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Colin Chilcoat

Colin Chilcoat

Colin Chilcoat is a specialist in Eurasian energy affairs and political institutions currently living and working in Chicago. A complete collection of his work can…

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Obama’s New Budget Does Stricken Oil And Gas Industries No Favors

President Barack Obama’s 2016 budget proposal is out; enjoy it while it lasts. The budget proposal features a significant boost in federal spending for green-energy technologies and carbon-critical policies – all initiatives likely to be met with staunch GOP opposition on Capitol Hill.

First on the agenda is the tax code. Specifically, the Obama administration seeks to permanently extend the solar Investment Tax Credit (ITC) as well as reinstate the recently expired renewable electricity Production Tax Credit (PTC). The credits constitute a $31.5 billion budget hit over the next decade – a cost theoretically mitigated by rapid jobs growth and realistically worth it.

Since the ITC’s inception annual solar installation has grown by over 1,600 percent. Solar jobs are created at a rate nearly 20 times higher than employment growth in the general economy. By 2017, solar power is expected to be as cheap as, or cheaper than, electricity from the grid in approximately 80 percent of global markets – that is, if the solar panel industry can keep up with demand. Related: Should President Obama Veto Keystone XL?

Wind power growth has been similarly remarkable, though hindered by the less stable PTC. In 2013, the United States generated more net wind energy than China, despite a significantly smaller capacity base. Still, the PTC has expired, or been within five months of expiration, six different times, stunting both domestic manufacturing and installation. The current expiration is no different, and if historical trends persist we can expect annual installation to decline up to 93 percent.

The ITC and PTC are but two of a handful of climate- and energy-related tax breaks in the proposed budget. Of course, credits for reduced carbon emissions, alternative-fuel vehicles, and research all make an appearance. In all, Obama proposes to spend $7.4 billion to fund clean energy technologies in 2016 – or approximately 12 percent more than Congress enacted for this year. In addition, the White House will establish a $4 billion Clean Power State Incentive Fund to encourage states to make more rapid cuts to power plant emissions.

It’s not all tax deductions and rainbows however, especially for the already reeling oil and gas industry. The budget plan aims to remove about $44 billion in industry tax breaks over the next decade. The measure includes dropping the Section 199 manufacturing deduction, which embraces extractive activities and has been a boon to oil and gas companies alike. In fact, it is estimated that the repeal of Section 199 could compromise more than 10 percent of US oil and gas productive capacity by 2017 – or roughly $10-17 billion in direct upstream investment per year. Related: Obama Pledges Cleaner Future In State Of The Union

The red tape is also thicker, and more expensive. The budget will hold oil and gas producers accountable for an increase in funding for inspections and oversight – a move that won’t speed up the already slow process of producing on public land.

The budget proposal is the latest in a series of enigmatic decisions that have seen the Commander in Chief fluctuate between environmental and industrial leanings. On January 27, the Obama administration opened up a large swath of the Atlantic East coast to oil and gas drilling – the region is thought to hold 3.3 billion barrels of recoverable oil and 31.3 trillion cubic feet of natural gas.

In the short- to medium-term, few in the oil and gas industry will suffer – current distress notwithstanding. The budget will be markedly different following Congressional review and fossil fuel subsidies still outnumber those for renewable energy six to one. Still, the White House seeks to address a larger issue in climate change – a phenomenon it believes will cause the US to hemorrhage money if left unresolved.

By Colin Chilcoat of Oilprice.com

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  • mike on February 03 2015 said:
    The oil companies have been hosing us for years while making ridiculous profits. Long overdue for a reduction in their welfare.

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