A recent report from the Congressional Budget Office found that in 2011 federal support for fuel and energy technology development and production was $24 billion. Of this, $20.5 billion, or 85%, was in the form of “tax preferences—such as special deductions, special tax rates, tax credits, and grants in lieu of tax credits”; the remainder was made up by the Department of Energy’s spending programs. Of the total $24 billion provided in 2011, about $16 billion, or 78%, went toward support of renewables, energy efficiency, and alternative vehicles.
According to the report, historically energy-related tax preference support was “primarily intended to stimulate domestic production of oil and natural gas. With the enactment of the Energy Policy Act of 2005, energy-related tax preferences grew substantially, and an increasing share of them were aimed at encouraging energy efficiency and energy produced from renewable sources, such as wind and the sun. Although tax preferences for fossil fuels continued to make up the bulk of all energy-related tax incentives through 2007, by the end of 2008, fossil fuels accounted for only a third of the total cost of energy-related tax incentives.”
What do you think of the recent growth in federal support for energy? Is the growing prominence of renewable and efficiency in this portfolio appropriate? Are subsidies effective energy policy tools?