Another Green Budget

The President's Budget Makes Critical Clean-Energy Investments

Clean-energy investments in the president’s budget would help kick start the economy and build sustainable, long-term growth, writes Daniel J. Weiss.

A gust of wind blows President Obama's tie as he speaks at Florida Power & Light's Desoto Next Generation Solar Energy Center in Arcadia, Florida in October 2009. (AP/Steve Nesius)
A gust of wind blows President Obama's tie as he speaks at Florida Power & Light's Desoto Next Generation Solar Energy Center in Arcadia, Florida in October 2009. (AP/Steve Nesius)

After eight years of sparse investment in the clean-energy technologies of the future, President Barack Obama launched a crash program at the start of his presidency last year to create clean-energy jobs and catch up to our economic competitors who grew their clean-energy industries while Bush slept. The 2009 American Recovery and Reinvestment Act began this task by investing $70 billion in clean-energy technologies and adopting $20 billion in clean-energy tax cuts, and President Obama’s proposed fiscal year 2011 budget would continue to build on these investments.

The ARRA programs will create more than a million new jobs, increase American energy independence, and cut global warming pollution. ARRA will double the amount of renewable electricity in the United States by 2012, weatherize 1 million low-income homes so that they are more energy efficient, and double domestic manufacturing capacity for wind turbines, solar panels, and other clean-energy equipment.

President Obama’s proposed FY 2011 includes larger investments in energy efficiency, renewable energy, and advanced research, despite the budget freeze and reductions in other discretionary spending programs. This budget would create jobs, increase American energy independence, cut global warming pollution, and make our economy more competitive.

Proposed FY 2011 budget increases for critical efficiency and renewables programs

  2010 actual (in millions) 2011 proposed (in millions) Percent change
Advanced Research Projects Agency–Energy There was no 2010 appropriation for ARPA-E; $400 million included in ARRA $300  N/A
Advanced vehicle technologies $311 $325 +5%
Energy efficient building technologies $222 $231 +4%
Solar $225 $302 +34%
State Energy Program grants $50 $75 +50%
Weatherization $210 $385 +83%
Wind $80 $123 +54%
Total $1,098 $1,741 +59%

The proposed budget would also eliminate taxpayer subsidies for big oil companies. The big five oil companies—BP, Chevron, Conoco Phillips, ExxonMobil, and Shell—made profits totaling $656 billion during the eight years of the Bush administration. In 2009, they made an additional $67 billion in profits (with Shell fourth-quarter profits projected). The last thing these companies need is billions of dollars of taxpayer-funded loopholes

The proposed budget would eliminate tax loopholes that would cost $36.5 billion from 2011 to 2020. This is nearly half of what the big five oil companies made in profits in 2009 alone. In 2005, President Bush opposed tax breaks for big oil companies, noting that, “with $55 oil we don’t need incentives to oil and gas companies to explore.”

Tax loopholes eliminated in the proposed FY 2011 budget

  Savings in billions, 2011-2020
End expensing of intangible drilling costs $7.8
Repeal of domestic manufacturing tax credit $17.3
Repeal percentage depletion allowance $10
Elimination of other tax loopholes $1.4
Total $36.5

The budget notes that, “[it] is counterproductive to spend taxpayer dollars on incentives that run counter to this national priority. To further this goal and reduce the deficit, the Budget eliminates tax preferences and funding for programs that provide inefficient fossil fuel subsidies that impede investment in clean energy sources and undermine efforts to deal with the threat of climate change.”

Another area covered in the budget is a plan to develop a more effective nuclear waste disposal process. The transportation and disposal of high-level nuclear waste remains a major environmental threat. The proposed Yucca Mountain storage facility poses a real risk of truck accidents or railroad derailments that could cause catastrophic nuclear waste spills en route. Yucca is also too small to store nuclear waste produced in the future. The budget therefore states that, “The Administration has determined that Yucca Mountain, Nevada, is not a workable option for a nuclear waste repository, and will discontinue its program to construct a repository at the mountain in 2010.” The FY 2011 budget would eliminate $197 million for Yucca compared to the 2010 budget, while providing $98 million to wind the program down. It would also spend $5 million for a blue ribbon commission to develop alternatives for high-level nuclear waste disposal.

President Obama’s first proposed budget, for FY 2010, included assumptions about revenue and expenditures from a global warming pollution reduction program. This approach does not work for FY 2011 because Congress is in the midst of passing comprehensive, bipartisan clean-energy and global warming legislation. The House of Representatives passed the American Clean Energy and Security Act, H.R. 2454 last year, which would reduce global warming pollution by 17 percent below 2005 levels by 2020. It uses a different mechanism than the proposed budget to make its pollution reductions compared to the FY 2010 budget proposal, so it would generate different future revenues and expenditures.

The Senate plans to debate its own comprehensive, bipartisan clean-energy and global warming bill this spring. It too may take a different path to achieve a 17 percent pollution reduction below 2005 levels by 2020.

Because Congress is in the middle of crafting its clean-energy and global warming legislation, it makes little sense for the proposed FY 2011 budget to include revenue and expenditure predictions from a greenhouse gas pollution reduction program that hasn’t passed yet. The FY 2011 budget instead includes a global warming placeholder that assumes that the global warming pollution reduction program will be revenue neutral, neither adding nor subtracting from the federal budget deficit. The budget states that the program should be deficit neutral because, “proceeds from emissions allowances will be used to compensate vulnerable families, communities, and businesses during the transition to a clean energy economy. Receipts will also be reserved for investments to reduce greenhouse gas emissions, including support of clean energy technologies, and in adapting to the impacts of climate change, both domestically and in developing countries.”

In fact, the Congressional Budget Office projects that two pending global warming bills would reduce the federal deficit. ACES would reduce red ink by $9 billion from 2010 to 2019, while the Clean Energy Jobs and American Power Act, S. 1733, would slash the deficit by $21 billion during this period.

One down side of the president’s budget is that it includes a misguided expansion of nuclear loan guarantees. The Obama administration proposes to triple funds for nuclear loan guarantees from $18.5 billion to $54 billion. This huge growth exposes taxpayers to billions of dollars of potential liability if the nuclear debtors default on their loans. The Congressional Budget Office found that nuclear investments are very risky, stating, “CBO considers the risk of default on such a loan guarantee to be very high—well above 50 percent.”

Even if this risk factor is cut in half, one in four nuclear power plants would default on their loans due to cost overruns or other factors, leaving taxpayers to pick up the tab. And there are already indications that this could occur. Taxpayers for Common Sense found that none of the four “top-tier” project proposals for the existing loan guarantee program inspire confidence. All have “rising cost estimates, delays related to reactor designs, and credit downgrades.”

The proposed tripling of the nuclear loan guarantee program burdens taxpayers with additional financial risk. This proposal is also dubious political strategy because it provides huge subsidies for nuclear power without securing the support of pronuclear senators for comprehensive, bipartisan global warming pollution reduction legislation. Many of the nuclear industries biggest backers—including Senators Lamar Alexander (R-TN), John McCain (R-AZ), and Lisa Murkowski (R-AK)—refuse to support comprehensive, bipartisan clean-energy and global warming legislation. Providing additional goodies for the nuclear industry unconnected to such a bill makes little political sense.

The Obama administration defeated a proposal last year by Senator Robert Bennett (R-UT) to increase nuclear loan guarantees to $50 billion. The administration was right to oppose this high-risk, low-reward proposal. The Obama administration should withdraw its risky nuclear loan guarantee proposal that helps the nuclear industry without getting a deal on comprehensive, bipartisan global warming legislation. Failing that, Congress should reject it while it embraces the other clean-energy proposals in this budget.

Like the rest of the proposed FY 2011 budget, the clean-energy investments largely reflect President Obama’s commitment to restart our economy and restore long-term growth via investments in new and existing clean-energy technologies. This budget, without the nuclear loan guarantees, must be combined with comprehensive bipartisan clean-energy and global warming legislation. This two-pronged investment strategy is also essential to help keep up with our economic competitors such as China and Germany. As Senator Lindsay Graham (R-SC) noted, “Every day that we delay trying to find a price for carbon is a day that China uses to dominate the green economy…China has made a long-term strategic decision and they are going gang-busters.”

President Obama has done his part by proposing an FY 2011 budget that creates jobs and increases economic competitiveness. Now Congress must join him to enact this budget and comprehensive clean-energy legislation to speed emergence from the worst recession in 70 years.

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Daniel J. Weiss

Senior Fellow