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President Obama’s Energy Budget Builds for the Future

SOURCE: AP/Jim Mone

Minnesota state lawmakers unveil the first plug-in hybrid-electric vehicle, or PHEV, to hit Minnesota streets during a news conference at the Minnesota Capitol Building on August 23, 2006. The president has set a fundamental goal to have 1 million plug-in hybrid and all-electric vehicles on the road by 2015, to further reduce oil use.

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View a comparison between the president’s and House Republicans’ plans for energy spending (.xls)

President Barack Obama’s proposed fiscal year 2012 budget reaffirms his commitment to American innovation and ingenuity by proposing to increase investments in energy efficiency, renewable energy technologies, science, and clean energy research, development, and deployment. This stands in sharp contrast to the House Republican Appropriations Committee’s continuing resolution for the remainder of 2011, which slashes vital programs that would increase our economic competitiveness and create long-term growth. The president’s budget would win the future while the House Republicans’ plan would lose it (see table).

Increasing innovation and economic competitiveness has many critical ingredients. They include investments in science and information, boosting research and development, adequate infrastructure to support the commercialization of new technologies, and job training so there are workers who can manufacture, build, operate, and maintain these new technologies. In addition to innovation, the federal government should protect public health, reduce oil use to enhance national security, and provide for the least fortunate in our society.

The House Republicans’ plan disinvests in or ignores these elements. In contrast, the president’s proposed budget would make essential investments in clean technologies as well as reduce oil use and protect public health. It would increase funding for “clean energy technology programs” by more than $2 billion—a one-third increase. Here are some of the highlights of the president’s budget with comparisons to the House Republicans’ alternative plan when they propose something beyond simple slash and burn.

Science: Blinding them with science

The proposed Department of Energy budget would increase our investment in basic and advanced scientific research by nearly $500 million, or 9 percent.

Information: Knowledge is power

The Department of Energy in its FY 2012 budget document proposes to increase funding by $13 million (page 3) or 12 percent for the Energy Information Administration. It says on page 78 that “the Nation’s premier source of energy information and, by law, its data, analyses, and forecasts are independent ofapproval by any other officer or employee of the United States Government.” Indeed, it is essential that EIA has the resources to upgrade its predictive tools, gather more energy-efficiency data, and provide this and other data on the web.

This statistical analysis is essential to help investors, businesses, and government perform as effectively as possible. That’s why the president’s energy budget also includes an additional $900,000 (page 80) for the Environmental Protection Agency, a 6 percent increase over FY 2010, to collect carbon-dioxide pollution data from major polluting facilities. This information will help EPA design the most cost-effective system to reduce this pollution from the largest stationary sources, such as power plants and oil refineries.

Research, development, and innovation: Don’t stop thinking about tomorrow

The overall budget would cut government spending by $670 billion but would increase funds for clean energy R&D. The Advanced Research Projects Agency-Energy would receive its first funding outside of the American Recovery and Reinvestment Act. The Department of Energy would provide “$550 million … to continue support for the promising early-stage research projects that could deliver game-changing clean energy technologies.”

The proposed budget would provide an additional $146 million to create three new “Energy Innovation Hubs” that would focus on R&D for batteries and energy storage, smart-grid technology to increase efficiency, and critical materials essential for clean-tech manufacturing and products. These hubs bring together scientists and engineers working to develop longer-term solutions to energy problems and will spur innovation and create jobs.

The National Institute of Standards and Technology has two important programs that drive clean energy innovation. The Technology Information Program “funds high-risk, high-reward research and development projects that address critical national needs and societal challenges that are not already being addressed by others.” The administration would increase its budget by $5 million, or 7 percent, compared to FY 2010.

The Manufacturing Extension Partnership assists “domestic manufacturing to create jobs and better respond to future challenges and opportunities.” This is vital to retain the capacity to produce, as well as create, clean energy technologies. This program would receive an $18 million, or 14 percent, increase over FY 2010 funding.

Clean energy infrastructure: We hear you singing in the wires

An essential element for clean energy is the ability to transfer electricity from where it’s generated to where it’s needed. The solar power in Nevada and wind energy from North Dakota requires reliable transmission to urban areas. The proposed budget would increase investments in transmission (page 3) by $70 million, or more than 40 percent. This would “bring the next generation of grid modernization technologies closer to deployment and commercialization, to assist states and regional partners in grid modernization efforts, and to facilitate recovery from energy supply disruptions when they occur.”

This investment is consistent with the recommendations by the American Society of Civil Engineers:

The U.S. generation and transmission system is at a critical point requiring substantial investment in new generation, investment to improve efficiencies in existing generation, and investment in transmission and distribution systems.

Job training: Green training season

A critical element of clean-tech innovation and competitiveness is to ensure there is a trained workforce that can manufacture, build, install, operate, and repair these technologies. The proposed budget reflects that imperative by asking for $60 million for the Green Jobs Innovation Fund (page 20). This is a $20 million, or 50 percent, increase from the previous year. The clean-tech sector must have additional workers to continue to grow.

In response to the demand in local and regional labor markets, states and local workforce investment areas across the country are interested in expanding training opportunities in green industry sectors and occupations to help workers get better jobs and increase compensation. This investment program fits the bill.

Reduce oil use: Oil well that ends well

In his 1974 State of the Union, President Richard Nixon urged that “1974 must be the year in which we organize a full-scale effort to provide for our energy needs, not only in this decade but through the 21st century.” Every president since has uttered a similar refrain.

President Obama has done more than any of his predecessors to accomplish this goal. A fundamental goal to further reduce oil use is to have 1 million plug-in hybrid and all-electric vehicles on the road by 2015. To reach that goal, the president’s budget:

Proposes a new effort to support electric vehicle manufacturing and adoption in the U.S. through new consumer rebates, investments in R&D, and competitive programs to encourage communities that invest in electric vehicle infrastructure.

This includes transforming the $7,500 tax credit for electric vehicles into a rebate available at point of sale. It also includes R&D investments in electric drive trains, and a new Energy Innovation Hub for this work. Finally, communities can enter a $200 million “race to the top” to receive grants for electric-vehicle recharging infrastructure. Together these steps will speed the development, production, and sale of electric vehicles that use little or no gasoline.

These programs will be paid for by the elimination of $3.6 billion annually in tax loopholes for big oil-and-gas companies and coal companies (page 5). This will save more than $47 billion over the next decade. The top five oil-and-gas companies made nearly $1 trillion in profits over the past decade. Despite their claims to the contrary, they can surely afford to surrender these unnecessary benefits.

An important element of the auto program is to help auto manufacturers retool to build these ultra-efficient cars of the future. The “Advanced Vehicle Manufacturing Loan Program,” enacted in 2007, has provided $8.4 million in loans to transform factories so they can build cars that are at least 25 percent more efficient. These facilities are in California, Illinois, Kentucky, Michigan, Missouri, Ohio, and Tennessee. Unfortunately, the proposed DOE budget seeks only $6 million to provide support for existing loans, though the House Republican plan would cut the 2010 funding in half this year.

Railroads are another old and new technology that can significantly reduce oil consumption. The proposed FY 2012 budget would invest $8 billion in intercity and high-speed rail (page 20). These funds would develop:

Core express, regional and feeder corridors, to advance the President’s goal to provide Americans with convenient access toa passenger rail system featuring high-speed service to 80 percent of Americans within 25 years.

Research from the Federal Railroad Administration determined that freight rail uses significantly less oil than trucks. The report finds that “railroads on average are four times more fuel-efficient than trucks. … if just 10 percent of the long-distance freight that moves by truck moved by rail instead, fuel savings would exceed one billion gallons per year.”

New standards will reduce air pollution from train engines. And fewer trucks means less oil wasted by vehicles stuck in traffic, as well as less wear and tear on our roads. And passenger rail reduces oil use, too. According to the National Association of Railroad Passengers:

Amtrak is 30.2 percent more energy efficient than cars, and 19.9 percent more efficient than air travel. … public transportation saves the United States 4.2 billion gallons of gasoline every year—more than three times the annual amount imported from Kuwait.

Energy efficiency, renewable energy, and innovation: Winning the clean energy race

The biggest international economic playing field is the battle to create, produce, and sell the clean energy technologies of the future. The president’s proposed budget would increase the Department of Energy’s efficiency and renewable energy programs by nearly $1 billion, an increase of 44 percent. This would include major investments in solar energy so that it costs 4-5 cents per kilowatt hour by the end of the decade, which would make this source much more cost competitive. The budget would also increase investments in wind energy, with a focus on offshore facilities.

The budget proposes to continue critical programs to provide startup assistance to wind and solar projects. This includes the expansion of clean energy technologies across the nation. According to the DOE budget briefing:

The Budget also builds on current financing efforts by providing up to … $200 million in credit subsidy to support $1 billion to $2 billion in loan guarantees for innovative energy efficiency and renewable energy projects, and by providing $5 billion in Section 48C tax credits for renewable energy manufacturing facilities and extending the Section 1603 tax credit for renewable energy deployment.

There is large demand for assistance to clean energy technology manufacturers provided by the 48C program, which led companies to invest more than double the program’s initial $2.3 billion. According to the U.S. Partnership for Renewable Energy Finance, “the extension of the 1603 program can help to create or preserve over 100,000 ‘green’ jobs.” And EPA would receive a $3 million, or 6 percent, increase for its vaunted Energy Star program to strengthen compliance and verification of Energy Star products and strengthening residential and commercial building programs.

The budget would also support the President’s Better Buildings Initiative to help commercial building owners make their facilities one-fifth more energy efficient by the end of the decade. It achieves this goal by:

Re-designing the current tax deduction for commercial buildings and upgrades to a credit that is more generous; improving financing opportunities for retrofits through the Small Business Administration’s loan program as well as a new pilot program through the Department of Energy to guarantee loans for upgrades to hospitals, schools, and other commercial buildings; creating a $100 million “Race to Green” competition for state and municipal governments to implement innovative approaches to building codes, performance standards, and regulations so that commercial building efficiency will become the norm; and increasing R&D funding for buildings technologies.

Public health protection: Pollution limits are preventative medicine

Americans continue to die prematurely due to air pollution. The National Academy of Sciences determined that burning coal and oil costs the United States about $120 billion annually in health costs—mostly due to thousands of premature deaths from air pollution. Many of the sources of these pollutants—including coal-fired power plants, oil refineries, and motor vehicles—are also major contributors to global warming.

The House Republican Appropriations Committee’s proposed continuing resolution for the remainder of FY 2011 would block EPA from requiring carbon-dioxide pollution reductions from coal-fired power plants, oil refineries, and other major sources. In contrast, President Obama’s budget would:

Protect American families’ health by enforcing the Clean Air Act’s updated air pollution standards that rein in big polluters by cutting back on mercury, carbon dioxide, arsenic and other life-threatening pollution in the air we breathe. … taking these reasonable steps to update standards now will allow the Agency to better protect people’s health, drive technology innovation for a stronger economy, and protect the environment cost-effectively.

The president’s budget would provide cash-strapped states $30 million to develop and deploy “the technical capacity needed to address greenhouse gas emissions in permitting large sources as part of their Clean Air Act programs.” It also includes other funds to develop and enforce these health standards, which would provide certainty for utilities and other energy investors about future pollution-reduction requirements and expand the market for cleaner electricity-generation technologies and fuels.

Unfortunately, the proposed administration budget would eliminate funding for the program to reduce toxic pollution from diesel trucks (subscription required) by upgrading pollution controls. This is an essential public health program, with $13 in health benefits for every $1 of investment. The administration argues that there is still $50 million unspent from the $100 million provided for clean diesel in the American Recovery and Reinvestment Act.

Low-income energy assistance: Ignoring the least fortunate

The president’s proposed budget would cut in half funding for the Low Income Home Energy Assistance Program that provides low-income households with assistance to pay high heating and cooling bills. This FY 2012 $2.6 billion cut is six times larger than the House Republicans’ proposed cut for FY 2011. This cut would occur while demand for this program reaches record numbers. The National Energy Assistance Directors Association reports that:

High energy prices, high unemployment and a cold winter are prompting a record number of households to seek home heating assistance. … 8.9 million households are expected to qualify for financial help this winter, up from 8.3 million last winter. It’s the third year in a row the number of households needing assistance has set a new high.

NEADA estimates the administration proposal would cut 3.1 million households from the program.

Fortunately, the president’s budget would increase funds for the Weatherization Assistance Program, which helps low-income households reduce their energy use and save money on their utility bills. It would boost funding by $124 million, or 46 percent. The House proposal would zero out funding for this vital program.

Conclusion

House Energy and Commerce Committee Chair Fred Upton (R-MI) attacked President Obama’s proposed budget because it attempts to boost America’s burgeoning clean-tech industry:

I am particularly disappointed to see the White House continuing its efforts to manipulate free enterprise—whether on energy or health care or technology, this budget continues to advance policies in which the federal government picks winners and losers, rather than letting the American people and the power of competition identify the most efficient, effective investment of resources.

Rep. Upton couldn’t be more wrong. The federal government has always picked winners and losers by investing in many energy sources while ignoring others. Oil industry subsidies date back to the 1920s and continue today. The nuclear industry began getting federal assistance in 1948—more than 60 years ago. An analysis by the Environmental Law Institute determined that “traditional fossil fuels” production and “carbon capture and storage” research received $72.5 billion in federal subsidies from 2002–2008. Meanwhile, “traditional renewables" received only $12 billion in subsidies, or six times less support than that provided to the old, dirty fuels compared to the clean fuels of the future.

The public supports the innovation agenda. When Gallup asked Americans what Congress should accomplish, they favored clean energy investments: “Of eight actions Congress could take this year, Americans most favor an energy bill that provides incentives for using alternative energy (83 percent).”

President Obama’s innovation and competitiveness budget attempts to level the playing field by increasing investments in the clean-tech industry of the future, while removing some handouts to Big Oil and coal. His agenda would promote invention, entrepreneurship, job creation, public health, and national security. The House Republicans’ continuing resolution favors oil and coal while disinvesting in innovation. Hopefully, President Obama will prevail in the coming clash over America’s energy and economic future.

Daniel J. Weiss is a Senior Fellow and Director of Climate Strategy at the Center for American Progress. Valeri Vasquez, Special Assistant for Energy Policy at the Center, contributed to this analysis. And thanks to Michael Linden, Associate Director for Tax and Budget Policy at the Center, and Matt Woelfel, CAP Energy Team Intern, for help on the research of this analysis.

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