Energy Considerations within the President's Budget Request
This week, President Joe Biden unveiled his third budget request marking both a campaign pitch and an opening shot at House Republicans who have demanded significant spending cuts with their new majority. The $6.9 trillion plan proposes tax hikes on the wealthiest Americans and corporations, the most funding ever for the military, and $3 trillion in deficit-slashing policies over a decade. It also includes more than $688 billion in non-defense funding for Fiscal Year 2024.
While the overall request is likely doomed in the halls of Congress, the details within illustrate the specific priorities of the Administration and its congressional allies. Particularly for the tax provisions, the President's budget can be seen as a core list of items that can be used in future negotiations over the debt ceiling and overall government appropriations.
Unsurprisingly, provisions impacting the energy sector have a prominent position in the President's overall budget request. The fossil fuel energy sector is a particular target featuring a collection of tax incentives President Biden would like Congress to repeal or overhaul. No renewable incentives, nor recently boosted incentives for carbon sequestration and other similar incentives contained in the Inflation Reduction Act, appear to be affected in his budget request.
The request also includes substantial investments in the clean energy space, from infrastructure projects and residential solar installation assistance to industrial decarbonization practices and clean energy supply chain funding.
Read our full Constitution Partners alert on the President’s FY 2024 Budget Request
Tax Proposals
In terms of specific energy tax provisions targeted in President Biden's latest budget request, specific proposals are in place to repeal the following:
Exemption from the corporate income tax for publicly traded partnerships with qualifying income and gains from activities relating to fossil fuels (commonly referred to as the Master Limited Partnership)
Enhanced oil recovery credit for eligible costs attributable to a qualified enhanced oil recovery project
Credit for oil and gas produced from marginal wells
Expensing of intangible drilling costs
Deduction for costs paid or incurred for any qualified tertiary injectant used as part of a tertiary recovery method
The exception to passive loss limitations provided to working interests in oil and natural gas properties
Use of percentage depletion with respect to oil and gas wells
Two-year amortization of geological and geophysical expenditures by independent producers, instead allowing amortization over the seven-year period used by major integrated oil companies
Expensing of exploration and development costs
Percentage depletion for hard mineral fossil fuels
Capital gains treatment for royalties
The OSTLF and Superfund excise tax exemption for crude oil derived from bitumen and kerogen-rich rock
Accelerated amortization for air pollution control facilities.
The first eight deductions are widely used in the upstream industry by oil and gas producers to offset the capital-intensive business. Others are critical to the pipeline industry, refining sector, and mining industries. Unless otherwise specified, these provisions would be effective for taxable years beginning after December 31st, 2023.
Also included in the “energy” tax preferences is a new tax on mining “digital assets”. It would require any firm using computing resources, whether owned by the firm or leased from others, to mine digital assets would be subject to an excise tax equal to 30 percent of the costs of electricity used in digital asset mining. Firms engaged in digital asset mining would be required to report the amount and type of electricity used as well as the value of that electricity, if purchased externally.
In addition to these provisions included in the energy title, the Closing Loophole section further defines the ultimate purchaser for the purpose of diesel fuel exportation as the last purchaser in the United States as the entity entitled to a rebate of Federal excise taxes.
Energy Policy Proposals
GHG Reduction R&D Efforts: The Budget includes $11.9 billion in Energy Department climate/clean energy research, development, and demonstration projects aimed at achieving 50-52% reductions of economy-wide GHG output by 2030, based on 2005 levels.
Clean Energy Infrastructure: Of the nearly $2 billion provided by the Budget to support clean energy infrastructure and workforce expansion, $425 million is targeted towards weatherizing/retrofitting homes of low-income Americans; $107 million is allocated to the Energy Department's Grid Deployment Office in support of grid modernization activities; and $800 million for HHS LIHEAP-funded efficiency upgrades.
Manufacturing & Supply Chains: The Budget requests $75 million to launch a Global Clean Energy Manufacturing Effort through the Energy Department's Office of Manufacturing and Energy Supply Chains (MESC) to build resilient clean energy supply chains with allies. The Budget requests an additional $75 million for the MESC to carry out recent determinations from President Biden under the Defense Production Act.
Environmental Proposals
Increases Permitting Capacity: The Budget invests in environmental permitting programs that will expedite the delivery of new and modernized infrastructure by supporting efforts at the Interior Department to deploy 30 gigawatts of offshore wind capacity by 2030. It also provides $60 million to expand offshore wind permitting activities at the National Oceanic and Atmospheric Administration (NOAA) to allow NOAA to use the best available science to help meet the Administration’s deployment goal while protecting biodiversity and promoting sustainable ocean co-use.
Industrial Decarbonization: The Budget supports more than $1.2 billion in Energy Department industrial decarbonization activities. The Budget encourages the MESC to adopt industrial decarbonization solutions and further directs research and development efforts in the Industrial Efficiency and Decarbonization Office. Within the $1.2 billion, the Budget includes $160 million for the Office of Clean Energy Demonstrations to support at least two large-scale industrial decarbonization projects directly benefitting disadvantaged communities.
Reduces HFC Pollution. The Budget includes $64.4 million at EPA to implement the American Innovation and Manufacturing (AIM) Act and continue phasing out potent greenhouse gases known as hydrofluorocarbons (HFCs).
Related Food and Agriculture Proposals
Restores American Leadership in Agricultural Innovation and Research. The Budget provides more than $4 billion for agricultural research, education, and outreach. The Budget provides $7 billion for climate-related funding at USDA, including a total of $612 million for the Department’s core climate-related R&D activities.
Helps Farmers withstand the Impact of Climate Change. The Budget provides $208 million above the 2023 enacted level, for a total of $1.2 billion, to increase conservation adoption and farm income across privately owned land through the Natural Resources Conservation Service (NRCS). The Budget also includes a mandatory proposal to provide sustained incentives for cover crop usage, to improve climate resilience by reducing soil erosion and compaction, increasing soil organic matter, and limiting nutrient runoff.
Miscellaneous
CHIPS and Science Act of 2022: The Budget provides $8.8 billion to the Energy Department's Office of Science to advance the priorities from the historic science investments from the 117th Congress.
Cybersecurity & Resilience: The Budget provides $245 million to enhance the security of clean energy technologies and the energy supply chain. It also includes assistance for climate-related emergency planning and preparation.
LIHEAP Funding: While the Budget recommends LIHEAP-funded efficiency upgrades, it also requests $4.1 billion for the Low Income Home Energy Assistance Program (LIHEAP) in totality.
Clean Energy on Public Lands: The Budget requests $181 million to accelerate teh deployment of clean energy on public lands and waters. In particular, funding would support the leasing, planning, and permitting of solar, wind, and geothermal energy projects. Further, that funding is also dedicated to associated transmission infrastructure deploying 30 gigawatts of offshore wind and 25 gigawatts of clean energy capacity on public lands.
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Constitution Partners will continue to monitor upcoming budget proposals from Congress
Links
The President’s full budget can be found here
Fact Sheet: The President’s Budget Reduces Deficits by Nearly $3 Trillion Over 10 Years
Fact Sheet: President Biden’s Budget Lowers Energy Costs, Combats the Climate Crisis, and Advances Environmental Justice
Fact Sheet: The President’s Budget Cuts Wasteful Spending on Big Pharma, Big Oil, and Other Special Interests, Cracks Down on Systemic Fraud, and Makes Programs More Cost Effective
