electric car subsidies

Natural gas fracking well in Louisiana

Obama's 2012 budget proposal, released today, continues his multi-year push to boost subsidies to nuclear power.   He continues to push for $36 billion in new loan guarantees for nuclear new-build.  Outside of macro-economic meltdowns these guarantees represent some of the largest government subsidies to single, privately-owned industrial facilities in our nation's history.  Nonetheless, they have been a recurring request by the Administration, so really aren't that big of a surprise.

Tucked in the same paragraph, the budget proosal also requests "an additional $200 million in credit subsidy to support $1 billion to $2 billion in loan guarantees for innovative energy efficiency and renewable energy projects..."  This is quite important, as it provides a data point on the the expected credit subsidies associated with DOE's Title 17 energy loan guarantee program:  10-20% of the loan's face value.

The much larger scale of new nuclear reactors, combined with quite poor historical cost performance of new completions in the US, suggest credit subsidy rates for the nuclear commitments should be even higher.  Nuclear comes under Title 17's self-pay provisions, meaning the credit recipients would need to kick in these amounts as default premiums in advance.  Look for DOE to downplay nuclear default risks dramatically here, rather than upholding the letter and spirit of the Title 17 program in protecting taxpayers.  

Other energy-related items of note in the budget:

  • Increased nuclear R&D, including into the latest industry fad for small, modular reactors.
  • Increased public funding to decommission old enrichment sites.
  • A positive push to eliminate a number of fossil fuel subsidies, worth an estimated $4 billion/year.  Though he targets only a partial list of existing subsidies to fossil fuels, it is nonetheless a good step.  Note, however, that Obama subsidies to carbon capture and sequestration work counter to the objectives of phasing out subsidies to fossil fuels.
  • Shifting to a reverse-auction (lowest subsidy wins) for advanced biofuels.  Again, this has the potential to be innovative, though with some significant caveats.  First, if auctions do not properly integrate life cycle environmental impacts, auction winners may worsen core problems with biofuels and landuse.  Second, if auctions are layered on top of massive subsidies already in existence for biofuels, the lowest bid could simply reflect the fuels with the largest other sources of subsidy, rather than any inherent competitive attributes.  (Both of these issues are significant problems with Clean Energy Standard proposals as well).  Third, it is not clear how one would implement the reverse auction approach without interacting with the similar operations of the Renewable Fuels Standard (lowest RIN prices win market share). 
  • Converts $7,500 per vehicle tax credit for purchasing electric cars to a much more valuable rebate.  Citizens not earning enough income to use this type of tax credit would be unlikely to buy the more expensive electric vehicles in the first place.  Thus, the main beneficiary of this change is likely to be wealthier purchasers who were seeing their credits reduced for other reasons (e.g., the Alternative Minimum Tax).  The budget proposal does not seem to change the rules of what vehicles can earn the credits; if they removed existing limitations per manufacturer, the overall subsidy cost of the program would likely surge.