Presidents 2012 Budget Proposal: White House Plots Right Course for Clean Energy Innovation

Budget drama is growing in Washington D.C. as deficit hawks aggressively try to cut and burn the size of government and the President has recently added to the fray with his 2012 budget proposal. Recent budget progress – through the Stimulus and reauthorizing the COMPETES act – supporting clean energy technology is in the crosshairs. Therefore, the President, in theory, must make two choices. On one hand the President must cut the budget deficit by eliminating or reducing programs. On the other hand the President seeks to invest in a clean energy future. Many budget absolutists believe that these choices are not mutually exclusive, saying that the U.S. is so far in debt that every government program is on the table. Fortunately, the President understands that cutting the deficit should not come at the expense of supporting innovation – clean energy or otherwise. In fact, not everything should be on the cutting table because the future fiscal sanity of the U.S. relies not only on reducing spending, but also on spurring innovation and thus economic growth.

Given these realities, the President has the right idea – strategically increase important clean energy programs and cut competitively unimportant programs like fossil fuel R&D. A few budget highlights stick out:

  • Significantly increase clean tech programs within the Office of Energy Efficiency and Renewable Energy (EERE) by 44% including Solar, Wind, Geothermal, Vehicle Technology, Building Technology, and Industrial Technology
  • Throw additional support (41% increase) at Smart Grid and Electricity storage technologies
  • Create a new $97 million funding stream for advanced small modular nuclear reactors (SMRs). The President proposes to invest $30 million in next generation SMRs like alternative material fast reactors and invest $67 million in a cost sharing program to deploy light water SMRs that are closer to commercial reality.
  • Double the number Energy Innovation Hubs at roughly $20 million apiece to develop next generation battery storage breakthroughs, advanced rare earth materials for energy technologies, and advanced Smart Grid breakthroughs.
  • Increase funding for the vitally important radical clean tech development agency ARPA-E to $550 million per year.
  • Defund fossil fuel R&D in coal and natural gas, but increase funding for carbon capture and sequestration technology development.

The accompanying spreadsheet (values in $ thousands) provides a more detailed look at the President’s proposal for DOE. Forthcoming posts will highlight specific programs in more detail as well as energy programs at other departments and agencies.

Download this file

These highlights show that, at least on clean energy innovation, the President’s budget is a promising starting point for budget discussions and builds on the small gains made in the reauthorization of the COMPETES Act.

Of course, whatever the merits of the administration’s proposal, it’s likely to run headlong into the political realities of budget absolutists. Just last Friday, a continuing resolution was introduced that could represent the single largest cut in discretionary spending in the nation’s history. The proposal would broadly damage the nation’s innovative capacity, and undo much of the progress that has been made in energy innovation in particular. EERE would be subject to a roughly 35% cut below FY 2010 appropriated levels; the Office of Science would see budgets cut by nearly 20%; and even ARPA-E, the high-upside program that has been leveraging private dollars at a 4-to-1 rate on select projects, would see its budget shredded. By way of comparison, the Office of Fossil Energy would only see its budget cut by 12% under the CR.

And it’s not as if taking the knees out from under these key components of the innovation system will have any great impact on deficit reduction: the funds from the three clean energy and science offices mentioned above account for less than one-half of 1% of the overall deficit. What we’d sacrifice in competitiveness tomorrow far outweighs the dollars we’d save today. 

Nevertheless, the Administration deserves kudos for charting the bold path outlined in the State of the Union. Time will tell if we can muster the political will to follow that path.


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About the author

Matthew Stepp is a Senior Analyst with the Information Technology and Innovation Foundation (ITIF) specializing in climate change and clean energy policy. His research interests include clean energy technology development, climate science policy development, transportation policy, and the role innovation has in economic growth.
  • Hallingip

    Surely, you meant this piece to be satire. A $3.7 Trillion budget with a $1.65 Trillion deficit is unsustainable. Since you appear to be concerned with sustainability, you should start with the biggest sustainability issue, which is our federal budget. At this rate it is likely that just interest on the federal debt will be $2-3Trillion a year by 2020. If the president were serious about innovation he would:1) Fully fund the patent office2) Repeal Sarbanes Oxley and the financial reform act3) Lower the Corporate Tax rate4) Eliminate the Capital Gains tax. By the way since you appear to be concerned with Sustainability, you should know that the whole premise is nonsense. It violates the second law of thermodynamics – Sustainability isn’t Sustainable

  • Matthew Stepp

    Hallingip – Thanks for the comment. I hope you understand that this post does not dive explicitly into issues of the budget, but instead remarks about how not all government investments are equal. Some, like those being made in clean energy innovation, are explicitly aimed at spurring a clean tech economy which has significant growth potential.Surely, supporting innovation takes a myriad of approaches and policies and by no means does the President’s budget reflect this. What it does reflect is the historic fact that major technological innovations – like clean energy – have been supported by significant federal policies. Nearly every technological breakthrough of the past century can be traced back to a federal lab, DOD, etc. Considering that the energy sector barely – less than 2% of revenue – invests in energy innovation, public policy steps must be made. And these investments have significant upside that set it apart from other programs. Take the example from the post – ARPA-E leverages a 4-1 investment of private dollars for every dollar of public money. These investments have significant economic growth upside and cutting them is more about losing out on that future growth potential (and jobs, budget revenue, productivity, etc.).