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The first sustainable budget in U.S. history: Obama invests in clean energy, projects cap-and-trade revenue, seeks repeal of fossil industry subsidies

By Joe Romm on February 26, 2009 at 4:52 pm

"The first sustainable budget in U.S. history: Obama invests in clean energy, projects cap-and-trade revenue, seeks repeal of fossil industry subsidies"

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One thing is clear from President Obama’s new budget. He is delivering on the promise of his first month and continues his unprecedented effort to reverse decades of unsustainable national policy forced down the throat of the American public by conservatives (see “31 days that made — and may remake — history“).

His $3.5 trillion budget blueprint has a big boost in clean energy, projects the bulk of cap-and-trade revenue will go to cut taxes on the middle class (duh), and eliminates $31.5 billion in “oil and gas company preferences” over a decade. Greenwire lays out the details in a series of articles (subs. req’d, excerpted below):

Specifically, Obama said his plan would invest $15 billion a year for the next decade to develop renewable energy sources such as wind and solar and to build more fuel-efficient vehicles. “It’s an investment that will put people back to work, make our nation more secure, and help us meet our obligation as good stewards of the Earth we all inhabit,” Obama said.

Hand-in-hand with energy spending, Obama said he intends to push for implementation of a market-based cap on greenhouse gas emissions that the administration says will drive investment toward renewable energy and provide funding for the renewable energy initiatives.

Conservatives will not give up their self-destructively unsustainable ways easily, though (see “Anti-science conservatives must be stopped“). House Minority Leader John Boehner (R-Ohio) said: ” ‘Cap-and-trade’ is code for increasing taxes, killing American jobs, and raising energy costs for consumers.

Here are the details on Obama’s budget-related cap-and-trade plans:

President Obama’s proposed budget laid out his assumptions that a new cap-and-trade program for greenhouse gas emissions would begin to generate billions of dollars in revenue as companies are forced to comply with a market-based program.

Obama’s budget includes several principles on what the administration wants to see out of a cap-and-trade program, including emission targets that cut U.S. greenhouse gas levels 14 percent from 2005 levels by 2020. Obama also wants midcentury cuts of 83 percent from 2005 levels.

Along with the big boost in clean energy funding, it is these principles in particular that make this the first budget in U.S. history that is environmentally sustainable — and hence economically sustainable, since right now the entire U.S. economy is one big Ponzi scheme, as the current generation of Americans are only propping up their wealth by stealing a livable climate from future generations.

The budget also includes revenue from a national cap-and-trade system for greenhouse gas emissions, which would come from auctioning off emissions permits to industries. The climate program would generate nearly $650 billion between 2012 and 2019, according to Obama’s proposal.

About $80 billion of the climate revenues would go toward Obama’s proposed middle-class tax cut each year beginning in 2012, the draft says, and the government would spend $15 billion per year on “clean” energy technologies. In his address to Congress on Tuesday, Obama said those technologies would include wind power, solar power, advanced biofuels, “clean coal” and more efficient cars and trucks.

Obama’s proposed cap-and-trade revenues immediately drew the ire of House Minority Leader John Boehner (R-Ohio).

” ‘Cap-and-trade’ is code for increasing taxes, killing American jobs, and raising energy costs for consumers,” Boehner said in a statement. “Middle-class families are struggling during this recession, and the last thing they need is even higher costs of living and weaker job security, which is exactly what ‘cap-and-trade’ would deliver.”

But White House Office of Management and Budget Director Peter Orszag insisted that Obama’s budget takes into account projected increases in Americans’ energy bills as utilities pass on their compliance costs. The OMB chief said Obama’s cap-and-trade program would provide taxpayers with direct payments to help them cope with higher energy prices.

“Let’s remember what we’re trying to accomplish here,” Orszag said. “We’re trying to reduce our dependence on foreign oil. We’re trying to address global climate change. And we’re trying to do that in a fiscally responsible way.”

The budget also calls for a $19 million increase for U.S. EPA to use on a greenhouse gas emission inventory. The inventory is expected to identify baseline levels of carbon emissions and set the foundations for a national cap-and-trade program.

And here are details on Obama’s propose to “repeal several oil industry tax incentives while imposing new taxes on Gulf of Mexico producers to close ‘loopholes’ that have allowed companies to avoid royalty payments”:

The overall budget eliminates $31.5 billion in “oil and gas company preferences” over a decade, according to a slender summary released by the White House this morning.

Many provisions are certain to prompt resistance from the oil industry and from Republican and Democratic lawmakers from oil-producing states. The plan drew a swift rebuke today from the oil industry’s most powerful trade group, which called the measures a bad idea, especially during a recession.

“New taxes could mean fewer American jobs and less revenue at a time when we desperately need both,” American Petroleum Institute President Jack Gerard said in a statement. “More taxes also could reduce our nation’s energy security by discouraging new investment in domestic oil and natural gas production and refining capacity and pushing those investments — and American jobs — abroad.”

But critics of petroleum tax and royalty policies say the industry has received too much support, even during periods of record-breaking profits, and that repealing tax breaks can help fund alternative energy programs.

The plan includes a “new excise tax on offshore oil and gas production in the Gulf of Mexico to close loopholes that have given oil companies excessive royalty relief.” The new tax would begin in 2011, which the document says is “after the economy has had time to recover,” and the budget assumes it would bring in nearly $5.3 billion over a decade.

The excise tax plan is an effort to ensure payment from deepwater leases issued in the late 1990s that allow royalty waivers — also called “royalty relief” — even when oil prices are high. The leases were drafted without the clauses that end the incentive when oil and gas prices exceed certain limits.

Senate Energy and Natural Resources Chairman Jeff Bingaman (D-N.M.) floated a new gulf excise tax as part of a major 2007 energy bill, but it was not ultimately included in the final bill.

That 2007 plan would have allowed a credit against the tax for royalties paid, and the new proposal is modeled on that earlier effort, an Interior Department spokesman said today. “Producers that pay royalties would receive a credit, so this provision only impacts current royalty-free production,” said spokesman Frank Quimby.

Elsewhere, the budget would repeal oil and gas companies’ ability to claim a deduction on domestic manufacturing income, which would do away with an incentive that last year’s Wall Street bailout bill had already frozen. Ending the incentive would bring in more than $13 billion in federal revenues over a decade, according to the document.

Other tax provisions include the repeal of expensing of intangible drilling costs and of the percentage depletion for oil and natural gas, among other measures, the document states.

‘Use it or lose it’

In addition to the tax provisions, the budget proposal says Interior will ensure companies are “diligently” developing their existing leases or risk losing them, a concept that Democrats call “use it or lose it.”

The plan says one step would be charging new fees on nonproducing Gulf of Mexico leases, which the outline claims would provide an incentive for companies to start producing from these leases or relinquish them.

The new fee on nonproducing leases would raise an estimated $1.2 billion total during the 2010-19 period, the document states.

The Obama administration is also proposing new user fees on oil companies for processing federal lands drilling permits and “increasing the return from oil and gas production on federal lands through administrative actions, such as reforming royalties and adjusting rates.”

The budget also calls for ending federal funding for an ultra-deepwater oil and gas research and development program.

Kudos to team Obama and my old nemesis friend from the Clinton Administration, Peter Orszag. They get it.

For more analysis, see “Energy Budget Is Sunlight After Eight Years of Darkness” by Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progess.

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14 Responses to The first sustainable budget in U.S. history: Obama invests in clean energy, projects cap-and-trade revenue, seeks repeal of fossil industry subsidies

  1. Rick C says:

    Joe,

    Why is carbon trading even being discussed by congress?! CFC trading worked because it wasn’t as ubiquitous as carbon dioxide production. You can trade out an air conditioning system a lot easier then an entire coal fired generating plant. The various interests allied to influence cap and trade just want rip offsets and Wallstreet wants a piece of that after they’ve tanked the economy! I wouldn’t trust Wall Street right now with a rubber dime! BTW, didn’t carbon trading fail in the EU where it was tried? So why beat around the bush? Why not just tax carbon and use the revenues to help the poorest who can’t afford these carbon use taxes?

  2. Christian H. says:

    Speaking of Coal, check out this “clean coal” ad by the Coen brothers

    http://action.thisisreality.org/page/s/coenbrothers

  3. ken levenson says:

    sorry this is off topic – but gotta love it – now George Will is giving Revkin a hard time!!!!!

    looking forward to morning “paper” – in meantime see:
    http://tpmmuckraker.talkingpointsmemo.com/2009/02/in_new_column_will_sticks_to_his_guns_on_global_wa.php?ref=fp2

    is that the balance you’re looking for Andy?

  4. Sasparilla says:

    All I can say, after 8 years of horror, is – Thank God. Bring it on Mr. President!

  5. Jim Prall says:

    Rick C:
    Part of the reason cap-and-trade is the leading candidate for limiting carbon is that a carbon tax has the word “tax” in it – a red flag for many.
    In theory, a carbon tax can give price certainty, but at the expense of quantity uncertainty (did we set the tax too high? too low? wait a year, check our emissions, and reset the tax rate – then repeat.) Can you see how that would be a hot potato?

    A cap (with or without trading) gives certainty about the quantity and leaves the market to find the final price. You decide on your emissions targets, set the schedule of how the cap will decline year by year, and then step back and leave the system running.

    If you set a cap with permits, the initial supply needs to be auctioned, not given out for free (except perhaps in a one or two year phase-in?) The fear that industries with lobby for special grants of free permits does loom, but in a carbon tax, the same issue would also arise. Look at how many exceptions and exemptions there are in the tax code.

    As for “can’t trust wall street” – yes the brokers are eager to get into trading this new ‘commodity’ – but we have the choice to regulate the market properly from the outset, instead of giving it carte blanche to go wild with financial engineering, in the name of “cutting red tape” and market “freedom”, not even trying to prevent abuses, such as we’ve witnessed recently.

  6. Peter McEvoy says:

    Very exciting to hear he’s getting rid of the fossil fuel subsidies- they should have been done away with long ago.

  7. Mark Shapiro says:

    Ken –

    Thanks for bringing the TPM article about George Will’s next column to folks’ attention here.

    I think a teachable moment is approaching. It will be important to nail every fact. Let’s see, which rhetorical device should be used for this task?

    I like irony here. I can hear a version of Marc Antony’s speech . . . “we all know that George WIll is an honorable and intelligent man” . . . “conservatives are reality based and heed clear warnings” . . .

    Hmmm,

  8. paulm says:

    Subsidies gone? When will the price of oil start to rise?

  9. Obama can began to stop war and reduce the conflict amoung the nations. It will be his best way to do an investment for clean energy. I think the wars is one of the worst thing againt the enviromental.

  10. charlie says:

    Joe, just a thought about the cap and trade revenue.

    if i read it right, they are expecting $80 billion a year, with about $60 billion of that going to a payroll tax cut for middle class americans.

    Huge positive, I think. Also gets up into a discussion of increasing gasoline taxes with the additional revenue going to tax cuts.

    However, I was thinking about this, and I think elderly people may be hurt. they don’t have much income, and they certainly don’t have payroll taxes. They will have to pay more for their power. How does the budget deal with this?

  11. Bill Woods says:

    “if i read it right, they are expecting $80 billion a year, ”

    Yes, how are they figuring an on-going revenue stream? Even if they sell permits, it’s a one-time thing.

    [JR: Permits are sold every year.]

  12. Bill Woods says:

    So it’s a carbon tax in drag? Fine; cheap, even — $80 billion / 7 billion tonnes is about $10/t. Or does the number of outstanding permits steadily increase? In which case, how does that reduce emissions?

  13. John Hollenberg says:

    Bill,

    They sell less permits every year (the cap). The permits are good for one year.

  14. Big M says:

    Any tax on business will be passed to consumers. There is no tax cut, just a change of tax. It is not in the cards of this government to give money to the people. It reduces their power.