Biofuels and Tax Expenditures
One of the claims that the renewable energy groups continue to make, as their tax credits approach the chopping block, is that the U.S. is still unfairly subsidizing fossil-fuel energy sources. This is being used to justify the extension of the renewable energy tax credits, as renewable sources cannot compete on price with oil. (Of course, to a large extent they don’t need to compete on price because their use is mandated by law.)
A few things:
(1) Many of the groups arguing against the ethanol tax cuts are also in favor of eliminating tax subsidies to oil companies. (Two wrongs don’t make a right)
(2) Both blogs disingenuously references studies that have calculated global fossil fuel subsidies, presumably so they can drop the large $500 billion number. This number is useless — the U.S. doesn’t control foreign energy tax policy, and using foreign tax policies as a justification for further subsidizing domestic renewable energy is dubious.
(3) The ethanol industry ignores the fact that the world receives a miniscule amount of energy from renewable sources compared to fossil fuels. If the subsidy amounts were equal, the renewable industry would come out far ahead on subsidies per unit of energy basis.
Furthermore, some of the tax expenditures received by oil companies exist to prevent double taxation. If these weren’t in place, these companies would be paying taxes twice, on income earned abroad taxed by the U.S. government. It is also worth noting that these dual capacity tax credits are general tax provisions that do not apply to just the fossil fuel industry — repealing these laws would put the U.S. at a competitive disadvantage. (Note: I have seen this claim disputed by certain groups, insisting that these oil companies are not paying income tax abroad, see here. The specific amount of subsidies the oil industry receives isn’t really important to the point I’m making.)
The renewable fuel industry doesn’t benefit from many of these because biofuel production facilities are located in the United States (which the biofuel industry doesn’t hesitate to remind us).
According to a report by the National Taxpayers Union, future subsidies for renewable energy sources will be much larger than subsidies received by the oil and gas industry. This (I believe this assumes that most tax credits will remain in place) is because of mandated usage of biofuels is expected to increase.
The numbers above, from a report compiled by the Joint Tax Committee, calculate an average of $12.5 billion in subsidies for the renewable industry, and $0.9 billion for oil and gas. Even if the amounts are much closer, the renewable industry comes out way ahead on a per unit basis.