Obama Budget Would Cut $40 Billion in Fossil-Fuel Credits

President Barack Obama, who pledged an “all of the above” energy strategy that included fossil fuels, renewed his proposal to cut more than $40 billion in tax breaks for oil, gas and coal producers in the next decade to spend more for conservation and alternate energy.

“We need to reduce our dependence on foreign oil by ending the subsidies for oil companies and doubling down on clean energy that generates jobs and strengthens our security,” Obama said today in a speech on at Northern Virginia Community College in Annandale, Virginia.

Republicans sided last year with companies including Exxon Mobil Corp. (XOM) of Irving, Texas, and ConocoPhillips (COP) of Houston, to push back Obama’s repeal of the fossil-fuel breaks, saying U.S. jobs would be lost as producers denied the credit would move operations overseas.

The budget, which boosts spending to add jobs in the short term while reducing the deficit over a decade, will trigger election-year sparring. The proposal borrows heavily from a package of tax increases and spending cuts Obama offered in September. Spending for energy efficiency and alternate energy would rise 25 percent.

‘Remain Difficult’

Winning support in the U.S. Senate “to single out the oil and gas industry will remain difficult,” Whitney Stanco, senior policy analyst at New York-based Guggenheim Securities LLC, said today in a note to clients today. The prospect for repealing tax credits for fossil fuels “will likely increase if Congress makes progress on comprehensive corporate tax reform,” she said.

A bulldozer moves coal at Foresight Energy LLC's Pond Creek longwall coal mine in Johnson City, Illinois. Obama’s budget would cut tax preferences for coal, valued at $235 million in 2013 and $2.88 billion by 2022. Photo: Andrew Harrer/Bloomberg Close

A bulldozer moves coal at Foresight Energy LLC's Pond Creek longwall coal mine in... Read More

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A bulldozer moves coal at Foresight Energy LLC's Pond Creek longwall coal mine in Johnson City, Illinois. Obama’s budget would cut tax preferences for coal, valued at $235 million in 2013 and $2.88 billion by 2022. Photo: Andrew Harrer/Bloomberg

The U.S. Energy Department’s 2013 budget, for the year starting Oct. 1, provides $27.2 billion in overall spending authority, a 3.2 increase over the current year, according to a summary. A loss for fossil fuels will boost U.S. aid for renewable energy and conservation programs, reflecting Obama’s commitment to alternative sources of energy amid Republican criticism about the collapse of Solyndra LLC, which had won a $535 million U.S. loan guarantee then filed for bankruptcy protection two years later.

The program that backed Solyndra ended in September and isn’t renewed in the 2013 budget.

‘All-Out’

Obama said in his State of the Union address in January the U.S. needed an “all-out, all-of-the-above” strategy on energy.

The plan calls for a $4.75 billion cut in tax credits for oil companies in 2013, including repeal of $3.49 billion in so- called intangible drilling costs, for a savings of $38.6 billion by 2022. The budget shows cuts equal about 1 percent of domestic oil and gas revenue in the next 10 years.

“The president’s 2013 budget plan returns to the well of bad ideas and back tracks on his State of the Union commitment,” said Jack Gerard, chief executive officer of the American Petroleum Institute in Washington, on a conference call with reporters.

Scott Slesinger, legislative director of the Natural Resources Defense Council, said the “forward-thinking” budget proposal would create jobs and protect the environment.

The Energy Department budget includes $12 million for research that would reduce risks associated with hydraulic fracturing for natural gas in shale formations. The process, called fracking, uses a mixture of water, chemicals and sand injected underground to free trapped gas. The Interior Department budget includes a $13 million increase for the U.S. Geological Survey to work with agencies on fracking studies.

Offshore Royalties

While the technique has driven up domestic production and reduced prices for natural gas, environmentalists say it poses a risk to drinking water sources.

The Interior Department’s 2013 budget projects royalties from offshore oil and gas production to remain flat at $5.86 billion in 2013. The department is proposing inspection fees on federal lands and waters, which would collect $48 million, fees for non-producing oil and gas leases, to raise $13 million, and royalties on silver, gold and copper production. Those fee proposals were included in last year’s budget.

Obama’s budget would cut tax preferences for coal, valued at $235 million in 2013 and $2.88 billion by 2022. The tax benefits include letting companies expense exploration and development costs.

Fossil-Fuel Aid

The budget would fund research in fossil-fuel energy, primarily for carbon capture and storage programs, at $421 million in 2013, a 21 percent reduction from current spending.

Last year, the president requested authority for an additional $36 billion in loan guarantees for nuclear energy, which Congress denied. The budget for 2013 didn’t renew the request.

“The 2013 budget does not include any additional loan authority or appropriated credit subsidy as the program will focus on deploying the significant amount of remaining resources appropriated in prior years,” according to the budget document.

The coastal oil-producing states of Louisiana, Texas, Mississippi, Alabama, California and Alaska face a $200 million cut in an Interior Department conservation and preservation program to protect fish and wetlands. The six states failed to use about $540 million out of $1 billion provided in 2007-2010, according to the Obama’s budget plan.

“States have been slow to obligate funding,” today’s budget proposal said. “In a period of severe fiscal restraint, leaving these unobligated funds in an account where they are not being deployed is no longer defensible.”

Energy Research

Among programs benefiting in Obama’s Energy proposals is the Advanced Research Projects Agency-Energy, which would get $350 million in 2013, an increase from $275 million in 2012. Secretary Steven Chu has described ARPA-E as a “swing for the fences” program that supports research into cutting edge clean energy innovation.

“We’re very focused on saving money by saving energy,” Chu said at a department briefing.

Energy efficiency and renewable energy would get $2.27 billion, an increase from $1.81 billion, under the budget proposal.

The spending includes money for solar-energy research as part of Chu’s SunShot Initiative to make solar competitive with other fuel sources without subsidies by 2020. Solar energy would get $310 million in the budget, from $289 million in 2012.

The budget would also increase spending to develop and promote technologies to cut the energy use of buildings. That program would get $310 million in the proposal, an increase from $219 million.

Pipelines, NRC

An advanced manufacturing program to help industries cut their energy use also sees an increase, from $116 million in 2012 to $290 million.

Pipeline safety budget got a 70 percent, or $64 million, increase under the Department of Transportation’s Pipeline and Hazardous Materials Safety Administration plan for 2013.

The president requested $1.05 billion for the Nuclear Regulatory Commission, a 1.5 percent increase from last year’s budget. The proposal includes a $9.7 million increase for reactor safety, primarily for costs to implement regulations developed as a result of meltdowns at Japan’s Fukushima Dai-Ichi plant last year. The NRC expects to recover about 88 percent of its budget authority from industry fees, according to the regulator.

To contact the reporters on this story: Jim Snyder in Washington at jsnyder24@bloomberg.net; Brian Wingfield in Washington at bwingfield3@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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