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Energy subsidy declines

Hydrocarbon Engineering,

The EIA has updated a report on federal subsidies to the energy industry which covers the 2013 fiscal year (FY). The most recent prior report reviewed subsidies for FY 2010, at or near the height of spending related to the American Recovery and Reinvestment Act of 2009. Between FY 2010 and FY 2013, the total value of direct federal financial interventions and subsidies in energy markets decreased 23% from US$ 38 billion – 29.3 billion, reflecting changes in both the type of subsidies offered and fuels that received support. The updated study from the EIA focuses on direct federal financial interventions by the federal government that provide a financial benefit with an identifiable federal budget impact and are specifically target at energy markets.

In the scope falls:

  • Direct expenditures.
  • Tax expenditures.
  • Investment in research and development.
  • Financial support to federal power marketing administrations.
  • Credit subsidies to receipts of federal loan guarantees.

The analysis from the EIA does not include some programs that benefit energy markets as they have broader applicability beyond the energy industry. An example is accelerated depreciation tax schedules and domestic manufacturing tax deductions that apply to both the energy sector and other industries. Other programs, such as the renewable fuels standard and indemnification laws such as the Prince-Anderson Act that limits the liability of nuclear plant operators are not included because they lack a distinguishable federal budget impact.

2010 – 2013

Between FY 2010 and 2013, the share of tax expenditure in total financial interventions and subsidies dropped from 46 – 42%, while the share of direct expenditures increased from 39 – 44%, reflecting a move from subsidies for renewable liquid fuels such as ethanol to subsidies for renewable electricity, particularly solar power. Since FY 2010, the US government has eliminated the Volumetric Ethanol Excise Tax Credit (VEETC) for fuel ethanol, and biofuels’ share of total renewable energy subsidies dropped from 45% in FY 2010 to 12$ in FY 2013.

Meanwhile, the EIA has reported that the government revised tax credits for a growing solar industry, allowing subsidy applicants to receive grants in lieu of tax credits. These grants are known as Energy Investment Grants or Section 1603 grants for the tax provision in the Recovery Act that established them, were one of the few energy subsidy programs created by the Recovery Act that still had a substantial budgetary impact by FY 2013.

The Section 1603 grants increased by approximately US$4 billion between FY 2010 and FY 2013, while electricity related tax expenditures for renewables doubled from US$1.9 billion to US$3.8 billion. Electricity related subsidies, primarily directed towards fuels and technologies used for electricity production, increased in both absolute and percentage terms between FY 2010 and FY 2013, reflecting increases in both direct expenditures and estimated tax subsidies. Wind subsidies increased by less than 10%, going from US$5.5 billion in 2010 to US$5.9 billion in 2013. However, solar subsidies increased the most, both in absolute and percentage terms, going from US$1.1 billion to US$5.3 billion in 2013, with declining solar costs and state level policies also supporting additional growth.

With lower adoption of tax credits from home efficiency improvements and the declining need for the Low Income Home Energy Assistance Program with an improving economy, support for conservation and end use programs was at US$7.9 billion in FY 2013, down from US$15.6 billion in FY 2010. Federal subsidiary support for fossil fuels declined from approximately US$4 billion in FY2010 to US$3.4 billion in FY 2013. Within those fossil fuel subsidies, support for coal declined by less than 3%, but support for oil and natural gas declined by approximately 20%.

Edited from press release by Claira Lloyd

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