Obama Administration Signals High Priority of Renewable Energy

21 February 2011

US President Barack Obama proposed on Valentine's Day to boost funds for clean energy research and deployment in his 2012 budget by slashing subsidies for fossil fuels such as oil, gas and coal. The announcement comes at a time of great sensitivity on issues related to government support for clean energy, following the US launching of a WTO dispute against China's support for wind power manufacturing and Japan's WTO challenge against Canadian green energy subsidies (see Bridges Trade Biores, 24 January 2011 and 24 September 2010 respectively).

But despite these conflicts and resistance from lobby groups, Obama has maintained his focus on the importance of the industry, including clean energy technology among a few singled out as part of "our generation's Sputnik moment" in his State of the Union address.

The budget provides the Department of Energy US$29.5 billion for fiscal year 2012, up 4.2 percent from the proposed 2011 budget, and up 12 percent from the enacted 2010 budget. Some US$8 billion is earmarked to support research in clean energy, such as wind, solar, and advanced batteries.

"Whomever leads in the global, clean energy economy will also take the lead in creating high-paying, highly skilled jobs for its people," the administration said in the budget.

The budget would also provide US$853 million to support new nuclear energy technologies, such as small modular reactors. The White House asked for US$36 billion in federal loan guarantees to help finance the building of nuclear power plants, as it did last year. The loan program already has US$18 billion in authority.

Cuts to fossil fuel spending to help offset costs

To help pay for the clean energy initiatives, the White House is asking Congress to repeal US$3.6 billion in oil, natural gas and coal subsidies, a move that would total US$46.2 billion over a decade. The International Energy Agency puts total global fossil fuels at US$312 billion a year in 2010. In addition, the budget cuts funding for oil and gas research and for hydrogen fuels programs.

But many Republicans oppose cutting subsidies for fossil fuels, saying it would hurt industries that provide jobs while the economy is still fragile.

"Given the broad difference in priorities between House Republicans and the White House on energy issues, we believe that few of the proposed cuts and expansions ... will become law," Whitney Stanco, an energy policy analyst at MF Global, said in a research note. Meanwhile the International Labour Organization (ILO) has calculated that the renewable energy industry generates more jobs than employment in fossil fuels. The ILO estimates that investments of US$630 billion by 2030 would translate into at least 20 million additional jobs in the renewable energy sector.

Republicans use EPA issue as leverage

Republicans, who now control the House of Representatives, have also proposed to cut funding for the Environmental Protection Agency's program to regulate greenhouse gases, saying Congress should be the one to decide whether to fight climate change, not the administration.

Republicans may try to force a government shutdown if the Obama administration does not agree to its spending cuts. But analysts said a delay in EPA climate regulations led by Congress was more likely than shutting down the government over an environmental rule.

The Obama budget cuts the 2012 EPA budget by about US$1.3 billion or about 13 percent with reductions in a clean diesel program and in Great Lakes restoration projects.

Stanco said the budget's funding for electric vehicles could have the best chance of becoming a law, as it could be paired with funding for natural gas vehicles. The budget proposes US$588 million for vehicle technologies, an increase of 88 percent from current levels.

The budget would double the number of energy innovation hubs to six in order to bring scientists to work on topics like rare earth elements, energy storage, and batteries and development of smart grid technologies designed to make electricity transmission efficient.

Renewables price drop changing clean energy landscape

Meanwhile clean energy companies need to perform in an increasingly competitive environment. According to Bloomberg New Energy Finance's Wind Turbine Price Index, prices for wind turbines, for example, have dipped below €1million per MW for the first time since 2005. The study cites increasing scale, improved efficiency, and over-capacity among wind energy hardware manufacturers as key reasons for the drop in price.

While dropping turbine prices may be have manufacturers scrambling, project developers will be scrambling to take advantage of the improved cost-competitiveness of wind energy compared with gas and coal.

"The latest edition of our Wind Turbine Price Index shows wind continuing to become a competitive source of large-scale power," said Michael Liebreich, chief executive of Bloomberg New Energy Finance. "For the past few years, wind turbine costs went up due to rising demand around the world and the increasing price of steel. Behind the scenes wind manufacturers were reducing their costs, and now we are seeing just how cheap wind energy can be when overcapacity in the supply chain works its way through to developers."

ICTSD Reporting; "Green view: How to save $300 billion," THE ECONOMIST, 12 November 2010; "Untold Billions: Fossil-Fuel Subsidies, Their Impacts and the Path to Reform. A Summary of Key Findings," GLOBAL SUBSIDIES INITIATIVE, April 2010.

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