NEFI Examines Heating Oil Implications of 2011 Federal Budget
President Obama shook hands at the Lincoln Memorial on April 9 in celebration of the agreement on the 2011 budget reached the previous night. (image: UPI/Jim Lo Scalzo via upi.com)
Earlier this month, the political battle over the 2011 federal budget was all over the news as the threat of a government shutdown loomed. A last-minute compromise between Democrats and Republicans in Washington averted a shutdown and produced a budget that will fund the Federal Government through September of this year.
So what was in that eleventh-hour compromise budget? Analysis began to trickle out shortly after the deal was announced on the night of April 8, and contained some surprises. Most surprisingly, it turned out that the 2011 budget that supposedly included more than $30 billion in spending cuts in reality cut just $352 million from this year’s expenditures.
For the heating oil retailers and consumers, however, the 2011 federal budget’s surprises were mostly positive ones. That’s the gist of a recent report from the New England Fuel Institute (NEFI), an industry group comprised of fuel sellers and marketers (disclosure: HeatingOil.com is a member of NEFI). NEFI’s latest “Legislative Alert,” released on Friday, gave brief explanations of funding changes to three federal programs and agencies that have direct connections to the heating oil industry.
First, NEFI reported, the vicious cuts proposed by the Obama administration to the Low-Income Home Energy Assistance Program (LIHEAP) were softened considerably in the final 2011 budget. Instead of the proposed $2.5-billion cut, the 2011 budget reduced the program’s funding by just $390 million to $4.7 billion in total. This much smaller reduction in LIHEAP funding will go a long way toward providing as many needy Americans as possible with heating assistance and keeping intact a steady revenue stream for heating oil dealers who supply LIHEAP recipients. Unfortunately, the final budget also cut all funding for the Weatherization Assistance Program (WAP), the federal program that partially funded Americans’ improvements to their homes to boost energy efficiency and lower heating and cooling costs. The loss of that government funding and the economic incentive it offered will mean fewer heating oil users investing in efficiency improvements and using more heating oil next season.
Second, NEFI noted that the passed budget included a funding increase for the Commodity Futures Trading Commission (CFTC). The CFTC, which is currently working on new regulations of commodity exchanges and derivative markets, had been targeted by deficit-slashing House Republicans for major cutbacks, despite the clear mandates for broader market oversight conferred on the agency by the Dodd-Frank financial reform law. In the end, the CFTC will get most of the additional funding it had requested to fulfill its duties, receiving a $34-million increase. That funding increase will hopefully expedite the rule making process and help bring about calmer and more predictable prices for heating oil more quickly.
Finally, the budget includes a substantial reduction in funding for the Environmental Protection Agency (EPA), another target of Republican deficit slashing. The $1.6-billion cut, 16 percent of the EPA’s previous budget, could slow the agency’s progress toward regulating carbon emissions from industrial installations like oil refineries. That could be good news for heating oil dealers and consumers, as the oil industry has argued that tighter emissions standards would raise production costs, which would be passed on to wholesalers, retailers and consumers. The real effects of new emissions regulations on heating oil and other product prices, however, have yet to be determined.
