BUDGET:

Obama's $3.8T plan includes cap-and-trade placeholder

President Obama's fiscal 2011 budget unveiled today banks on Congress passing legislation to cap greenhouse gases despite continued uncertainty that such a bill can make it across the finish line.

The president's $3.8 trillion spending plan calls for lawmakers to set up a "comprehensive market-based climate change policy" that would curb heat-trapping emissions in the range of 17 percent below 2005 levels by 2020, followed by midcentury cuts of more than 80 percent.

But reflecting the long road ahead for the legislation, Obama leaves blank specifics for how much money would flow through the Treasury via a cap-and-trade policy. Instead, the administration includes a placeholder explaining that it expects a climate bill to be deficit neutral while also funding a range of key domestic and international priorities.

"A comprehensive market-based climate change policy will 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," Obama's budget said in a key climate-related footnote. "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."

Obama last year drew widespread criticism from both parties and key industry officials when he released the 2010 budget assuming a cap-and-trade program would raise some $650 billion over 10 years via a full auction of emission credits, with the money primarily going to pay for middle-class tax cuts and development and deployment of clean energy technologies.

Several observers said Obama's decision this year to avoid specifics is a way to maintain momentum on the issue without wading too deep into a political battle that still has not been fought in the Senate.

"It seems like the obvious thing to do," said Jason Grumet, president of the Bipartisan Policy Center. "The placeholder reflects the administration's commitment to establish a carbon price this year while suggesting flexibility about the precise approach and resulting revenue."

"This is a very clever way to keep yourself on record as both supporting cap and trade and including an assumption on the budget without going out on any limbs," said Norman Ornstein, a congressional scholar at the conservative American Enterprise Institute. "And because you can say it's deficit neutral, and you do it in a budget, you don't have to."

Overall, Obama's $3.8 trillion budget eliminates subsidies for fossil fuels, invests more money in clean energy projects and cuts funding for 120 federal programs, including some at the Interior Department. Speaking at the White House today, the president highlighted his efforts on energy as a solution to helping pull the nation of its economic tailspin.

"Just as it would be a terrible mistake to borrow against our children's future to pay our way today, it would be equally wrong to neglect their future by failing to invest in areas that will determine our economic success in this new century," Obama said. "That's why we build on the largest investment in clean energy in history, as well as increase investment in scientific research, so that we are fostering the industries and jobs of the future right here in America."

Obama also noted $20 billion in cuts that were gleaned through a line-by-line review of discretionary spending, including many related to energy and environmental issues.

"Now, some of these cuts are just common sense," Obama said. "For example, we cut $115 million from a program that pays states to clean up mines that have already been cleaned up. We're also cutting a Forest Service economic development program that strayed so far from any mission that it funded a music festival. And we're saving $20 million by stopping the refurbishment of a Department of Energy science center that the Department of Energy does not want to refurbish."

On climate change, Obama's budget covers the bases at multiple agencies. U.S. EPA, for example, would get $21 million to implement a reporting rule for measuring greenhouse gas emissions, plus another $43 million for regulations to curb emissions under the Clean Air Act. The Energy Department promoted a $545 million pot for carbon capture and storage technologies.

And the State Department touted $1.4 billion to help developing nations install U.S.-built energy technologies and increase land-based sequestration efforts.

As for the cap-and-trade proposal, Obama's supporters said the broad-brush treatment should let Congress know the administration remains interested in the controversial subject.

"It's very telling that the budget reflects that a market-based approach would work," said Brian Wolff, the vice president for government affairs and communications at the Edison Electric Institute.

Wolff also acknowledged that Obama may have stayed clear of a fight by dropping any reference to the auction revenues, a statement that last year drew complaints from power companies with heavy portfolios of coal. Obama backed away from his support for a 100 percent auction during the House debate on a global warming bill that ultimately favored the free distribution of allowances to many industries with the provision they use revenue to help consumers.

"They clearly knew going through the House process, they knew there wasn't support for an auction," Wolff said.

Sen. John Kerry (D-Mass.) and the other lead Senate climate authors have not decided whether they will use a cap-and-trade system for controlling greenhouse gas emissions, let alone how they would divide up emission allowances or what percentage of the credits would be auctioned. Some environmentalists said the budget offered today helps clear a path for the Senate sponsors.

"The budget strikes the right notes for passing a bipartisan climate plan that limits pollution and invests in clean energy jobs without increasing the national deficit," said Jeremy Symons, senior vice president of the National Wildlife Federation.

"The president is reaching out again to senators on both sides of the aisle and showing a willingness to work on the details as long as the bill delivers on real pollution limits, clean energy jobs and energy independence."

Click here for the key Obama budget documents on the cap-and-trade proposal.