Climate Change and Clean Energy in the President's New Budget

Today, President Obama’s new budget was officially released.  Those interested only in the energy provisions can skip here, although a look at the actual draft budget is extremely informative. 

As usual, more industrious and well-connected sorts have beaten me to the punch: the Washington Post discusses expected auction revenues from cap and trade, and more generally covers the entire budget, while the Journal focuses on the tax hit to oil companies in print and online, and Gristmill has typically excellent coverage.

Before starting, it’s important to keep in mind that this budget is just an outline, and a more specific budget will be presented to Congress in Spring. Therefore, any details are sketchy and should be interpreted as such.  

Much of what’s been written about this budget has so far focused on the inclusion of carbon credit auction revenues beginning in 2012. Essentially, under the model proposed by the President, 100% of carbon permits would be auctioned off to carbon emitters, and the revenue generated by these auctions (approximately $79 billion in 2012) would be annually allocated by the Federal government towards a combination of “dividends” back to consumers, and clean energy investment.

In this specific budget, $15 billion would be allocated annually towards clean energy investment, while the rest of the auction revenue (starting around $64 billion) would be refunded back to consumers to offset higher costs brought on by establishing a price on carbon emissions.  Gristmill (and earlier) and TNR go into great detail on the pertinent aspects of this inclusion, namely that this is a fairly low aggregate figure for emission value, and assumes a low carbon price, and that the emissions reductions targets are fairly weak and will not reduce emissions as quickly as needed.

    On the bright side, the inclusion of carbon auction value in the budget, with a carve out for clean energy spending, is a big step forward in federal climate policy.  In addition, beginning with a 100% permit auction is an excellent starting point for negotiations with carbon emitting industries.

    NRDC has embarked on a comprehensive, multi-program study of cap-and-trade, which we refer to as “Cap 2.0 – Cap and Invest”, and I invite you to read our proposed policies here (policy briefs located here), which go deep into the weeds on spending allocations, carbon trading and other intricate aspects of cap and trade policy.

    Beyond the issue of auction value however, other details of the proposed budget are extremely interesting.  

    Limited Additional Funding for Renewable Energy Deployment

    At first glance, it seems that a lot of the heavy lifting for immediate renewable energy funding has already occurred via the Stimulus bill.  While the President's budget outlines $150 billion in clean energy investment over 10 years, this funding isn’t slated to begin until 2012.  In addition, this assumes that cap-and-trade legislation can be passed in a manner which provides this level of funding, and that it can be passed this year, in order to meet the 2012 deadline.  

    As it is currently presented, outside of $50 million for renewable energy investment on Federal lands via DOI and a mention of new loan guarantees, no real specifics are provided in terms of funding or programs. Further, DOE funding is elevated by a one-time $7.5 billion bump for the auto bailout this year.  Excluding the Detroit bailout package, 2009 DOE funding is projected to increase by 9.5% and then actually slightly decrease in 2010.  

    That said, many times in the budget, the President promises to “build on” what was provided in Stimulus Act, and references providing support for technologies such as CCS, smart grid, energy storage, biofuels, energy efficiency and renewable energy.  And as I referenced in a previous blog, the Stimulus was an exceedingly strong bill for the renewable energy industry. Still, while the President’s budget includes very positive language about clean energy, I'm curious to see what the actual quantification of further federal spending on clean energy will be this year and next.  

    Innovation Gets a Big Boost

    Funding for innovation continues to increase, which is a welcome, and important, development. (you could also read more about my thoughts on innovation funding through cap and trade here.) The Stimulus already provided new funding for domestic research and development, and the President’s budget continues that investment:

    • Making the R&D business tax credit permanent – this has long been an ask of entrepreneurs and early stage technology investors.  According to research, private sector spending on R&D matches increases in the tax credit 1 to 1.  While this type of credit can’t (nor should) be directed towards specific technologies, it will offer companies more security and stability to plan for longer-term R&D.
    • Increase in funding for NSF – In addition to increase from the Stimulus, an additional 16% bump is planned for NSF. The NSF spreads its Federal funding across science and engineering fields on small, basic science projects, looking to encourage transformational and multi-disciplinary fundamental research.  NSF is well-regarded and plays a vital role in backing basic research that receives little private investment, funding 20% of federally-funded research at American universities and colleges.  It also helps develop the next generation of scientists and researchers. This is a welcome increase in innovation funding. 
    • Increasing funding for DOE Office of Science – Via the Stimulus and this budget, basic energy science research at DOE Office of Science is expected to double over 10 years.  Office of Science funding is almost exclusively allocated to the national labs which represent one of the largest scientific research systems in the world.  This is similarly a very important request, and will be key in helping to move basic clean energy research into more commercialized realms.

    Eliminating Oil Subsidies

    Finally – the President’s budget seeks to eliminate several oil and gas tax breaks, along with a deepwater R&D program.  In addition to this article, the WSJ’s blog has a good overview of what this all means.  For those interested in a wonkier route, I recommend Doug Koplow’s Earth Track website for a deep dive into energy subsidies.  According to the two Journal articles, the repeal of these subsidies is expected to raise over $30 billion in revenue.  However, I would argue that by removing unfair subsidies from mature energy technologies such as oil and natural gas, this levels the playing field for emerging renewable energy technologies.  While plenty of subsidies still exist for mature positive fossil fuel technologies, this too is a positive first step.

    It is still early days for future climate and energy legislation. And while this budget is just a rough outline, it provides an interesting look into one possible future that is exceedingly bright and shiny for U.S. based clean energy.