Although states and the U.S. government want to reduce greenhouse gas (GHG) emissions, federal subsidies to energy "highly" favor sources that have high GHG emissions levels, according to research released last Friday by the Environmental Law Institute (ELI) and the Woodrow Wilson International Center for Scholars.
The largest U.S. subsidies to fossil fuels are attributed to tax breaks that aid foreign oil production, according to the study, which reviewed fossil fuel and energy subsidies for fiscal years 2002-2008, reveals that the lion's share of energy subsidies supported energy sources that emit high levels of GHG.
"The combination of subsidies -- or 'perverse incentives' -- to develop fossil fuel energy sources, and a lack of sufficient incentives to develop renewable energy and promote energy efficiency, distorts energy policy in ways that have helped cause, and continue to exacerbate, our climate change problem," said ELI Senior Attorney John Pendergrass. "With climate change and energy legislation pending on Capitol Hill, our research suggests that more attention needs to be given to the existing perverse incentives for 'dirty' fuels in the U.S. Tax Code."
The federal government provided substantially larger subsidies to fossil fuels than to renewables, ELI said. Fossil fuels benefited from approximately $72 billion over the seven-year study period, while subsidies for renewable fuels were $29 billion. More than half the subsidies for renewables -- $16.8 billion -- are attributable to corn-based ethanol, the climate effects of which have been disputed.
Of the fossil fuel subsidies, $70.2 billion went to traditional sources -- such as coal and oil -- and $2.3 billion went to carbon capture and storage. Thus, energy subsidies highly favored energy sources that emit high levels of GHG, the study said. "The U.S. energy market is shaped by a number of national and state policies that encourage the use of traditional energy sources. These policies range from royalty relief to the provision of tax incentives, direct payments and other forms of support to the nonrenewable energy industry."
Subsidies examined fall roughly into two categories:
Subsidies attributed to the foreign tax credit totaled $15.3 billion, with those for the next-largest fossil fuel subsidy, the credit for production of nonconventional fuels, totaling $14.1 billion. The foreign tax credit applies to the overseas production of oil through a provision of the tax code that allows energy companies to claim a tax credit for payments that would normally receive less-beneficial treatment.
In the study fossil fuels included petroleum and its byproducts, natural gas and coal products, while renewable fuels included wind, solar, biofuels and biomass, hydropower and geothermal. Nuclear energy was not included.
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