By Institute for Energy Research ——Bio and Archives--June 20, 2013
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The production and investment tax credits for renewable electricity provide a tax credit of 2.0 cents per kWh of power for the first 10 years of electricity production generated from qualifying renewable sources (primarily solar, wind, and biomass) or a credit equal to 30 percent of investment in qualifying equipment.…The committee’s analysis indicates that these provisions do lower CO2 emissions…but the impact is small, about 0.3 percent of U.S. CO2 in the reference case. [Page 3, bold added.]
The percentage depletion allowance permits independent (nonintegrated) domestic producers of oil and gas to deduct a percentage of gross income associated with sale of the commodity…In modeling completed for this report, removing the percentage depletion allowances (and substituting cost depletion) has virtually no effect on oil production and associated GHG emissions. [Pages 3-4, bold added.]The parenthetical phrase “and substituting cost depletion” alludes to the fact that the depletion allowance isn’t some bonanza in the tax code, but reflects the accounting and economic reality that the development of oil and gas resources leads to a reduction in the value of the asset. When a company wears down a physical machine, the tax code allows the company to deduct a “depreciation” expense, and by the same token if a company wears down an oil well the company can deduct a “depletion” expense. The newly released study shows that tweaking the tax treatment won’t significantly alter greenhouse gas emissions, so the alleged “tax loophole for oil” isn’t causing any problems on that score. (Later on the report discusses accelerated depreciation in general for businesses—not just oil and gas companies—and finds tweaking this provision could impact GHG emissions, depending on how the revenues are used.)
One particularly important set of tax provisions involves the use of ethanol and other biofuels, particularly as substitutes for petroleum products. These provisions involve a complex combination of taxes, tax expenditures, import tariffs, and regulatory mandates… …The findings indicate that removing all tax code provisions and the import tariff would result in a decrease of emissions of 5 million metric tons (MMT) per year of CO2 equivalent globally. This is less than 0.02 percent of global emissions. The results are complicated by the mandates for renewable fuels. If the mandates are removed along with the subsidies, the estimated emissions are smaller than the estimates with the mandates… These results show the often counterintuitive nature of the effects of tax subsidies. Although it may seem obvious that subsidizing biofuels should reduce CO2 emissions because they rely on renewable resources rather than fossil fuels, many studies we reviewed found the opposite. [Pages 5-6, bold added.]In case it’s not clear from the text itself, let us emphasize: The study found that tax incentives alone—including the tariff on foreign ethanol, which keeps sugarcane ethanol from Brazil from stealing market share from US corn producers—actually cause global GHG emissions to be higher than they otherwise would be, though the difference was negligible. Further, what was really ironic is that the modeled level of global GHG emissions will be an additional 2 million metric tons higher per year because of the biofuel mandates in the Renewable Fuels Standard (see Table 5-3 on page 105).
The exclusion of employer-provided health insurance from the taxable income of employees is the largest single tax expenditure in the Internal Revenue Code. The committee expected that eliminating health care subsidies would raise GHG emissions per unit of output because the health care sector is less GHG intensive than the rest of the economy. The Intertemporal General Equilibrium Model (IGEM) results show the opposite effect, however, with a small decrease in GHG intensity. The committee’s inability to understand the structural features of the model that produced these results leads it to conclude that the impact of the health provisions on GHG emissions remains an open question and an important subject for future research. [Pages 6-7, bold added.]Note in the admission above that the committee isn’t even sure qualitatively what is driving the unexpected result in the context of health care.
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