The Heritage Foundation

Issue Brief #4517 on Energy Policy

February 12, 2016

February 12, 2016 | Issue Brief on Energy Policy

President Obama’s Budget Takes Wrong Direction with Energy Policy

President Obama recently released his fiscal year (FY) 2017 budget request. Although his budget is dead on arrival in Congress, the requests in it provide an important look into the progressive view on energy policy. Much like other proposals and actions put forward during President Obama’s Administration, the budget request would tax and regulate out-of-favor sources of energy and use taxpayer dollars to support in-favor energy sources. In doing so, the federal government would keep affordable, dependable energy in the ground while trying to force uncompetitive technologies onto the market. The cumulative effect will be government-driven higher energy prices, wasted taxpayer funds, and pervasive government interventionism into domestic and global energy markets. Congress should move energy policy in the opposite direction, by reducing government spending and federal control, eliminating all energy subsidies, and reducing and eliminating burdensome regulations that obstruct innovation.

Obama’s “Oil Fee” Is a Regressive Gas Tax

President Obama’s budget calls for a $10-per-barrel tax on oil to pay for mass transit, high-speed rail, self-driving cars, and other infrastructure projects that will purportedly reduce America’s carbon footprint.[1] Making no mistake, the fee is a 22 cent-per-gallon gas tax, a diesel tax, a home heating oil tax, a jet fuel tax, and a plastic tax (petroleum liquids), among other things. The costs will be passed down to consumers in the form of higher energy prices, disproportionately impacting low-income families that spend a higher portion of their budget on energy costs.

President Obama said of the plan: “It’s right to do it now, when gas prices are really low. And they will be low for quite some time to come, so it’s not going to be a disruptive factor in terms of the economy.”[2]

There are several problems with the President’s thinking. First, while it certainly appears as though oil prices could be low for the foreseeable future, many experts also predicted that oil would never fall below $100-per-barrel again. Gas prices could increase in the future, as they have in the past, and quite quickly. Secondly, the steep tax would transfer large sums of savings from cheap gas prices to the federal government’s coffers to waste on green pet projects. The current national average for the price of gasoline is under $1.75 per gallon. AAA estimates that consumers saved $115 billion in 2015 compared to 2014—$550 for each licensed driver.[3] Americans already send too much of their money to the federal government. More than doubling of the federal gas tax will only worsen the current state of affairs by taking money out of the economy and away from more productive uses.

Subsidizing Uneconomical Energy Sources

The FY 2017 budget requests a doubling of clean energy “research” by 2021 to combat global warming. The proposal would increase funding from $6.4 billion to $12.8 billion.[4] Billions of dollars spent by the Department of Energy does not qualify as basic research and development. The federal government is spending money trying to commercialize energy technologies, which is no role for the federal government.[5]

The President’s budget also calls to make targeted tax credits for renewables permanent. If renewable technologies are cost-competitive with conventional sources of energy, they should not need special help from the taxpayer. President Obama is calling this proposal “Mission Innovation” but the profit incentive that already exists in the marketplace will reward innovative ideas and promising new technologies. The President’s strategy to usher in new energy technologies is a losing formula for Americans—both as energy consumers and as taxpayers. It is also a losing strategy for energy innovation as these technologies become dependent on special treatment from the government rather than recognizing the true price point at which they would be economically viable. Subsidies inhibit the long-term development of the very technologies they aim to help.

Transferring Wealth Through the Green Climate Fund

For many countries attending the United Nations climate summit in Paris last December, the figure they were looking for was not how much emissions would be cut and not what temperature thresholds should be kept, but how much money they could get.

Global warming negotiations leading up to the Paris conference called for a Green Climate Fund that would collect $100 billion per year by 2020. The stated goal of this fund is to subsidize green energy projects abroad and pay for other climate adaptation and mitigation programs in poorer nations. U.S. taxpayers would pay the lion’s share of this fund and President Obama made it clear in his budget request that he is willing to pay for it. The request would provide $1.3 billion for the Global Climate Change Initiative, including $750 million for the Green Climate Fund.[6]

The Green Climate Fund is nothing more than a taxpayer-funded wealth transfer from developed countries to developing ones. Climate change is not the pressing problem the Administration makes it out to be, but even if it were, the Green Climate Fund would do little, if anything, to combat climate change. It would, however, do quite a lot to waste taxpayer dollars, likely filling up the coffers of crony companies and corrupt governments.

Consolation Prize for Coal Communities Ignores Real Problem: Excessive Regulation

The Obama Administration is treating America’s coal community as if they just lost on a game show. Through his budget, President Obama is effectively telling the coal community: Thanks for playing. Here’s a nice parting gift.

The President’s budget “provides $20 million specifically to support workers dislocated from the coal economy. Along with funding already provided through the National Reserve, this will allow States and local areas to provide reemployment, training, and supportive services to these transitioning coal economy workers to help them get back to work in good jobs and careers.”[7] Further, the budget would provide “$120 million for the ARC (Appalachian Regional Commission) $50 million of which will be directed specifically to those Appalachian communities most affected by coal economy transition.”[8]

Rather than providing a transitional handout, the Administration should back off the burdensome regulations that are crushing coal communities, increasing energy prices, and driving people out of work—all for little or no environmental or global warming benefit. The climate regulations on new and existing power plants will inflict substantial costs, drive down existing coal generation, and have little or no climate benefit.[9] Although the Supreme Court recently blocked a key cog in the Administration’s climate agenda, a host of other regulations with equally dubious environmental benefits have already driven coal-fired power plants to close or schedule early retirements.

In addition, the coal-mining sector faces increasingly unattainable regulations that remove decision making from miners and empower the federal government to control safety in the mines. The Administration recently placed a moratorium on new coal leases of federal lands until the Department of Interior’s Bureau of Land Management conducts a more comprehensive environmental review that includes effects on climate. Without reversing course, coal production, which now accounts for 40 percent of American electricity, will have a difficult time surviving.

President Obama’s former climate adviser Daniel Schrag said that “a war on coal is exactly what’s needed.”[10] There are going to be a lot of economic casualties across the country from the Administration’s war on coal and President Obama’s FY 2017 budget is tossing the coal community a few Band-Aids.

Wrong Vision for America’s Energy Future

President Obama’s vision for America’s energy future is the wrong one. Fraught with more government spending, higher taxes, federal micromanagement, and international wealth transfers, the budget proposal would restrict energy supplies and hamper long-term innovation. Congress and the next Administration should take energy policy in the opposite direction. Policies rooted in the four pillars of economic freedom—rule of law, limited government, regulatory efficiency, and open markets—will stimulate economic growth and innovation, expand access to energy, and improve the environment.

—Nicolas D. Loris is Herbert and Joyce Morgan Fellow in the Thomas A. Roe Institute for Economic Policy Studies, of the Institute for Economic Freedom and Opportunity, at The Heritage Foundation.

About the Author

Nicolas Loris Herbert and Joyce Morgan Fellow in Energy and Environmental Policy
Thomas A. Roe Institute for Economic Policy Studies

Show references in this report

[1] Office of Management and Budget, Budget of the U.S. Government Fiscal Year 2017, February 9, 2016, https://www.whitehouse.gov/sites/default/files/omb/budget/fy2017/assets/budget.pdf (accessed February 10, 2016).

[2] David Henry, “Week Ahead: Obama Budget to Tout Green Priorities,” The Hill, February 8, 2016, http://thehill.com/policy/energy-environment/268453-week-ahead-obama-budget-to-tout-green-priorities (accessed February 10, 2016).

[3] AAA Daily Fuel Gauge Report, “2015 Gas Prices Second-Cheapest in a Decade AAA Year-End Gas Price Report,” http://fuelgaugereport.aaa.com/2015-gas-prices-second-cheapest-in-a-decade-aaa-year-end-gas-price-report/ (accessed February 10, 2016).

[4] Office of Management and Budget, Budget of the U.S. Government Fiscal Year 2017.

[5] Nicolas Loris, “Department of Energy Budget Cuts: Time to End the Hidden Green Stimulus,” Heritage Foundation Backgrounder No. 2668, March 23, 2012, http://www.heritage.org/research/reports/2012/03/department-of-energy-budget-cuts-time-to-end-the-hidden-green-stimulus.

[6] Office of Management and Budget, Budget of the U.S. Government Fiscal Year 2017.

[7] Ibid.

[8] Ibid.

[9] Nicolas D. Loris, “The Many Problems of the EPA’s Clean Power Plan and Climate Regulations: A Primer,” Heritage Foundation Backgrounder No. 3025, July 7, 2015, http://www.heritage.org/research/reports/2015/07/the-many-problems-of-the-epas-clean-power-plan-and-climate-regulations-a-primer.

[10] Aaron Blake, “Obama Science Adviser Calls for ‘War on Coal,’” June 25, 2013, The Washington Post, https://www.washingtonpost.com/news/post-politics/wp/2013/06/25/obama-science-adviser-calls-for-war-on-coal/ (accessed February 10, 2016).