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Federal Tax Policy Towards Energy

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  • Gilbert E. Metcalf

Abstract

On Aug. 8, 2005, President Bush signed the Energy Policy Act of 2005 (PL 109- 58). This was the first major piece of energy legislation enacted since 1992 following five years of Congressional efforts to pass energy legislation. Among other things, the law contains tax incentives worth over $14 billion between 2005 and 2015. These incentives represent both pre-existing initiatives that the law extends as well as new initiatives. In this paper I survey federal tax energy policy focusing both on programs that affect energy supply and demand. I briefly discuss the distributional and incentive impacts of many of these incentives. In particular, I make a rough calculation of the impact of tax incentives for domestic oil production on world oil supply and prices and find that the incentives for domestic production have negligible impact on world supply or prices despite the United States being the third largest oil producing country in the world. Finally, I present results from a model of electricity pricing to assess the impact of the federal tax incentives directed at electricity generation. I find that nuclear power and renewable electricity sources benefit substantially from accelerated depreciation and that the production and investment tax credits make clean coal technologies cost competitive with pulverized coal and wind and biomass cost competitive with natural gas.

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Bibliographic Info

Paper provided by Department of Economics, Tufts University in its series Discussion Papers Series, Department of Economics, Tufts University with number 0612.

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Date of creation: 2006
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Handle: RePEc:tuf:tuftec:0612

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References

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  1. Burtraw, Dallas & Palmer, Karen, 2005. "Cost-Effectiveness of Renewable Electricity Policies," Discussion Papers dp-05-01, Resources For the Future.
  2. Gilbert E. Metcalf, 2005. "Tax Reform and Environmental Taxation," Discussion Papers Series, Department of Economics, Tufts University 0519, Department of Economics, Tufts University.
  3. Joseph J. Doyle, Jr. & Krislert Samphantharak, 2006. "$2.00 Gas! Studying the Effects of a Gas Tax Moratorium," NBER Working Papers 12266, National Bureau of Economic Research, Inc.
  4. John C.B. Cooper, 2003. "Price elasticity of demand for crude oil: estimates for 23 countries," OPEC Energy Review, Organization of the Petroleum Exporting Countries, vol. 27(1), pages 1-8, 03.
  5. Ye Feng & Don Fullerton & Li Gan, 2013. "Vehicle choices, miles driven, and pollution policies," Journal of Regulatory Economics, Springer, vol. 44(1), pages 4-29, August.
  6. Karp, Larry & Newbery, David M., 1991. "Optimal tariffs on exhaustible resources," Journal of International Economics, Elsevier, vol. 30(3-4), pages 285-299, May.
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Citations

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Cited by:
  1. Carlson, Curtis & Metcalf, Gilbert E., 2008. "Energy Tax Incentives and the Alternative Minimum Tax," National Tax Journal, National Tax Association, vol. 61(3), pages 477-91, September.
  2. Metcalf, Gilbert & Weisbach, David, 2009. "The Design of a Carbon Tax," Working paper 142, Regulation2point0.
  3. Gilbert E. Metcalf, 2010. "Investment in Energy Infrastructure and the Tax Code," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 1-33 National Bureau of Economic Research, Inc.
  4. Gilbert E. Metcalf, 2009. "Tax Policies for Low-Carbon Technologies," NBER Working Papers 15054, National Bureau of Economic Research, Inc.
  5. Gilbert Metcalf, 2008. "Tax Policy for Financing Alternative Energy Equipment," Discussion Papers Series, Department of Economics, Tufts University 0716, Department of Economics, Tufts University.
  6. Jon Strand, 2007. "Energy Efficiency and Renewable Energy Supply for the G-7 Countries, With Emphasis on Germany," IMF Working Papers 07/299, International Monetary Fund.
  7. Chintrakarn, Pandej & Millimet, Daniel, 2006. "Subnational Trade Flows and State-Level Energy Intensity," Departmental Working Papers 0601, Southern Methodist University, Department of Economics.

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