ENERGY POLICY:

Renewables in vogue at Obama's DOE

Nuclear, solar and wind power are the popular kids in the Energy Department schoolyard this year, while oil, gas and coal have been sent to detention.

When he sent his proposed spending plan to Congress yesterday, President Obama recommended subsidizing new nuclear plants with loan guarantees and shoveling more money at wind and solar research.

But when the administration's budget cutters got to the oil patch, they found a target-rich environment with plenty of programs and tax breaks they wanted to cut.

Not unexpectedly, that drew cheers from fellow Democrats and the renewable energy industry and howls from Republicans and fossil fuel providers.

"This administration talks a good fight when it comes to wanting to increase our production of oil and gas," said Sen. Bob Bennett (R-Utah), the ranking member of the Energy and Water Appropriations Subcommittee. "But every time they get a chance to back that up with dollars, they don't."

DOE came out a winner in Obama's overall budget, despite the freeze in nonsecurity discretionary spending. That is a reflection of Obama's desire to foster a "clean energy" economy, where new, cleaner sources of energy create jobs and lower the nation's greenhouse gas emissions.

Overall, the $28.4 billion request for DOE would be an increase of 6.8 percent for the fiscal year that begins Oct. 1. But Energy Secretary Steven Chu noted that the National Nuclear Security Administration, which is not subject to Obama's proposed freeze, gets a 14 percent increase. Aside from NNSA, Obama is proposing a 2.8 percent increase. That is still more than most departments, some of which are recommended for cuts under Obama's domestic spending freeze.

"For years R&D has been on R&R here in America," said Rep. Ed Markey (D-Mass.) in a statement. "This budget invests in our workforce, so that the clean energy technologies of the next 100 years come from Boston, not Beijing."

Much of the "clean energy" funding has been cast as providing for job creation, as Obama seeks to reassure worried voters that his environmental agenda won't deal another blow to the faltering economy.

Many of Obama's energy proposals resemble the energy aspects of the climate change and energy legislation that has stalled in the Senate, except that the legislation has more of what the oil and gas industry wants. Drillers have vehemently attacked the climate change plan, but Obama could be signaling that the way for the industry to get what it wants is for a climate bill to pass.

Renewables, research get boost

The administration is asking Congress for a 5 percent increase for the energy efficiency and renewable energy section of the budget. The request for fiscal 2011 reflects a sharp turn toward Democratic-favored sources of energy such as wind and solar and energy-saving methods such as weatherization. Those increases come at the expense of the hydropower and hydrogen, favorites of the George W. Bush administration.

Wind was the big winner, driven by the Obama administration's desire to push offshore wind in the coming fiscal year. The request for wind power jumped 53 percent, from $80 million this year to $123 million next year. The administration's campaign will seek to win public acceptance, overcome regulatory hurdles and find solutions to technical problems facing offshore wind.

The White House also wants a big boost in solar programs, seeking a hike from $247 million this year to $302 million next year, which would be a 22 percent increase. And it requests $500 million to cover initial fees, or "credit subsidies," to support the $3 billion to $5 billion in loan guarantee authority for energy efficiency and renewable energy projects.

Obama wants big new investments in clean energy research. His $300 million request for the Advanced Research Projects Agency-Energy, or ARPA-E, is a show of support for the high-risk, high-reward research. Congress had declined to give the program more money for fiscal 2010 after it got $400 million in the stimulus. The Obama plan recommends the program be pulled out of the Office of Science and funded separately.

The Office of Science would also see a significant jolt in funding under the president's request. The administration would provide the office, which operates the bulk of DOE's research and development programs as well as 10 of the nation's 17 national laboratories, with $5.12 billion, an increase of about 4.5 percent over fiscal 2010 levels.

A $1.8 billion request for basic energy sciences would include two innovative programs championed by Chu: the energy frontier research centers and energy "innovation hubs."

About $34 million would go to a new hub to create a multidisciplinary team of scientists from universities, national laboratories and the private sector to advance battery and energy storage technologies. The hubs are at the centerpiece of Energy Secretary Steven Chu's research agenda for the department and were first proposed in the administration's fiscal 2010 budget request.

"Of all the R&D programs, I personally feel very strongly about ARPA-E and the innovation hubs," Chu said yesterday.

In total, the administration requested $107 million for the hubs next year, including additional funding for three of the hubs that were previously funded. Those research centers will focus on fuels from sunlight, energy efficiency in buildings and nuclear simulation and modeling.

Bennett sees misplaced priorities. He said he supports wind and solar research, but the administration is going too far in subsidizing the industry.

"The wind doesn't always blow, and the sun doesn't always shine," Bennett told E&E. "There's got to be recognition that there is a finite amount that wind and solar can contribute to the overall energy needs of this country."

But Sen. Bernie Sanders (I-Vt.), said renewables still are not enough of a priority for the administration, noting the billions of dollars in loan guarantees to build nuclear plants.

"He has not funded [renewables] to that degree," Sanders said. "Construction of new nuclear power may well be the most expensive way to go."

Obama, who stressed his support for nuclear during his campaign, wants to boost loan guarantee authority for nuclear power facilities by $36 billion, for a total of $54 billion.

Obama's request would also increase nuclear research and development of nuclear technology by 5 percent, for a total request of $824 million, while dropping two Bush-era programs, Nuclear Power 2010 and Generation IV.

Another Bush-era program taking a hit is hydrogen. Bush had made the idea of hydrogen cars the centerpiece of his renewable energy and energy independence plans. But the Obama administration has frowned on the program. The administration's request recommends a 21 percent cut for the hydrogen technology program, taking it from $174 million to $137 million.

Eliminating tax breaks

While clean energy and nuclear are the big winners in the fiscal 2011 budget request, fossil energy programs are taking the hit, including elimination of some long-held federal tax breaks for fossil fuel industries.

"In terms of fiscal responsibility, the president's budget eliminates more than $2.7 billion in tax subsidies for oil and coal and gas industries," Chu told reporters yesterday. "And it's expected to generate more than $38.8 billion in revenue over the next 10 years."

Oil and gas industry officials said eliminating the 12 tax breaks would raise taxes on the industry by $80 billion.

Obama's plan faces strong resistance from petroleum state lawmakers, including appropriators like Bennett and Sen. Mary Landrieu (D-La.).

"It is unfortunate that the administration has chosen to escalate the cost of producing energy in America," Landrieu said in a statement. "Raising the costs of domestically produced energy only accelerates our dependence on lower-cost foreign oil."

The administration proposed a similar overhaul last year, but lawmakers rejected it.

Sen. James Inhofe (R-Okla.), the ranking member of the Environment and Public Works Committee, said it is wrong to think of the incentives as tax breaks. "That's a misnomer," Inhofe said. "In terms of depletion and depreciation, to be competitive with anybody else in the world, you've got to do that [provide the incentives]."

But the administration says the tax provisions do little to encourage production or cut prices.

The largest tax break on the chopping block is the oil and gas industry's ability to claim the Section 199 domestic manufacturing tax deduction. The White House Office of Management and Budget estimates eliminating it would raise $17.3 billion over the next 10 years.

"We are disappointed that the administration has again chosen to single out the American oil, gas and refining community for additional taxes under the guise of leveling the playing field with other corporations," said Charles Drevna, president of the National Petrochemical and Refiners Association, in a statement. "In fact, it accomplishes the opposite and puts our members at a precarious disadvantage with foreign fuel producers."

But environmentalists are lauding the administration's move.

"His budget promotes America's energy independence by reducing our reliance on foreign oil, starting the transition away from dirty fossil fuels," Wesley Warren, director of programs at the Natural Resources Defense Council, said in a statement.

The coal industry would also face repeal of tax breaks worth $2.3 billion across the next 10 years under the administration's request. The coal industry says the additional taxes would hurt the economy.

Other cuts at fossil energy

Other programs within the Office of Fossil Energy would also see cuts under the administration's request. Steve Isakowitz, DOE's chief financial officer, noted yesterday the Office of Fossil Energy was the one area within DOE seeing a decrease in funding.

The administration is continuing its push to phase out fossil fuel subsidies, according to DOE budget documents. That includes axing certain fossil fuel R&D programs like the natural gas technologies program and the ultra-deepwater exploration program.

Ending the natural gas program within the Fossil Energy Research and Development budget would cut about $18 million and end a program created to help exploit large methane hydrate resources. Termination of the ultra-deepwater exploration program would save the department $50 million, Chu said.

"We feel the oil and gas companies can take that on," Chu said.

And the industry indicated it would do just that, if Congress backs up the administration's request.

"Our companies are leaders in technology, and we will continue to fund the technology needed to tap domestic oil and natural gas resources, which will help put Americans to work," said Cathy Landry, a spokeswoman for API.

The president would cut $71 million from another Bush administration favorite -- the Strategic Petroleum Reserve. The administration wants to cancel plans for new site expansion proposed in previous budgets.

Reporters Katherine Ling and Robin Bravender contributed.