President Biden's administration has so far proven to be one of the most aggressive in pursuing climate and clean energy targets. After rejoining the Paris Climate Accord in one of his first pieces of business, Biden, in a virtual climate summit with 41 world leaders last month, unveiled an ambitious 10-year Climate Plan that has proposed cutting U.S. greenhouse gas emissions by 50-52% by 2030. That represents a near-doubling of the U.S. commitment of a 26-28% cut under the Obama administration following the Paris Agreement of 2015.
Last week, president Biden proposed a budget that would entrench the nation's deficits in excess of $1 trillion for the next decade, marking new record highs.
The blueprint ties together three major spending proposals already unveiled by the Biden administration: the $2.3 trillion American Jobs Plan, the $1.8 trillion American Families Plan, and the $1.5 trillion in discretionary spending for fiscal 2022.
In essence, this means that the 2022 budget—combined with mandatory spending programs—would spend $6 trillion, about $300 billion more than current projections for the year, with the extra cash going into health, education, science research, and infrastructure.
Not a bad start until you get into the nitty-gritty of the proposal. In clarification of the infrastructure plan, Biden's administration now says it seeks to "eliminate tax preferences for fossil fuels," in addition to spending an additional $14 billion on tackling climate change.
Biden's budget proposal released Friday has targeted specific tax provisions that benefit the fossil fuel industry, and aims to eliminate measures that will generate $35 billion over the course of a decade.
Tax preferences for fossil fuels
In its latest proposal, the White House get much more specific in its infrastructure plan, saying:
"These oil, gas, and coal tax preferences distort markets by encouraging more investment in the fossil fuel sector than would occur under a more neutral tax system," as per a Treasury Department document.
Among those benefits, Biden has proposed to cut tax cut benefits for enhanced oil recovery (read: shale oil).
Another targeted benefit is for "intangible" costs like wages, repairs, supplies, and other expenses for oil and gas drilling.
Biden's proposal also targets a provision that allows oil and gas companies to deduct as much as 15% of the revenue they receive from a well.
As expected, the oil industry has come out charging, arguing that the new proposal would push production overseas.
"Increased taxes on American energy will only undermine economic recovery and job creation, push natural gas and oil investments overseas and lead to less government revenue, not more," American Petroleum Institute President and CEO Mike Sommers has told The Hill.
On the opposite side of the spectrum, supporters of the proposal hope it will discourage additional oil and gas development.
"This should bring us a little closer to the true cost of actually developing oil and gas and my hope is that it will decelerate the development of new fossil fuel infrastructure, which is so harmful to our planet and to communities," said Sujatha Bergen, health campaigns director at the Natural Resources Defense Council.
Meanwhile, Autumn Hanna, vice president of Taxpayers for Common Sense, wants to see Biden go even deeper, saying "there are a lot of details missing."
Biden's budget is a proposal that reflects the administration's policy priorities and goals, but Congress will enact its own spending plans.
No Carbon Tax?
To be fair, the likes of Mike Sommers should be grateful that Biden has so far not proposed more radical measures—such as the dreaded carbon tax.
According to energy consultant Wood Mackenzie, we must raise carbon prices dramatically to $160 per ton of CO2 by 2030, up from the current global average of $22, if we hope to successfully combat climate change.
WoodMac analyst Tom Heggarty says that higher CO2 prices could encourage companies to lower their carbon footprint through capturing the carbon and recycling into new products, a potentially "trillion-dollar industry." Related: New Iran Nuclear Deal May Completely Derail Oil Price Rally
Apart from a dying breed of climate deniers who continue believing that global warming is a hoax, the vast majority of Americans agree that the climate emergency is one of the most pressing issues facing the planet today. A 2020 Pew Research study on views on climate change found that nearly two-thirds say protecting the environment and dealing with global climate change should be top priorities for the president and Congress.
Even more revealing: A good 63% of Americans say that stricter environmental regulations are worth the cost.
So it's clear the vast majority of Americans are aware of climate change and support actions to mitigate the phenomenon. What is not clear is the best way to go about achieving our climate goals, as outlined in the 2015 Paris Accord.
Technological innovations in sectors such as renewable energy are certainly playing a big role in climate mitigation. But technology itself is not a policy; Subsidies, on the other hand, are a policy. Perhaps governments should subsidize research in climate science and other related technologies. There is also a strong case to be made that policymakers should allow free trade in solar panels, wind turbines, and other renewable energy equipment so as to lower the cost of generating renewable energy for domestic taxpayers.
But many experts are now arguing that the one policy that will move us closest to hitting our climate targets, at a relatively modest economic cost, is to raise the price of emitting CO2 and other greenhouse gases.
The price of carbon can be raised either through a carbon tax or a cap-and-trade, i.e., a system of quantitative emission limits with tradable emission permits.
An overriding theme that emerged from the latest CERAWeek by IHS Markit energy conference convened to discuss, among other things, Strategies for the Energy Transition, Climate & ESG, is that Big Oil considers carbon capture technology as being absolutely necessary for our fight against climate change. Exxon Mobil (NYSE:XOM) and Occidental Petroleum (NYSE:OXY) chiefs have said that the world still needs oil and gas, and governments need to focus on mitigating global warming using technologies such as carbon capture and storage (CCS) instead of lowering oil and gas production.
Suddenly, Biden's latest proposal appears relatively tame.
By Alex Kimani for Oilprice.com
More Top Reads From Oilprice.com:
- Oil Rises After ‘Cataclysmic’ Boardroom Showdown
- Moody’s: Credit Risk Is Growing For Big Oil
- Activist Investor Wins Exxon Board Seats In Day Of Reckoning For Big Oil