The U.S. could save $35 billion by 2031 by immediately eliminating fossil fuel tax preferences, according to a line item in President Biden’s 2022 budget. If Biden can get it through Congress — a very big “if” — the budget would also extend through 2031 the federal production tax credit, a major incentive for wind development, at a projected cost of $38.6 billion.

Released on May 28, the $6 trillion budget puts solid numbers on the programs Biden has been promoting as part of his climate agenda and infrastructure package, with estimates of future spending through 2031. For example, the $2 trillion American Jobs Plan calls for the creation of “a targeted investment tax credit” (ITC) to spur the buildout of high-voltage transmission lines with a capacity of up to 20 GW. In the budget, that credit gets a modest $187 million in 2022, growing, with the expansion of the grid, to $3.4 billion in 2031.

Critical hits for the oil and gas industry include repeals of intangible drilling costs (a loss of $2.2 billion in 2022), capital gains treatment for royalties ($46 million), and expensing for exploration and development costs ($190 million).

Wins for renewables include a modified ITC that would be extended through 2031, starting with an estimated cost of $1.4 billion in 2022 and rising to $35.5 billion by 2027, reflecting an accelerated ramp-up in the industry to meet Biden’s goal for decarbonizing the grid by 2035. Other line items include $1 billion in support for community solar and storage through 2026, and $10 billion each through 2026 to support electric cooperatives’ adoption of clean energy and employment of electrical workers for upgrading the grid.

The Department of Energy issued its own breakdown of its $46.2 billion budget for 2022, including $4.7 billion for the Office of Energy Efficiency and Renewable Energy, a 65% increase over 2021. A new Office of Clean Energy Demonstrations is funded at $400 million “to keep bringing innovative technologies to market.”

Party-line Split

At the same time, the budget shows Biden trying to perhaps offset the repeal of fossil fuel subsidies with funding for the low- and no-carbon technologies now gaining support in the coal, oil and gas industries. Existing nuclear plants are slated for $750 million in credits in 2022 to help them stay in operation, with that figure rising to $1 billion per year through 2031. Federal procurement of advanced nuclear energy will get $5 billion over the next decade. Investment in hydrogen and carbon capture and sequestration will total $7.9 billion through 2026.

Brad Crabtree, director of the Carbon Capture Coalition, praised Biden’s “commitment to carbon management as a key component of a national strategy to reach net-zero emissions.” The budget underlines the “bipartisan common ground and growing support for a broader and more complete portfolio of federal carbon-capture policies that are essential to meeting midcentury climate goals, while preserving and growing America’s high-wage jobs base in energy, industry and manufacturing,” he said in a statement.

Judi Greenwald, executive director of the Nuclear Innovation Alliance, said the budget was “a good first step” toward adequate funding to support the development and commercialization of advanced nuclear technologies.

Still, congressional response to the energy spending in the budget split predictably along party lines.

Rep. Frank Pallone (D-N.J.), chair of the House Energy and Commerce Committee, said he was “delighted [with] President Biden’s plan … for transformative funding and a national clean electricity standard that will help us move toward a clean economy. This budget recognizes the climate crisis for what it is: not just a challenge, but also an opportunity to rebuild our country from the devastation of the COVID-19 pandemic.”

Rep. Cathy McMorris Rodgers (R-Wash.), the committee’s ranking member, took to Twitter, calling the budget “a radical agenda for the government to take over our lives. … Green New Deal-style policies will crush American jobs, energy reliability and our security.”

A Carbon Tax Alternative

Transportation electrification is another budget winner. With the auto industry now actively engaged in the transition to electric vehicles, Biden wants to spend $137.4 billion over the next decade to support widespread adoption, along with a $20 billion investment in electric buses. Another $3 billion through 2026 is budgeted to electrify the federal vehicle fleet and support the necessary charging infrastructure.

Other funding through 2026 includes:

• $704 million to increase the use of net-zero technologies in agriculture;
• $566 million in support for economic development in Appalachian communities;
• $1.3 billion to increase a tax credit for new energy-efficient homes; and
• the creation of new tax incentives and credits for heavy- and medium-duty zero-emission vehicles ($5.3 billion), sustainable aviation fuels ($3.5 billion) and low-carbon hydrogen ($1.1 billion).

“Today’s budget request from the Biden administration provides a detailed roadmap of the programs and federal investments necessary to support the renewable energy industry’s drive to decarbonize the power sector by 2035,” American Council on Renewable Energy CEO Gregory Wetstone said in a statement. “The budget’s forward-looking investment in electric grid expansion and modernization will unlock renewable resources, enhance our national security, and increase reliability for consumers and businesses.”

Heather Zichal, CEO of the American Clean Power Association, said the budget’s “funding levels for wind, solar and energy storage research and development will be crucial in keeping our country on the cutting edge of clean energy technology. … Alongside clean energy itself, this budget rightly acknowledges the importance of transmission infrastructure investments in facilitating the transition to a cleaner, more affordable American electric system.”

Given the current, stalled state of negotiations over Biden’s infrastructure package — with Republicans pushing a $928 billion alternative focused primarily on “hard” infrastructure like roads, bridges and water systems — the budget will likely face a similar, significantly slimmed-down GOP counter proposal. And the oil and gas industry will line up against any repeal of its subsidies.

Some Republicans could be exploring a carbon tax as an alternative to a repeal of oil and gas subsidies. McMorris and Sen. John Barrasso (R-Wyo.), ranking member on the Senate Energy and Natural Resources Committee, released a joint letter to the Energy Information Administration on June 1 requesting an analysis of Biden’s commitment to cutting U.S. emissions by 50 to 52% by 2030 and to net-zero by 2050.

The letter specifically asks EIA to include “future forecasts and run side cases using increasing carbon fees sufficient to meet these emissions targets. … Such an analysis could serve as an important starting point and baseline for further analyses as the Biden administration and Congress consider various proposals.”