By Michael Craig | Originally published at Americans for Energy Leadership

 

Obama's freeze on federal employee salaries and Republican efforts to eliminate earmarks are two of the tangible signs that deficit reduction has, and will continue to be a hot topic in the near future. The 112th Congress will almost surely take up the issue, making it crucial to understand what impact serious deficit reduction plans may have on the nation's clean energy industry. An apt starting point for this investigation is the ever-increasing array of deficit-cutting plans that aim to shape the national dialogue surrounding this issue.

Perhaps the most prominent deficit reduction plan released recently has been The Moment of Truth by the President's National Commission on Fiscal Responsibility and Reform. The commission proposes two major reforms that would directly impact clean energy: cuts to discretionary spending and tax reforms. The discretionary spending cuts amount to an immediate $50 billion and a further $150 billion by 2015, divided evenly between security and non-security spending. The commission specifically proposes eliminating the Department of Energy's applied research on fossil fuels, saving approximately $0.9 billion; reducing research, development, testing, and evaluation by the Department of Defense by 10%, which could lower the DoD's ability to procure and develop alternative energy sources; and instituting a 15-cent per gallon gas tax, which would go toward transportation funding but could be a boon for hybrid and electric vehicles.

With respect to tax reform, the commission advocates eliminating $1.1 trillion a year in tax expenditures, i.e. subsidies, for businesses. As Evan Lehmann points out, it's unclear whether all or only some subsidies would need to be eliminated in order to save $1.1 trillion, but what is clear is that fossil fuel and clean energy subsidies alike could be axed. Eliminating all energy 'tax expenditures' would most likely be a net plus for clean energy, given the disproportionate support fossil fuels receive from the government and the instability in clean energy support mechanisms like the Production Tax Credit, but considerable debate surrounds this question.

A second deficit-reduction plan that's slightly more friendly towards clean energy development is Restoring America's Future from the Bipartisan Policy Center. This plan takes a different tack than that of the President's commission, opting to freeze rather than cut non-defense and defense discretionary spending for four and five years, respectively, and capping them at GDP thereafter. As in The Moment of Truth though, DoD RDT&E is targeted for reduction by 18.5%. Notably, the Bipartisan Policy Center considered a CO2 tax of $23 dollars per ton CO2, but ultimately did not recommend it for want of unanimous support among the plan's creators.

Investing in America's Economy is a third plan developed jointly by Demos, the Economic Policy Institute, and The Century Foundation. Of all the budget-cutting reports, this one is by far the most amenable to clean energy development. For one, the plan proposes eliminating all fossil fuel production credits, a move that would even the playing field in energy production and therefore be a boon for clean energy implementation. A price on carbon is also called for under the plan, either via a cap and trade or carbon tax scheme, which would fund green investment to the tune of $26 billion by 2015 in addition to reducing the deficit. Thirdly, the plan proposes an excise tax on motor fuel, a similarity to The Moment of Truth. Finally, non-defense discretionary spending would be  increased by over $200 billion every year, although Department of Defense spending would be slowly curtailed by a total of $960 billion over 10 years.

While not exhaustive, the above list of budget-cutting proposals illustrates the divergence among policy makers and economists with respect to how best to close the deficit. Of particular interest to clean energy advocates is the disparity between the deficit-reduction plans in how to deal with discretionary spending.

Two approaches to discretionary spending dominate the debate: either immediately reduce spending so as to reap savings as soon as possible, or choose to increase spending in order to boost investment to achieve greater economic growth in the long term, which in turn will drive down the deficit. The latter option would be a much-needed boost at a time when numerous reports indicate international competition in clean energy innovation is becoming increasingly fierce. The additional funds could be put towards infrastructure maintenance and construction, research and development, STEM education, and the creation of public-private collaborative centers, among other projects. All of these uses would deliver much-needed services to a struggling American economy, whether it be by employing skilled laborers or improving the education of future generations. Consequently, while increased discretionary spending is not typically thought of as having bipartisan appeal, it stands a far greater chance of being included in a deficit-reduction package than do options like a carbon price, and so should be the primary focus of clean energy advocates in the run-up to the imminent fight over the deficit.

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Michael Craig is a Policy Fellow in AEL’s New Energy Leaders Project and will be a regular contributor to the website. Michael is a recent graduate of Washington University in St. Louis with a major in Environmental Studies (Biology/Ecology track) with a minor in Environmental Engineering Sciences.  At Wash U he was a researcher at the Center for New Institutional Social Sciences, investigating to what extent three factors drive renewable energy implementation: technology, resource availability, and institutions. He is currently a Campaign Analyst in the Climate Change division at Oceana.