President Obama recently released his budget blueprint, "The New
Era of Responsibility," which outlines his spending plans for
Fiscal Year 2010 and beyond.[1] Aside from providing general levels of
federal spending, the blueprint foreshadows much of the President's
policy agenda. The budgets for the Department of Energy (DOE), the
Department of the Interior (DOI), and the Environmental Protection
Agency (EPA) reveal that the President has a costly and
economically harmful vision for energy policy.
While the DOE and EPA both get budget increases, the DOI's
budget is reduced. The budget top-lines, however, are not the
story: The real issue is how the money is spent and the policy
implications thereof. Despite President Obama's rhetoric about
advancing the interests of America's middle class, his policies
will cost Americans more money, limit their access to America's
energy resources, and provide little, if any, environmental
benefit.
The Environmental Protection
Agency
The EPA's budget has averaged $7.6 billion over the past three
years, and it will increase slightly to $7.8 billion for 2009, but
President Obama plans to increase it significantly to $10.5 billion
in 2010.[2] The budget is being increased for policy
goals that are disturbing, including a cap-and-trade program and an
expansion of Superfund.
Sets the Stage for Cap-and-Trade. By
far, the most onerous element of President Obama's budget is that
it would institute his CO2 cap-and-trade proposal to reduce carbon
emissions 14 percent below 2005 levels by 2020 and approximately 83
percent below 2005 levels by 2050.[3] The program would auction 100
percent of available carbon emission credits and use the revenue to
fund other aspects of his budget.
While the budget blueprint euphemistically refers to this money
as "climate revenue," in reality it is an energy tax that would
force consumers to pay higher energy prices. In the blueprint, $646
billion of revenue would be generated through a cap-and-trade plan
from 2012 through 2019, but many have suggested these auction
permits would likely be much higher. The Heritage Foundation's
Center for Data Analysis's estimate of climate revenue for
2012-2019, using less strict Lieberman-Warner caps, is between $1.6
trillion and $1.9 trillion, which results in even higher taxes on
the consumer.
Of the $646 billion, $150 billion of this tax revenue would be
allocated for clean energy investments. This is old, tired
thinking: The notion of government investing in clean energy
technologies through tax breaks, incentives, and subsidies is
tantamount to Washington picking winners and losers, which
penalizes successful sources of energy that Americans use every day
to subsidize unsuccessful ones.
Furthermore, any legislation implemented to reduce greenhouse
gas emissions will kill jobs and devastate the economy. The
Lieberman-Warner cap-and-trade bill introduced last summer would
have destroyed over 900,000 jobs, caused nearly 3 million job
losses in the manufacturing sector by 2029, caused some
manufacturing sectors (e.g., paper, chemicals, and plastics) to
shed over 50 percent of their jobs, and generated up to $300
billion per year in government revenue while reducing income by
nearly $5 trillion.[4]
Unnecessarily Strengthens
Superfund. The budget blueprint would reinstate
excise taxes that expired in 1995 to fund Superfund's efforts to
clean up the toxic, contaminated areas around the country. Since
the expiration of these excise taxes, general revenues have funded
clean up activity. The Administration estimates $6 billion in
revenue will be collected from this tax. Proponents of Superfund
argue that reinstating the tax will create incentives for companies
not to pollute, but there are already strict environmental laws in
place, making this additional excise tax unessential and
unwise.
The Department of Energy
DOE's budget for the fiscal year 2009 is just shy of $34
billion. This $10 billion increase from 2008 ($24.1 billion) is
partly due to the $39 billion provided by the 2009 stimulus bill.[5]
Included in the budget blueprint for DOE are troubling expansions
of energy subsidies and a government-centric approach to
electricity transmission modernization-the smart grid.
Expands Subsidies and Distorts the
Market. DOE's budget includes subsidies to
accelerate, deploy, and commercialize a number of energy sources
including wind, solar, biofuels, and clean coal.[6] There are a number
of problems with such subsidization: First and foremost, it
distorts normal market forces and encourages government dependence.
By subsidizing a portion of the actual cost of a project through a
loan guarantee, the government is actually distorting the
allocation of resources by directing capital away from a more
competitive project.
Second, subsidies and loan guarantees encourage companies to
pursue political profit rather than economic gains. When the
government announces money will be allocated for specific projects
or technologies, the result is hand-over-fist lobbying efforts by
different power companies to secure government funding, since many
of these projects are still economically uncompetitive and will
otherwise not move forward without subsidies.[7] If the government
continues to subsidize unproven technologies, it forces consumers
to pay twice-once to fund the subsidies and another time with
higher electric bills.
Spending on the Smart Grid. The smart
grid is a two-way, transactive electric power grid that is capable
of responding to dynamic pricing and would theoretically improve
the overall functionality of the country's electricity grid. While
there is promise in upgrading the nation's electricity
transmissions system, the stimulus bill already included $11
billion for high-tech electricity infrastructure, which creates
additional concerns about investing more government money at this
point.[8] Upgrading the nation's grid has large
potential value, but it cannot be a centrally planned strategy, nor
should it be used to subsidize renewable energy sources. Instead, a
transition to a smarter grid should be driven by the private sector
and should provide consumers options on how to use energy more
efficiently. Eventually, if smart grid technologies will help
consumers save on their electricity bill, they will choose to buy
into it without the government telling them to do so. A
decentralized, coordinated effort that focuses on specialization
with a number of market players will lead to a more economically
efficient system.[9]
All but Kills Yucca Mountain. The
DOE's funds would be limited to answering Nuclear Regulatory
Commission inquiries regarding the commission's review of the Yucca
Mountain construction permit. Consequently, progress on building
the repository would be stopped. This allows the federal government
to remain technically compliant with current law-which obliges it
to open the Yucca Mountain repository-while yielding to pressure to
stop all Yucca activities. This middle-of-the-road approach may
help the Administration delay any final decisions on Yucca, but it
does little to resolve the greater problem of reforming America's
dysfunctional system of managing spent nuclear fuel.
The Department of Interior
The Blueprint would increase the budget for the DOI from $11.3
billion in 2009 to $12.0 billion in 2010, with annual increases
thereafter.[10] This increase is funded through punitive
tax increases on oil and gas industries and would enable DOI to
implement obstructionist regulations to limit access to America's
energy resources.
Raising Taxes and Fees on Reliable Domestic Energy
Production. The budget includes a number of provisions
that raise costs on domestic energy production. Overall, $31
billion in additional revenues would be collected, yet the oil and
gas industry already has effective tax rates as high or higher than
the industrial average.
When gasoline prices hit $4 per gallon, the American public
demanded the government produce policies to increase energy supply
in the United States and ultimately lower prices. The DOI's budget
proposal for new excise taxes on offshore oil and gas production,
termination of funds to coal states to clean up abandoned mines,
and user fees for oil companies for processing oil and gas permits
on federal land do the exact opposite.
Use It or Lose It. The budget mentions that
DOIwill make sure gas and oil companies do not sit on their leases
and fail to make progress on land already open for exploration and
drilling. Proponents of "use it or lose it" that seek to punish
delays have yet to produce a single credible example of an oil
company dragging its feet on a green-lighted project.[11] In
certain cases, there is simply not any gas or oil to be found. Dry
holes happen, and just because the law allows drilling somewhere is
no guarantee of success. However, plenty of unavailable leases are
sitting atop oil that is likely to remain underground for years,
and perhaps permanently if DOI continues to obstruct both onshore
and offshore drilling.
An Expensive Budget
President Obama's costly energy proposal will spend more and
raise energy prices for Americans by taxing cheaper, reliable
sources of energy to invest in unproven ones. One of the most
alarming features of the entire budget is the cap-and-trade
proposal, which if enacted by Congress, could be one of the largest
tax hikes in U.S. history. With no end to the recession in sight,
President Obama's energy proposals promise only more pain for the
American consumer.
Nicolas Loris is a Research Assistant
and Ben Lieberman is
Senior Policy Analyst in Energy and the Environment in the Thomas
A. Roe Institute for Economic Policy Studies at The Heritage
Foundation.