Protecting Big Oil at the Expense of the Future
Protecting Big Oil at the Expense of the Future
Paul Ryan’s Big Oil Budget Halts Energy Innovation
Paul Ryan’s proposed budget would continue lucrative loopholes for oil companies while slashing investment in clean energy technology, write Daniel J. Weiss and Richard Caperton.
House Budget Committee Chair Paul Ryan’s (R-WI) proposed FY 2012 budget resolution is a backward-looking plan that would benefit big oil companies at the expense of middle-class Americans. It retains $40 billion in Big Oil tax loopholes while completely eliminating investments in the clean energy technologies of the future that are essential for long-term economic growth.
This budget would lock Americans into paying high, volatile energy prices. It would ensure that millions of clean energy jobs are created oversees–not here in the United States. It is a path backward to Bush-Cheney Big Oil energy policies that cost jobs and harm American competitiveness. In short, the Ryan plan ensures that we lose the high-stakes competition for the $2 trillion worldwide clean tech market.
Ryan claims in an April 4 Wall Street Journal op-ed that his plan “rolls back expensive handouts for uncompetitive sources of energy, calling instead for a free and open marketplace for energy development, innovation and exploration.” This is false. Ryan’s proposal actually violates his assertion in two ways. It maintains wasteful subsidies for Big Oil, while cutting valuable investments in the clean energy technologies of the future.
Let’s consider each of these in turn. First, Ryan’s plan would continue “welfare” for big oil companies. Ryan was asked several times in a recent interview whether his plan would “eliminate tax breaks for Big Oil,” but he refused to answer. Evading an uncomfortable question was his acknowledgment that his budget hatchet leaves Big Oil tax breaks untouched . This is consistent with his recent vote to keep Big Oil tax loopholes as part of the FY 2011 spending bill, while cutting education, medical research, and clean-tech investments.
In addition to receiving $40 billion of unnecessary tax breaks, Big Oil does not pay its fair share of royalties for oil and gas produced from publicly owned waters. The Government Accountability Office estimates that a loophole in a 1990s oil-and-gas law could deprive the treasury of $53 billion in lost royalties. In February, the House Republicans overwhelmingly voted against recovering these royalties. Although Ryan’s budget claims that it “stops spending money the government doesn’t have,” it does nothing to recoup these forgone funds. This is another gift for Big Oil, paid for by middle-class taxpayers who must suffer the consequences of other steep spending cuts.
The proposed budget resolution doesn’t just contain billions of dollars of welfare for Big Oil. It would also slash investments in the research, development, and deployment of the clean energy technologies of the future. It would cut clean energy investments  by more than half for FY 2011, by two-thirds for FY 2013, and by 90 percent in 2014 to just $1 billion. This will take us back to the miserly clean energy budgets of President Bush.
The proposed budget would weaken the economy and increase the deficit by disinvesting in long-term economic growth the clean-tech sector fosters. For instance, the electric vehicles of the future will require advanced batteries, and the American economy will benefit if those batteries are made here. The federal government invested seed money beginning in 2009 to launch such an industry here. Former Governor Jennifer Granholm (D-MI) observed that “Just as a result of federal policy on batteries alone…have attracted 17 [battery] companies who are projected to create 63,000 jobs.”
But Ryan’s budget will nearly eliminate funding for this and other R&D programs that can lead to advances to battery technology. It also eliminates loan guarantees that can help manufacturing plants get built in the United States, and ignores investments to build a battery-charging infrastructure essential to expand the market for electric vehicles and reduce oil use.
Much of DOE’s spending on clean energy programs leverages significant private investment. This varies by program, of course, and is roughly linked to the product development cycle.
For example, the Advanced Research Project Administration-Energy, or ARPA-E, program gives relatively small grants to companies doing early research into advanced technologies. This leverages a small amount of private investment in the short term, but sets the companies up to attract larger private investments later on. ARPA-E tries to link companies that have received grants with private venture capital investors. Yet funding for this program was eliminated by the House passed budget for the remainder of FY 2011, and will likely be excluded by the Ryan budget as well.
At the other end of the spectrum, the Department of Energy loan guarantee program leverages significant private investment. It provides financing to help companies grow new technologies to commercial scale. Since borrowers are very likely to pay back loans, this generates significant private investment from both banks and equity investors. The amount varies by project, but on average, $1 in government spending yields $13 in private investment , which helps generate economic growth. The House-passed spending bill eliminated this vital program for the remainder of FY 2011, and it will likely be eliminated when the details of Ryan’s proposal are made public. Only in a Big Oil budget would spending $1 to generate $13 more in economic activity be called an “expensive handout.”
These investments spark economic growth, including more jobs and local development. The Boston Globe reported that Massachusetts clean-tech companies received $20 million in federal funds that “raised nearly five times as much—$95 million—from private investors. The money has helped create several dozen jobs, expand offices, and lay the groundwork for new manufacturing as the companies begin testing technologies on ever-larger scales.”
Rep. Ryan’s proposed budget also disregards the economic benefits of a clean energy future to middle-class families. In addition to creating new industries and jobs, clean energy sources that rely on homegrown wind, solar, geothermal energy, or efficiency will insulate Americans from rising and volatile energy prices.
An innovation-based economy requires government support for scientific research, development, and deployment. Such investments create domestic manufacturing jobs producing new clean-tech products. Without federal investments in innovation and clean-tech start up companies, it is very difficult to create a supply chain of related jobs that provide essential goods and services for these new technologies. Meanwhile our competitors invest heavily in the development of their clean-tech industries. China, for instance, invests $12 billion monthly in its wind, solar, and other renewable clean energy projects. The Ryan budget’s cutbacks in innovation investments condemn Americans to a future where new job creation happens overseas rather than at home.
The Ryan budget undermines our economy in another way. It goes backward by continuing to allow harmful, costly pollution. Its attacks on “environmental regulations” ignore their economic benefit. The Environmental Protection Agency, for instance, determined that the Clean Air Act has generated $20 in benefits for every $1 in cleanup costs—a return on investment that would make Warren Buffet proud.
Paul Ryan’s proposed budget resolution would keep Big Oil fat and happy while condemning the rest of us to high energy prices, job losses to other nations, and air pollution. Rather than foster innovation and economic growth like President Obama’s proposed budget, it is a path to perdition.
Daniel J. Weiss is a Senior Fellow and the Director of Climate Strategy and Richard W. Caperton is a Senior Policy Analyst with the Energy Opportunity team at American Progress.
 Table 5.1 for past spending.
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Daniel J. Weiss
Richard W. Caperton
Managing Director, Energy