cuts in fossil fuel subsidies last year and got nowhere in Congress.

In September, he made eliminating fossil fuel subsidies worldwide a top issue for the G20 when it met in Pittsburgh. At the meeting, the G20 leaders agreed to phase out those subsidies in the medium term, declaring:

“Inefficient fossil fuel subsidies encourage wasteful consumption, reduce our energy security, impede investment in clean energy sources and undermine efforts to deal with the threat of climate change.”

U.S. leadership on subsidies now could encourage other countries with far higher fossil fuel incentives, some in the hundreds of billions annually, to follow suit, the administration said. The effect on greenhouse gas emissions could be significant: An OECD-International Energy Agency analysis released last fall determined that ending fossil fuel subsidies in the emerging economies and developing countries could reduce global greenhouse gas emissions 10 percent by 2050 while increasing investment in cleaner energy.

In the United States, the president's proposal to eliminate 12 tax breaks for oil, gas and coal would free up tens of billions of dollars. That could be a selling point for Congress this year with so much attention focused on the federal deficit and the president declaring a spending freeze on much of the government, said Friends of the Earth spokesman Nick Berning.

“The climate this year seems more ripe to get rid of these giveaways to oil and gas,” Berning said. “It makes sense politically and as policy.”

The fossil fuels industry has long benefited from federal subsidies, including about $72 billion worth between 2002 and 2008, according to the Environmental Law Institute.

The industry has become so accustomed to those tax breaks and federal incentives (oil and gas started receiving subsidies in 1916 and coal in 1932) that its leaders quickly condemned today’s budget proposal as new taxes on them. American Petroleum Institute President Jack Gerard declared the new budget would mean “fewer American jobs and less revenue at a time when we desperately need both.”

In response, the Sierra Club points to Exxon’s latest quarterly earnings report: The oil giant’s revenue was up $5 billion last quarter to $89.8 billion, with oil prices climbing.

“At a time of rising gas prices — and rising oil company profits — there's simply no excuse for continuing these wasteful and unnecessary giveaways,” said Sierra Club Executive Director Carl Pope.

“Eliminating these and other fossil fuel subsidies, as the U.S. and other G20 nations pledged to do last year, will help correct some of the market distortions that unfairly advantage dirty energy at the expense of clean energy. We hope the Congress will ignore the same old tired scare tactics that the industry will undoubtedly dust off and quickly move forward with implementing this important proposal.”

Obama made his position clear to reporters this morning:

“We will not continue costly tax cuts for oil companies or investment fund managers or those making over $250,000 a year. We just can’t afford it.”

That doesn’t mean ending all spending increases, however. Clean energy is a big beneficiary of the president’s 2011 budget proposal.

Energy Secretary Steven Chu told reporters that the government was "aggressively promoting alternative energy" and the budget would keep the country on track to double renewable energy output by 2012. The budget would provide loan guarantees and nearly $2.4 billion for energy efficiency and renewable energy programs, including significant investments in solar power ($302 million), biofuels and biomass ($220 million), advanced vehicle technology ($325 million) and energy efficiency building technologies ($231 million). Chu is also requesting a $300 million increase in funding for ARPA-E, the disruptive technologies program tuned to energy innovation.

“Just as it would be a terrible mistake to borrow against our children’s future to pay our way today, it would be equally wrong to neglect their future by failing to invest in areas that will determine our economic success in this new century,” Obama told reporters. “That’s why we build on the largest investment in clean energy in history, as well as increase investment in scientific research so we are fostering the industries and jobs of the future right here in America.”

Nuclear Loan Guarantees

The president also is proposing an additional $36 billion, for a total of$54 billion, in loan guarantees for nuclear energy development, an industry that several Republicans in Congress have been pushing to revive. That part of the budget proposal is raising some eyebrows, however.

Sierra Club spokesman Josh Dorner described the budgeting for the nuclear loan guarantees as "slight-of-hand accounting" that could become extremely costly. The budgeted amount only covers about 1 percent of those loans, he said, yet nuclear is considered a high-risk investment with a default risk the Congressional Budget Office has in the past put at upwards of 50 percent. The U.S. hasn't brougt a new reactor online in over a decade.

Reactor construction has a history of cost overruns, Berning added.

“Our view is this is essentially a bailout for the nuclear industry,” Berning said. “They’re unable to exist without taxpayer support. That Wall Street thinks nuclear reactors are too risky to invest in ought to tell you something.”

Obama and Energy Secretary Steven Chu see a different future for nuclear.

The loan guarantees should be enough to build seven to 10 reactors, which would get the industry started again, Chu said. Scientists' knowledge of nuclear power and dealing with nuclear waste is developing, he said, and the U.S. has the potential to take the technological lead in such developments as small modular reactors and fast reactors that can burn down waste.

In a question-and-answer session with videos sent in by the public, Obama explained to a group of college students why the administration was still looking at coal and nuclear power.

He said he believes clean energy will be the driver of the U.S. economy in the long-run.

“In the meantime, unfortunately, no matter how fast we ramp up those other resources, we’re still going to have enormous energy needs that are going to be unmet by alternative energy. Nuclear energy has the advantage of not emitting greenhouse gases,” Obama said.

With respect to clean coal technology, “it is not possible to totally eliminate coal from our energy options,” he said. “If we are every going to deal with climate change seriously, we’ve got to start developing technology that will sequester emissions. Countries like China and India are not going to stop using coal.” The technology is close, he said, and it makes sense environmentally and economically for the U.S. to develop that technology and export it to other countries.

Cap & Trade & Regulation

This year’s budget mentions a cap-and-trade program, but it chalks it up as deficit-neutral, unlike last year’s budget which anticipated $650 million over 10 years in future revenue.

“One doesn’t plan a budget on something you don’t have,” Chu explained. The U.S. House passed a cilmate bill last year that includes a cap-and-trade program for greenhouse gases, but its future looks dicy in the Senate, especially in an election year.

“We would still like a cap on carbon. This is a very important long-term signal, but it’s largely going to be revenue neutral so you return the proceeds back to people who pay energy bills," Chu said.

The 2011 budget proposal states:

“A comprehensive market-based climate change policy will be deficit neutral because proceeds from emissions allowances will be used to compensate vulnerable families, communities, and businesses during the transition to a clean energy economy. Receipts will also be reserved for investments to reduce greenhouse gas emissions, including support of clean energy technologies, and in adapting to the impacts of climate change, both domestically and in developing countries."

Interior Secretary Ken Salazar and EPA Administrator Lisa Jackson also talked today about the importance of reducing greenhouse gases and increasing clean energy for their departments.

Jackson, whose $10 billion budget would be $300 million below its 2010 levels, started her list of priorities with climate change. Her department would receive an additional $4 million to implement greenhouse gas reporting and $43 million in new funding, largely for working with states on greenhouse gas programs, enforcement under the Clean Air Act and promoting cleaner vehicles. It won't have an easy ride through Congress, though. At least one Democrat, Rep. Earl Pomeroy of North Dakota, is already promising to fight any funding for greenhouse gas regulation.

Internationally, the budget for the State Department, USAID and the Treasury Department includes $334 million for adaptation assistance, $710 million to improve energy efficiency and clean technology in foreign countries, and $347 million for natural carbon sequestration projects, including monitoring land use changes.

White House Budget Director Peter Orszag will find out this week how Congress feels about the president's budget as congressional hearings begin on the $3.8 trillion plan.

See also:

Governors See Jobs on the Path to Clean Energy, Efficiency

Federal Government and Military to Reduce Own Emissions 28% by 2020

SEC Decision Requiring Disclosure of Climate Risks Could Have Broad Impact

Nuclear Power’s Cost Competitiveness Remains a Critical Question

55 Countries Affirm Disappointing Emissions Targets

(Official White House photo by Chuck Kennedy; graphic by Tommy McCall for ELI)

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