NCPA - National Center for Policy Analysis


March 20, 2009

The U.S. tax code is heavily weighted in favor of renewable power sources over conventional sources such as coal and oil, Tufts University economics professor Gilbert Metcalf reports in a new study released by the Manhattan Institute.

Under current law, solar thermal and wind capital are subsidized to the greatest extent, with effective subsidy rates of 245 and 164 percent, respectively.  While renewable power sources receive substantial subsidies, more efficient conventional power sources are heavily punished by the tax code.

According to the U.S. Energy Information Administration (EIA):

  • The federal subsidy in fiscal year 2007 for nuclear energy totaled $24 per billion British thermal units (BTUs), while renewables took in $584.
  • Coal and natural gas/petroleum liquids received $113 and $63, respectively.

The tax code's favoritism toward renewable energies is even greater when considering electricity generation sold to consumers:

  • According to EIA, in 2007 wind energy and solar energy received per-megawatt-hour subsidies of $23.37 and $24.34, respectively.
  • Meanwhile, the per-MWh subsidies for nuclear energy, coal, and natural gas/petroleum liquids were $1.59, $0.44, and $0.25, respectively.

These numbers paint a clear picture: Renewable energy receives substantial federal subsidies while generating very small amounts of energy and usable electricity.  In 2007, less than 1 percent of U.S. electricity was generated by wind energy, while coal contributed almost half the nation's electricity that year.

"The tax code is biased toward politically correct energies at the expense of the energies consumers want most -- oil, natural gas, and coal," said Robert Bradley, CEO and founder of the Institute for Energy Research. "To this extent, tax policy is anti-consumer."

Sterling Burnett, a senior fellow at the National Center for Policy Analysis, agrees federal policy punishes the most efficient energy sources.

"In a time of economic crisis, it is reprehensible that politicians continue to throw good money after bad and foist high-cost, low-output energy sources on consumers," Burnett said.

Source: Drew Thornley, "Study: Tax Code Punishes Efficient Energy Sources," Heartland Institute, April 2009; and Gilbert Metcalf, "Taxing Energy in the United States: Which Fuels Does the Tax Code Favor?" Manhattan Institute, January 2009.

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