The deal to raise the US debt ceiling may have averted a disastrous credit crisis, but it is bad news for the clean energy sector.
After a bitter partisan battle, Congress and President Barack Obama signed off on a deal that allows Obama to increase the debt limit by at least $2.1 trillion in exchange for 10-year discretionary spending caps, generating nearly $1 trillion toward reducing the country’s massive deficit.
The legislation also appoints a bipartisan committee evenly divided between Democratic and Republican members of the House of Representatives and Senate to identify an additional $1.5 trillion to reduce the deficit, with Congress required to vote on the plan by 23 December. A failure to enact the cuts would trigger automatic spending reductions beginning in 2013, split evenly between domestic and defence spending.
The committee assignments – to be finalised within two weeks – will play a critical role in determining which programmes are spared or targeted for cuts, according to an analysis by ClearView Energy Partners. Senator Tom Carper (D-Delaware), for example, has a long-time focus on power plant emissions while appointing Senator Jon Kyl (R-Arizona) could suggest a protective bias toward nuclear power incentives, the analysis said.
With Congress now in recess for the summer, the details of the programmes to be cut and the exact dollar amounts will be worked out during the appropriations process in September. But federal agencies such as the Environmental Protection Agency (EPA) and the Department of Energy will undoubtedly have their budgets slashed.
“I don’t see clean energy avoiding that hatchet,” said Richard Caperton, policy analyst for progressive think tank the Center for American Progress.
The House has already taken steps to cut the budgets for several federal agencies, including the EPA, a favourite target of conservative Republicans. In July, the House cut around $1.5 billion, or 18%, from the EPA’s budget, setting it at $7.4 billion for the 2012 fiscal year, which begins on 1 October.
In the House, clean energy research and development programmes, tax credits for the renewable energy sector and the loan guarantee programmes have been “under significant attack”, Caperton said. “Hopefully, the Senate can hold the line and protect those programmes,” he added.
Oil, gas subsidies should be first in line for cuts – Center for American Progress
If legislators really wanted to reduce the deficit, the easiest step to take would be to eliminate the $4 billion in oil and gas subsidies, he argued. “I don’t understand why they don’t do that as the first thing on the table,” Caperton said.
The debt ceiling deal focuses on the spending side rather than tax reform, which bodes well for the production tax credit and the investment tax credit for renewables, Caperton said. “But there is a new era of austerity in DC,” he said. “Extending these tax breaks will be more challenging.”
The deal may have ended the risk of a US default, but it has also increased risks to the scope and continuity of green energy subsidies and existing oil and gas tax treatment, according to ClearView.
Until the specific programme cuts are finalised, likely around the end of September, the focus will be on attempts to attach riders on spending bills aimed at curtailing the EPA and other government agencies from imposing regulations on industry.
“[Such attacks] definitely get a lot of traction in the House,” Caperton said. “It’s just important that the Senate do the right thing and fight those off as they go through their appropriations process. It’s going to require a lot of vigilance from the environmental community.”
The political underpinnings of recent events reinforce ClearView’s conviction that one or several of Obama’s key environmental policies could be defunded or delayed by targeted riders within the appropriations process and the “super-committee” process, the ClearView stated.
“We would not be surprised to see Republicans arguing that delaying or lightening regulatory burdens might promote economic growth, increase tax revenues and reduce the federal deficit—warranting inclusion of certain riders in the [super-committee] process,” according to the analysis.