Planet Gore

How the Tax Code Treats Energy Sources

As Ed pointed out, the weekend Wall Street Journal’s lead editorial was about the Cape Wind project, which I posted on recently. The editorial will get you caught up to speed on the saga–and also will shed some more light, thanks to Tufts economist Gilbert Metcalf, on the level of government subsidy that wind power enjoys. Professor Metcalf’s paper is worth a read. Here are a few highlights:

[T]he distribution of tax subsidies across fuel types has shifted over time, with renewables and conservation receiving greater support through the tax code than they have historically.
[T]he distribution of tax expenditures by fuel source has shifted significantly over the past ten years, with the share that goes to fossil fuels dropping by 15 percentage points. . . . [O]n a BTU basis, renewables receive the largest subsidy.
Under current law, solar thermal and wind capital are subsidized to the greatest extent . . .
The share of tax expenditures for fossil fuels has dropped from over 60 percent in 1997 to under 50 percent in 2007. The subsidy share for renewable energy and end use/conservation has risen from just under 40 percent to over 50 percent in this same interval.
As for subsidies for electricity generation, refined coal receives a very high subsidy per MWh of generation ($29.94), while renewable electricity receives a subsidy on the order of $2 per MWh. Tax-based subsidies for conventional coal, natural gas and petroleum, and nuclear power are less than $0.25 per MWh.

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