Energy Tax Incentives: Measuring Value Across Different Types of Energy Resources [August 10, 2011]   [open pdf - 383KB]

"The majority of energy produced in the United States is derived from fossil fuels. In recent years, however, revenue losses associated with tax incentives that benefit renewables have exceeded revenue losses associated with tax incentives benefitting fossil fuels. As Congress evaluates the tax code and various energy tax incentives, there has been interest in understanding how energy tax benefits under the current tax system are distributed across different domestic energy resources. […] According to data presented in the EIA [Energy Information Administration] reports, the share of direct federal financial support for electricity produced using coal, natural gas and petroleum, and nuclear energy resources was similar in 2007 and 2010. Between 2007 and 2010, however, the share of federal financial support for electricity produced by renewables increased substantially, and federal financial support for refined coal disappeared. An alternative method for evaluating the relative value of tax incentives available across various energy resources is to use an effective tax rate approach. Effective tax rates can be used to measure how the tax system affects incentives for capital investment. In 2007, the tax code produced strong incentives for investment in wind and solar electric energy resources. The effective tax rate approach also highlights the difference in impact of oil and gas tax incentives depending on the type of oil and gas company. The tax code creates stronger capital investment incentives for non-integrated oil and gas producers, relative to their integrated counterparts. This difference can be explained through the ability of non-integrated petroleum producers to take percentage depletion and fully expense intangible drilling costs (IDCs)."

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CRS Report for Congress, R41953
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