Tax Subsidies For Renewables Now Far Outpaces Fossil Fuels

Tax Subsidies For Renewables Now Far Outpaces Fossil Fuels
AP Photo/Zach Gibson

The federal government has a long history of meddling in the U.S. energy market.  For almost 100 years, the government has provided tax incentives, subsidies, federal electricity programs, loans, loan guarantees, and funding for research and development to promote the efficient use and production of domestic energy resources.

Since the early 1900s, the federal government’s primary intervention was through tax incentives to the oil and gas industry that were intended to increase production of domestic oil and gas.

But with the passage of the Energy Policy Act of 2005, federal incentives for energy production shifted heavily towards renewable energy and energy efficient technologies. Fossil energy may have received the bulk of early federal incentives, but by 2008 fossil fuels accounted for just one-third of the cost of energy tax incentives. 

This trend has continued over the past decade. According to data collected by the U.S. Energy Information Administration (EIA), federal tax credits and subsidies for renewable energy increased by 54 percent between 2010 and 2013.  Solar energy alone saw federal support increase by 500 percent from $1.1 billion to $5.3 billion.  In the same period, federal support for fossil and nuclear energy declined.  Federal subsidies and tax incentives for oil and gas declined by 20 percent, while federal support for nuclear energy declined by 12 percent.

Just last month, the non-partisan Congressional Budget Office (CBO) provided testimony to Congress on tax preferences provided to energy producers in 2016.  According to the CBO, approximately $10.9 billion, or 59 percent, of federal energy tax preferences went to renewable energy. $2.7 billion, or 15 percent, went to energy efficient technologies or electricity transmission, for a combined 74 percent of energy tax preferences.  In contrast, $4.6 billion or 25 percent of energy related tax incentives went to fossil fuels. Nuclear energy, which is the only reliable, emissions free energy source, received only 1 percent of tax incentives while facing the toughest regulatory burden.

Those figures don’t include federal investment in renewable energy research and development.  At the Department of Energy (DOE), the federal government sponsors over $9 billion in civilian science and energy research and development.  This research portfolio falls under the jurisdiction of the House Committee on Science, Space, and Technology, which I chair.  In the past decade, investment in the Office of Energy Efficiency and Renewable Energy (EERE) at DOE has grown by over 40 percent, while the corresponding budgets for fossil and nuclear energy R&D have declined.  At almost $2 billion, EERE’s R&D budget is more than the R&D budgets for nuclear, fossil, and electricity combined.  It has also surpassed the basic energy sciences research within the Office of Science, where DOE has an exemplary track record for achievements in discovery science that can lead to groundbreaking energy technology. 

In the DOE loan portfolio, 20 of the 30 loan guarantees were for renewable energy projects.  DOE has issued over $30 billion in loans and loan guarantees and not a single loan has been issued for fossil energy technology.

To add more context, according to the EIA, fossil fuels provide 67 percent of electricity generated, while renewables make up 13 percent of electricity generated in the U.S.  It is clear that fossil energy is the primary power source for our economy, even when the federal government has put a finger on the scales for renewable energy for over a decade.

According to an analysis of this same EIA data conducted by the Institute for Energy Research, federal government policies have led to solar power generation being subsidized by over 345 times more than coal, oil and natural gas electricity production, while wind is being subsidized over 52 times more than fossil fuels per unit of electricity production.

While it’s true that many fossil fuel tax incentives are permanently installed in the tax code, it’s clear that federal incentives for energy technology heavily favor renewable energy and energy efficient technologies.  This means higher costs for American consumers and an energy market that is heavily influenced by federal government policy. 

It’s not the role of the federal government to pick winners and losers in the energy market.  Instead of costly tax incentives, subsidies, loans or loan guarantees, the federal investment is most effective when we prioritize the basic research that benefits all forms of energy.  It’s time to level the playing field and reduce federal intervention in the energy market.

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