Obama budget would slash oil tax breaks while boosting renewables

WASHINGTON — President Barack Obama is proposing billions of dollars in government spending to tackle climate change and boost alternative energy sources, even as he makes another plea for Congress to spike tens of billions of dollars in oil and gas industry tax breaks.

The climate ventures include a program to boost the resiliency of coastal communities that could be battered by more intense storms and a $4 billion fund to encourage states to cut greenhouse gas emissions more quickly than federal regulations require.

In his $4 trillion budget request to Congress, Obama also says he wants to change the way money from offshore oil and gas production is shared with Gulf Coast states, by diverting more of those dollars to national programs with “broad” natural resource and conservation benefits.

The moves reflect the president’s intensifying focus on the environment and climate change as he enters his final two years in office. And they demonstrate his ongoing balancing act when it comes to the domestic oil boom, as Obama seeks to sustain that major economic engine while also appeasing environmentalists worried about damage to the land and air.

“No challenge poses a greater threat to future generations than climate change,” Obama said in a message on his budget proposal.

“The significant costs to inaction on climate change hit the Federal Government’s bottom line directly, as worsening climate impacts create government liabilities,” Obama added. “That’s why this budget takes action on climate…with investments to accelerate carbon pollution reductions, to build on-the-ground partnerships with local communities and help them put in place strategies for greater resilience to climate change impacts, and to support America’s leadership abroad on this important moral and fiscal issue.”

Many of Obama’s proposals are nothing new, and few are likely to find favor in the Republican-controlled Congress that writes the government’s budget. But they signal where Obama’s administration will focus in its closing years. And increasingly, that’s on the environment and climate change.

Tax breaks

Obama’s budget plan makes another call to repeal a host of tax deductions used by the oil and gas industry, worth at least $43.8 billion from 2016 to 2025. His targets include a credit for oil and gas produced from low-producing marginal wells and an allowable expense for intangible drilling costs, such as repairs and hauling supplies.

Current tax law allows most of those intangible drilling costs to be expensed — or deducted immediately — rather than depreciated over the economic life of a well.

Oil industry leaders emphasized that the tax proposal would hurt a sector already reeling as crude prices plummet.

“The United States is now the No. 1 producer of oil and natural gas in the world,” noted Jack Gerard, president of the American Petroleum Institute. “Tax increases would jeopardize America’s competitiveness as it would discourage future investment. We need policies that will encourage investment, and higher taxes are not the answer.”

Industry leaders say the targeted tax breaks are not unique to the oil industry and have corollaries throughout the tax code.

Bruce Thompson, president of the American Exploration and Production Council, said Obama’s plan would block oil and gas companies from deducting “the ordinary and necessary business expenses incurred in operating their businesses.”

“It is fundamentally bad economic policy to increase taxes on an industry that is providing abundant, affordable domestic energy, supporting growth and job creation while moving our nation toward energy independence,” Thompson said.

Climate change

Environmental groups praised Obama’s approach, with League of Conservation Voters President Gene Karpinski calling the budget propose “a roadmap for addressing the biggest challenge of our time.”

“President Obama is clearly moving full speed ahead to tackle climate change, hold polluters accountable and protect our country’s special places,” Karpinski said.

Obama’s proposed $4 billion “Clean Power State Incentive Fund” is designed to prod states to accelerate their carbon dioxide emission cuts, going faster — and further — than minimum requirements proposed by the Environmental Protection Agency’s proposed power plant rule, set to be finalized later this year.

States that qualified could use money from the fund for climate adaptation initiatives, renewable energy programs and infrastructure.

Renewable energy would get a big boost under Obama’s proposed budget, with increased spending at both the Energy Department and the Department of the Interior. And, the White House wants Congress to permanently renew the production tax credit, widely used to finance wind and solar power projects.

Natural gas

And while the Obama administration would trim spending on the Department of Energy’s fossil energy research overall by about 2 percent over the current $571 million, it would give a boost to research on capturing carbon dioxide emissions produced when oil, gas and coal are burned. The carbon dioxide research would see a boost to $117 million in fiscal year 2016, up from $89 million in fiscal 2014.

The department’s Fossil Energy Research and Development program also is slated to begin new work “focused on developing technologies to monitor and reduce emissions from midstream natural gas infrastructure.”

As in past years, the administration is proposing new inspection fees for oil and gas projects on federal land managed by the Interior Department — about $48 million worth in fiscal 2016.

“The offshore industry already does this, and it’s just common sense,” said Interior Secretary Sally Jewell in a phone call with reporters.

Offshore drilling

The Obama administration provided scant details on its proposal to change the way offshore oil and gas revenue is distributed to Gulf Coast states. The plan involves redirecting some of those funds “to programs that provide broad natural resource, watershed and conservation benefits to the nation.”

The Interior Department said it would be seeking congressional approval for the changes but so far has not consulted with lawmakers from the region.

And while specifics were scarce Monday, the Interior Department appears to be eyeing sending some of the dollars targeted for Alabama, Louisiana, Mississippi and Texas to natural resource programs that benefit Americans nationwide — not just along the Gulf Coast.

“The outer continental shelf is owned by all Americans,” Jewell said. “There is a small portion of the Gulf where there is revenue sharing proposed for certain Gulf states. We believe that needs to be reexamined to look at what is a fair return to taxpayers across the whole United States.”

Without congressional intervention, the amount of offshore drilling revenue collected by Alabama, Louisiana, Mississippi and Texas for activity in nearby federal waters is set to soar to as much as $500 million annually in fiscal 2017, under an existing planned expansion of the offshore revenue sharing program.