February 27, 2009

The Obama Budget: The Effect on Energy and Green Advice

Cap-and-trade emissions program would help pay for energy proposals

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The centerpiece of the energy and climate change-related section of President Obama's proposed budget is a cap-and-trade system that is meant to realize the dual goals of reducing greenhouse gas emissions and providing revenue to fund other clean energy projects. (Cap and trade systems are a way to control pollution in an area, like a country, by allowing the carbon emitters, or "polluters," a certain limit to their emissions; if they pollute less than their limit, they are granted certain credits that they can sell to others to offset their higher emissions.)

According to the budget document, the program would be implemented "through a 100% auction to ensure that the biggest polluters do not enjoy windfall profits," and predicts that revenue from the auction would provide $150 billion in funding for clean energy projects over a 10-year period, beginning in 2012. Additional revenues, which were estimated at between $50 billion and $300 billion annually by 2020 in a September appearance before Congress by Peter Orszag, now Obama's budget director, would "be returned to the people, especially vulnerable families, communities, and businesses to help the transition to a clean energy economy," according to the document. The budget itself estimates those revenues would total $646 million between 2012 and 2019.

An attempt to pass cap-and-trade legislation failed in the last session of Congress, and the proposal is likely to be just as contentious this time around. Senators and Representatives of both parties from states heavily dependent on manufacturing and fossil fuel-based industries are likely to see the bill as a threat to their local economies and are expected to oppose it vigorously, as are those from states with utilities that rely on coal-fired energy plants.

On the upside, in addition to providing a new source of badly-needed revenue for the federal government, it's been widely predicted that placing a price on carbon emissions will ultimately spur technological innovation and help reduce America's dependence on imported petroleum.

So far there have been no concrete indications of just how much carbon emitters would have to pay for their discharges. In Europe, which already has a cap-and-trade system in place, the cost has varied between about $13 and $38 per ton of carbon emissions. Estimates for the cost in the U.S. have run between $50 and $100 a ton.

Energy-related spending would dramatically increase over the next few years. Under the proposed budget, the Department of Energy would receive an increase of more than 40% from last year's allocation, with some of that $33.9 billion coming from the stimulus package to be devoted to research, including ways to economically capture carbon emissions from coal-burning power plants, modernization of the electric grid, and weatherization programs. The Energy budget drops back down to $26.3 billion for FY2010 under the plan, although the stimulus package includes another $38.7 billion in spending for energy programs that will be spread out over the next few years.

Other energy-related items include renewable energy projects by the Department of Interior, money to NASA to monitor greenhouse gases from outer space, $5 billion over five years in grants to states for high-speed rail programs, $250 million in USDA grants to increase the supply of home-grown renewable fuels, and $19 million to the Environmental Protection Agency to establish an inventory of greenhouse gas emitters, an important first step in a national carbon control program.

The budget also calls for the imposition of additional energy-related taxes, such new excise taxes and fees imposed on companies that exploit oil and natural gas reserves in federal waters. It also brings back a tax to pay for Superfund cleanup sites that primarily would be levied on the oil industry.

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