Energy Tax Policy: Historical Perspectives on and Current Status of Energy Tax Expenditures

Molly F. Sherlock
Analyst in Economics

Since the 1970s, energy tax policy in the United States has attempted to achieve two broad objectives. First, policymakers have sought to reduce oil import dependence and enhance national security through a variety of domestic energy investment and production tax subsidies. Second, environmental concerns have led to subsidization of a variety of renewable and energy efficiency technologies via the tax code. While these two broad goals continue to guide policy, enacted policies that solely focus on achieving only one of the goals are often inconsistent with policies solely designed to achieve the other goal. For example, subsidies to oil and gas producers, while enhancing domestic oil and gas production, encourage an activity with negative environmental consequences. 

By providing a longitudinal perspective on energy tax policy and expenditures, this report examines how current revenue losses resulting from energy tax provisions compare to historical losses and provides a foundation for understanding how current energy tax policy evolved. Further, this report compares the relative value of tax incentives given to fossil fuels, renewables, and energy efficiency. Recent legislation has introduced, reintroduced, expanded, and extended a number of energy tax provisions. While a number of the current energy provisions have a long historical standing in the tax code, a wider variety of tax incentives, to promote a range of energy sources, are presently available than have been available in the past. 

Examining trends in revenue losses associated with energy tax provisions provides insight into the actual direction of energy tax policy. In inflation-adjusted terms, revenue losses associated with energy tax provisions in the late 1970s and early 1980s are similar to revenue losses in the late 2000s. The composition of these revenue losses, however, has changed significantly. In the late 1970s nearly all revenue losses associated with energy tax provisions were the result of two tax preferences given to the oil and gas industry. In the early 1980s, revenue losses associated with special treatment for the oil and gas industry accounted for more than three quarters of all federal revenue losses associated with energy tax expenditures. Changes in policy, coupled with declining oil prices in the late 1980s, dramatically reduced revenue losses associated with oil and gas tax policy. Throughout the 1990s, the bulk of revenue losses associated with energy tax provisions were attributable to the tax credit for unconventional fuels. In the 2000s, revenue losses associated with renewable energy production incentives began to make up a larger portion of energy tax expenditure revenue losses, reaching an estimated 21% in 2006. Revenue losses associated with tax provisions benefitting fossil fuels also remained important into the 2000s, with a large proportion of revenue losses in the mid-to-late 2000s associated with the unconventional fuel production credit, benefitting synthetic coal producers. In the late 2000s, the majority of revenue losses have been associated with incentives designed to promote biofuels. 

The federal government also loses significant revenue from excise tax credits given to alcohol fuel blenders (specifically, the volumetric ethanol excise tax credit (VEETC)). While excise tax credits are not technically a tax expenditure (technically, tax expenditures are only revenue losses associated with income tax provisions), these excise tax credits have played an important role in shaping energy tax policy and were estimated to result in revenue losses in excess of $5 billion in 2009 alone.


Date of Report: May 7, 2010
Number of Pages: 36
Order Number: R41227
Price: $29.95

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U.S. Offshore Oil and Gas Resources: Prospects and Processes

Marc Humphries
Analyst in Energy Policy

Robert Pirog
Specialist in Energy Economics

Gene Whitney
Section Research Manager

Access to potential oil and gas resources under the U.S. Outer Continental Shelf (OCS) continues to be controversial. Moratoria on leasing and development in certain areas were established by Congress (beginning in 1981) and by the President (beginning in 1990). These moratoria were largely eliminated in 2008 and 2009, although a few areas remain legislatively off limits to leasing. The 111th Congress may be unlikely to reinstate broad leasing moratoria, but some members have expressed interest in protecting areas (e.g., the Georges Bank or Northern California) or establishing protective coastal buffers. Pressure to expand oil and gas supplies and protect coastal environments and communities will likely lead Congress and the Administration to consider carefully which areas to keep open to leasing and which to protect from development. 

On April 2, 2010, the Obama Administration announced Preliminary Revised Program (PRP) for the remainder of the 2007-2012 OCS Leasing Program. The PRP would eliminate five Alaskan lease sales (sales 209, 212, 214, 217, and 221). Further, President Obama withdrew the North Aleutian Basin Planning Area from oil and gas leasing consideration until June 30, 2017—the duration of the next five-year leasing program. The announcement presents eight planning areas that will be scoped for leasing in the 2012-2017 OCS Leasing Program which include the Mid- Atlantic, South Atlantic, Gulf of Mexico (Eastern, Central, and Western), and the Chukchi Sea, Beaufort Sea and Cook Inlet of Alaska. Several areas around Alaska, the North Atlantic, and the entire Pacific coast were not included in the scoping announcement. 

Consideration of offshore development for any purpose may raise concerns over the protection of the marine and coastal environment. Historical events associated with offshore oil production, such as the large oil spill off the coast of Santa Barbara, CA, in 1969, cause both opponents and proponents of offshore development to consider the risks and to weigh those risks against the economic and social benefits of the development. However, both technology and regulatory oversight have improved since that event. But the recent oil spill which occurred on April 20, 2010, in the Gulf of Mexico has brought increased attention to those offshore drilling risks. 

Exploration and production proceed in stages during which increasing data provide increasing certainty about volumes of oil and gas present. Prior to discovery by drilling wells, the estimated volumes of oil and gas are termed undiscovered resources. The Minerals Management Service (MMS) conducts assessments of undiscovered technically recoverable resources (UTRR) on the U.S. OCS. The statistical certainty of these assessment estimates varies by region because the availability of geologic data varies widely by region. For example, the extensive exploration and production histories of central and western Gulf of Mexico and southern California provide a comparatively greater amount of geologic data to use for assessments. In contrast, much of the remainder of the U.S. OCS has seen little exploration and production of oil and gas. 

One characteristic of the U.S. oil market, as well as of world oil markets, is that the access to supply tends to be sequential. Normally, the first source of oil used by a nation is domestic production, if available. Typically, the next source of supply is imports from countries not party to the Organization of the Petroleum Exporting Countries (OPEC). Finally, residual demand is met by OPEC. The ultimate impact of oil and gas development in offshore areas will depend on oil and gas prices, volumes of resources actually discovered, infrastructure development, and restrictions placed on development, all of which currently carry significant uncertainties.


Date of Report: April 26, 2010
Number of Pages: 33
Order Number: R40645
Price: $29.95

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EPA Regulation of Greenhouse Gases: Congressional Responses and Options

James E. McCarthy
Specialist in Environmental Policy

Larry Parker
Specialist in Energy and Environmental Policy

The Environmental Protection Agency's promulgation of an "endangerment finding" for greenhouse gas (GHG) emissions in December 2009, and its subsequent promulgation of GHG emission standards for new motor vehicles on April 1, 2010, have raised concerns among some in Congress that the agency will now proceed to control GHG emissions from stationary sources, including power plants, manufacturing facilities, and others. Stationary sources account for 69% of U.S. emissions of greenhouse gases. If the United States is to reduce its total GHG emissions, as President Obama has committed to do, it will be necessary to address these sources. 

EPA's regulations limiting GHG emissions from new cars and light trucks will trigger at least two other Clean Air Act (CAA) provisions affecting stationary sources of air pollution. First, effective January 2, 2011, new or modified major stationary sources will have to undergo New Source Review (NSR) with respect to their GHGs in addition to any other pollutants subject to regulation under the CAA that are emitted by the source. This review will require affected sources to install Best Available Control Technology (BACT) to address their GHG emissions. Second, all major sources of GHGs (existing and new) will have to obtain permits under Title V of the CAA (or have existing permits modified to include their GHG requirements). Beyond these permitting requirements, because stationary sources, particularly coal-fired power plants, are a major source of greenhouse gas emissions, EPA is likely to find itself compelled to issue endangerment findings under other parts of the Act, resulting in New Source Performance Standards for stationary sources or emission standards under other sections of the Act. 

EPA shares congressional concerns about the potentially broad scope of these regulations, primarily because a literal reading of the act might require as many as 6,000,000 stationary sources to obtain permits. Thus, the agency has drafted a proposed "Tailoring Rule" so that it can focus its resources on the largest emitters while deciding over a six-year period what to do about smaller sources. Many of the specifics remain undecided: the agency is still in the process of determining both what the permit/BACT requirements will be and in what order sources would be subject to them. 

Many in Congress have suggested that EPA should delay taking action on these sources or should be prevented from doing so. Legislation has been introduced in both the House and Senate to achieve such results: four resolutions of disapproval under the Congressional Review Act (S.J.Res. 26, H.J.Res. 66, H.J.Res. 76, H.J.Res. 77) are aimed at EPA's determination under Section 202(a) of the Clean Air Act that GHGs cause or contribute to air pollution that endangers public health and welfare; five other bills would either require EPA to reevaluate its endangerment finding (H.Res. 974), amend the Clean Air Act to provide that greenhouse gases are not subject to the Act (H.R. 4396), limit EPA's GHG authority to motor vehicle emissions (S. 1622), or suspend EPA actions regulating stationary source emissions of GHGs for two years (S. 3072, H.R. 4753). 

This report discusses elements of this controversy, providing background on stationary sources of greenhouse gas pollution and identifying options Congress has at its disposal should it decide to address the issue. The report discusses four sets of options: (1) resolutions of disapproval under the Congressional Review Act; (2) freestanding legislation delaying or prohibiting EPA action; (3) the use of appropriations bills as a vehicle to restrain EPA activity; and (4) amendments to the Clean Air Act, including legislation such as H.R. 2454 or S. 1733, which would establish a new GHG control regime.


Date of Report: April 28, 2010
Number of Pages: 16
Order Number: R41212
Price: $29.95

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