Obama’s Budget Relies on Cap-and-Trade to Offset Costs

by | Feb 26, 2009

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President Obama’s economic team Feb. 26 released details of his nearly trillion-dollar budget – to be funded in part by cap-and-trade limits on carbon emissions – revealing how the energy and environment sectors are likely to be impacted.

The 2010 budget commits $150 billion over 10 years toward seeking more energy independence, including research and funding for attempts to boost auto fuel efficiency, according to The Detroit News.

The effort includes doubling the production of renewable energy in three years, via tax breaks and loan guarantees for the industry, according to CNN/Money.com.

Obama hopes to raise some portion of the money for alternative energy development from cap-and-trade limits on carbon emissions.

Obama’s projection of garnering $646 billion revenue during the first eight years of a carbon-capping program may be a little low, two observers told Reuters.

“I don’t think it’s overly optimistic at all,” said Brian Murray, director for economic analysis at the Nicholas Institute for Environmental Policy Solutions at Duke University.

“It’s on the conservative side,” said Tim Profeta, the institute’s director.

The $646 billion figure presumes that a U.S. law to limit carbon emissions will be in place by 2012.

Among other funding methods, here are some measures of the budget that will impact the environmental and energy sectors:

  • $17 billion – reinstate Superfund taxes
  • $5.3 billion – excise tax on Gulf of Mexico oil and gas
  • $3.4 billion – repeal expensing of tangible drilling costs
  • $62 million – repeal deduction for tertiary injectants
  • $49 million – repeal passive loss exception for working interests in oil and natural gas properties
  • $13 billion – repeal manufacturing tax deduction for oil and natural gas companies
  • $1 billion – increase to seven years geological and geophysical amortization period for independent producers

The repeal of tax benefits for oil companies is likely to increase the cost of research and development in the sector, and may make alternative energies more palpable.

As Obama indicated previously, the budget includes programs for energy conservation in government buildings and homes alike. It promises more funds for clean coal plants, and there is a plan to revamp the electric grid.

President Obama also aims to reduce the budget deficit to half its current level.

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