Obama's 2011 Budget Calls for Clean Energy and Climate Legislation, Cuts in Fossil Fuel Subsidies

The federal budget submitted by the president to Congress each year provides the best overall roadmap of the administration’s priorities. President Obama’s 2011 budget, released yesterday, is no exception. It builds on the message he delivered in his State of the Union address with a clear call for Congress to enact comprehensive clean energy and climate legislation and follows up on international commitments to cut fossil fuel subsidies and increase support to help poor countries deal with the consequences of climate change.

The budget demonstrates priorities in three basic ways: where it increases investments; where it cuts spending and tax breaks; and what policy changes it calls for. My colleague Cai Steger described the significant increases in clean energy investments included in the budget. Here I will focus on the other two categories.

Let’s start with the climate policy assumption embedded in the budget. This shows up on page 159 of the budget summary as a line item called “Climate policy (deficit-neutral reserve)” with no numbers associated with it. As the all-important footnote 4 (found on p.171) explains, this is because comprehensive clean energy and climate legislation is assumed to pay for itself. In fact, this is one of the major benefits of taking a comprehensive approach—steady investments in essential clean energy technologies are fully paid for by polluters because they must purchase permits to comply with the pollution cap. The key administration fact sheet on “creating the clean energy economy of tomorrow” provides a pretty clear explanation:

Undertake a Comprehensive Approach to Transform our Energy Supply and Slow Climate Change.  The Administration will work to enact and implement a comprehensive market-based policy that will reduce greenhouse gas emissions in the range of 17 percent in 2020 and more than 80 percent by 2050.  Businesses will have the flexibility to seek out the most profitable and least costly ways of achieving greenhouse gas emission reductions, from making investments in energy efficiency and low-carbon or zero-carbon fuels to offsetting their emissions through agricultural activities that remove carbon dioxide from the atmosphere, and developing export markets for American clean energy technologies through investments in emission offset activities abroad.  The policy will address the needs of vulnerable families, communities, and businesses to facilitate the transition to a clean energy economy.  To prepare for the reduction in emissions, the Government will invest in climate registries to account for greenhouse gas emissions; implement regulations that improve energy efficiency, lower energy bills, and reduce emissions; plan for the effects of a changing climate in the stewardship of our natural resources; and undertake the research and development of next-generation energy technologies that will promote our energy and climate security.

Now what about those cuts in fossil fuel subsidies? The budget calls for cutting 12 tax breaks for oil, coal, and gas producers, trimming the deficit by $36 billion over ten years. The cuts are detailed in the “Terminations, Reductions, and Savings” document on p. 16 and p. 39. By far the largest savings would come from repealing expensing of intangible drilling costs, repealing percentage depletion allowances for oil and gas wells, and eliminating the domestic manufacturing tax deduction for oil and gas companies. Eliminating these subsidies for some of the world’s richest companies would seem like a no brainer, but you can bet that oil company lobbyists will be fighting these reforms tooth and nail, whenever they take a break from fighting comprehensive clean energy and climate legislation.