President’s Budget Supports Transition to Renewable Energy, Anticipates Cap-and-Trade Program in 2012

On February 26, 2009, President Obama submitted his first budget to Congress, demonstrating spending priorities dedicated to advancing renewable energy and climate change goals. While the president’s budget is not binding, it outlines policy priorities through the remainder of his term. The president’s energy priorities reflect a shift away from fossil fuels to lower-carbon and renewable sources. The budget seeks to double renewable energy capacity, support expansive energy efficiency investments and create millions of “green” jobs. The budget would impose additional costs upon fossil fuels beginning in 2011, after anticipated economic recovery. Specifically, the proposed budget establishes new leasing costs and fees on mineral development on federal lands and anticipates revenues from an economy-wide greenhouse gas cap-and-trade program beginning in 2012.

President’s Budget Seeks Spending to Strengthen the Renewable Energy Industry

The president’s budget characterizes investments in the renewable energy sector as providing three main benefits. First, as technology, it will allow the United States to shift away from foreign oil and other fossil fuels, providing a benefit to national security. Second, the budget looks to the sector as a catalyst for domestic innovation, international competitiveness and job growth. Third, it looks to renewable energy as a resource to limit greenhouse gas emissions.

Under the budget, investments in clean and renewable energy are funded primarily through the Department of Energy (DOE) programs. The proposed DOE budget builds upon the approximately $39 billion in appropriations made through the American Recovery and Reinvestment Act of 2009 (“stimulus bill”) and seeks to position the United States as a world leader in clean energy and climate change technology. Within the DOE, the budget’s spending priorities mirror those established in the stimulus bill. Specifically, the budget provides support for loan guarantees for innovative energy technologies that will reduce greenhouse gas emissions. Funding is made available to modernize U.S. transmission and distribution infrastructure. The budget supports extensive research and development, demonstration, deployment and commercialization of clean energy technologies, including biofuels, renewable energy and energy efficiency projects.

Beyond the DOE, the budget allocates additional agency funding that will support the renewable energy industry. The Department of Interior receives $50 million to conduct environmental impact assessments and other technical studies to allow for increased renewable energy development on federal lands. Funding is also made available to the Department of Labor to provide renewable energy job training programs. To support rural renewable energy programs, the Department of Agriculture receives $250 million for loans and grants for renewable energy projects, including wind energy and biofuel development.

Beyond 2010, the budget anticipates funding for renewable energy through greenhouse gas cap-and-trade program revenues. Beginning in fiscal year 2012, the proposed budget allocates $15 billion per year from greenhouse gas cap-and-trade revenues to support investments in clean energy technologies, totaling $150 billion over 10 years.

Proposed Federal Budget Committed to Reduction of Greenhouse Gases, Anticipates Cap-and-Trade

Throughout the federal budget, President Obama’s commitment to understanding and addressing climate change is evident. Most significantly for the energy industry, the budget anticipates that a domestic greenhouse gas cap-and-trade program will go into effect by 2012. To prepare for the cap-and-trade program, the proposed budget provides $19 million in funding to the Environmental Protection Agency to develop an emissions inventory.

The proposed budget provides a few specifics of the anticipated cap-and-trade program: the program would establish greenhouse gas emission reduction targets of 14 percent below 2005 levels by 2020 and 83 percent below 2005 levels by 2050, while 100 percent of emissions allocations would be auctioned to prevent “windfall profits” to the energy sector. The budget does not provide detail regarding which sectors would be covered under the cap-and-trade; the energy sector, however, is a target.

The budget anticipates the government will receive $646 billion in emission revenues between 2012 and 2019. Of that amount, $15 billion will annually fund investments in clean energy technologies. The budget allocates the remainder of emission revenues to the Making Work Pay program and states this allocation will ultimately help vulnerable families and businesses transition to a clean energy economy.

Budget Seeks Transition to Cleaner Fossil Fuels, Imposes Additional Fees on Mineral Development Following Economic Recovery

With respect to fossil fuels, the budget seeks a transition to cleaner and less-emitting technologies. In particular, it supports DOE funding to research and demonstrate carbon capture and storage technologies for low-emission coal power projects. The budget anticipates economic recovery in 2011 and seeks revenue-generating policy changes to eliminate oil and gas company preferences in federal mineral development.

The budget directs Interior to increase fees, royalties and other payments related to gas, coal, oil and other mineral development on federal land. In particular, the budget proposes—

• a new excise tax on offshore oil and gas production in the Gulf of Mexico beginning in 2011
• a fee for non-producing leases in the Gulf of Mexico
• user fees for processing oil and gas drilling permits
• new royalties and rates to increase the return from oil and gas production on federal land.

Separately, the budget proposes re-establishing a Superfund fee in 2011 to pay for hazardous waste site remediation. The Superfund fee is expected to impact the oil and gas industry.