Energy Innovation and President Trump's 2018 Budget Proposal

HIGHLIGHTS:

• The Trump Administration's budget proposal for fiscal year (FY) 2018 includes spending cuts for many civilian agencies and research programs, including some promoting innovation in energy, in exchange for increases for the Department of Defense and the Department of Homeland Security.
• Proposed budget cuts to agencies such as the Department of Energy and the Department of Agriculture do pose some risk to programs that support innovative energy technologies to the degree that political bargaining in upcoming negotiations could target some well-liked funding opportunities.
• Companies or institutions with a vested interest in the energy programs at risk should make sure to appropriately expand their government strategies and relay the importance of these programs to the appropriate members of Congress and the Administration.

President Donald Trump released on May 23, 2017, his budget proposal for fiscal year (FY) 2018, which closely mirrors his America First: A Budget Blueprint to Make America Great Again – also known as the "skinny budget" proposal – as presented to Congress in March. As with the skinny budget, the Trump Administration's FY 2018 budget is targeting spending cuts across civilian agencies and entitlement programs in exchange for budget plus-ups at the Department of Defense (DoD) and the Department of Homeland Security (DHS). As with the skinny budget, which received little consideration in Congress, the latest budget proposal is expected to elicit very limited traction among both Republicans and Democrats. Specifically, the Republican majority Congress just passed the FY 2017 omnibus appropriations bill on May 4, largely rejecting the signature spending proposals of the skinny budget and proceeding instead to fund federal programs at levels comparable to recent years. The latest budget, then, is viewed by many as another messaging document that communicates the President's priorities without having a viable path to enactment for energy-related programs and initiatives. Nonetheless, companies or institutions with a vested interest in the energy programs at risk should make sure to appropriately expand their government strategies and relay the importance of these programs to the appropriate members of Congress.

This client alert specifically seeks to summarize the President's FY 2018 budget proposal from a high level and shed light on which energy programs have been targeted along with what outcomes can reasonably be expected given events to date and current support in Congress. The proposed budget cuts to agencies such as the Department of Energy (DOE) and the Department of Agriculture (USDA) do pose some risk to programs that support innovative energy technologies to the degree that political bargaining in upcoming negotiations could target some well-liked funding opportunities if industry and other stakeholders do not proactively communicate their importance to Congress. It is still expected that most programs will ultimately survive because they tend to receive broad bipartisan support in Congress for supporting U.S. job growth, innovation and economic competitiveness. Furthermore, companies that continue to pursue federal funding opportunities will find many program managers working to expeditiously move programs forward in lieu of actual changes to federal laws, regulations and spending.

DOE Grant Programs

The FY 2018 budget targets $2.7 billion in cuts from FY 2017 levels mostly to subprograms that support innovation in energy. Specifically, it would:

• permanently eliminate all funding for ARPA-E, which seeks to foster disruptive technologies at earlier stages of innovation; this proposal directly contradicts the President's "all the above" claim to energy policy and the intent to refocus resources towards early-stage research and development (R&D)
• cut $1.5 billion from the Office of Energy Efficiency and Renewable Energy (EERE) or a 70 percent reduction in authority, targeting renewable energy programs across the board
• cut the Office of Science by "only" 17 percent to $4.5 million, reflecting the fact that R&D funding is generally less controversial among even the most conservative Republicans

By contrast, the results for FY 2017 include budget increases across the DOE over 2016 levels, including:

• $15 million funding increase for ARPA-E for early-stage critical R&D
• $17.2 million funding increase for EERE to sustain ongoing initiatives in renewable energy
• $41.8 million increase for the Office of Science for fundamental R&D into basic energy sciences as well as advanced scientific computer research
• $24 million for the Office of Electricity Delivery and Energy Reliability to expand efforts into smart grid and energy storage R&D
• $36 million increase for the Office of Fossil Energy for transformational coal technologies
• $30.5 million increase for the Office of Nuclear Energy in support of R&D especially into small modular reactors

DOE Loan Programs

The President's FY 2018 budget proposes to completely eliminate the Loan Programs Office (LPO), transferring existing loan monitoring and closeout activities to another office, with the Trump Administration citing its policy priorities and intent to refocus resources towards early-stage R&D activities.

By contrast, the results of the FY 2017 budget negotiations include maintaining funding for both the LPO's Title XVII Innovative Clean Energy Program and the Advanced Technology Vehicles Manufacturing (ATVM) Program. Given that lending authority for these programs have been legislatively enacted with mandatory funding, these appropriations cover ongoing administrative expenses.

Insights and Takeaways on DOE

While the DOE LPO's loan programs are much more controversial than DOE grant programs, the two are similar in that they continue to receive bipartisan congressional support from key members in the House and Senate. For example, Sen. Lisa Murkowski (R-Alaska), chairwoman of the Energy and Natural Resources Committee and member of the Energy Appropriations Subcommittee, continually relays her support for reforming and improving the LPO over eliminating it.¹ Furthermore, Sen. Lamar Alexander (R-Tenn.), chairman of the Senate Energy and Water Development Appropriations Subcommittee, and other key House appropriators continue to publicly support the Title XVII program.² However, while short-term support for the ATVM program remains, it is not as strong long-term.

Consequently, these loan programs are likely to survive if not improve in 2018 despite the Trump Administration's proposal to eliminate them. In addition to the bipartisan congressional support, Energy Secretary Rick Perry recently named John Sneed – former executive director of the Texas State Preservation Board – to lead the LPO, a positive sign for the program's current and prospective applicants. Parties interested in applying to these programs should continue to do so, as most application deadlines end in 2018. Moreover, current and prospective applicants should relay their support for these programs to Congress and integrate broader government relations strategies to ensure that their applications move forward in a timely and efficient manner.

USDA Energy Programs

The President's FY 2018 budget proposal targets significant cuts to USDA energy programs that receive both discretionary and mandatory funding; this move came at somewhat of a surprise given the skinny budget blueprint mentioned cutting only discretionary activities. Although USDA energy programs support rural jobs, often in economically depressed communities, the President nevertheless proposed to altogether eliminate the Rural-Business Cooperative Service, which among other things supports energy efficiency, renewable energy (mostly bioenergy) and feedstock development. Specifically, the budget seeks to:

• permanently cancel $175 million from mandatory unobligated balances from the 9003 Biorefinery Assistance Program
• eliminate all funding for the Rural Energy for America Program (REAP)
• eliminate all funding for the Biomass Crop Assistance Program (BCAP)

By contrast, FY 2017 appropriations largely maintain these programs in their current state despite language in the FY 2016 Continuing Resolution that limited the annual spend of the 9003 Biorefinery Assistance Program to $27 million per year.

Insights and Takeaways on USDA

Unlike the DOE programs above that have received notable media support, these USDA programs receive minimal press coverage. Nevertheless, recent discussions on Capitol Hill have made it evident that significant, bipartisan support remains for these programs in FY 2018. Specifically, to remove the spending limitations that were placed on the 9003 Biorefinery Assistance Program in FY 2016, numerous industry representatives had to communicate their support for the program on Capitol Hill. Key House and Senate appropriators who benefit from the job creation associated with these programs were supportive and ultimately included language that adequately funds these programs in FY 2017. Despite this bipartisan support, however, continued collaboration and communication with lawmakers must continue to ensure the programs' long-term viability.

Preliminary Conclusion

Although many analysts had hoped that President Trump would utilize his groundbreaking victory to execute on his campaign promises and support an "all the above" approach to energy innovation, the prospects of that remain unknown long-term. Despite the Trump Administration's stated support for job growth and economic competitiveness, the budget targets programs with a long history of serving these two ends. For example, the President touted the need to bring manufacturing and energy jobs to communities across America; however, the FY 2018 budget blueprint proposes to eliminate USDA and DOE energy programs with net-positive revenue that drive significant job creation for renewable, fossil and nuclear energy generation and manufacturing projects.

Silver Linings for Industry

Although it might be easy for industry and other stakeholders to be pessimistic about the federal market of opportunities for financing innovative energy solutions, the reality on the ground level has not practically changed much this year from the later years of the Obama Administration. Indeed, following a slowdown in activity between the election and the President's inauguration, these federal agencies have maintained a steady pace of announcing new funding opportunities and continuing to move competitive projects forward within existing budget authorities. Despite the skinny budget proposal from March, Congress successfully moved the FY 2017 omnibus appropriations bill forward, broadly maintaining existing funding levels in all of these programs if not providing a small plus-up through September of this year.

Most importantly, the atmosphere of uncertainty that has descended upon many stakeholders in industry may ultimately benefit those companies that can take the long view and remain engaged due to overall reduced competition for existing funds. 
   

Notes

¹ Key Republican senator bucks Trump cuts (Greenwire, May 17, 2017)

² Budget stokes loan guarantee program debate (E&E Daily, March 24, 2017)

Information contained in this alert is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel.