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Federal Tax Policy Towards Energy


  • Gilbert E. Metcalf


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.

Suggested Citation

  • Gilbert E. Metcalf, 2006. "Federal Tax Policy Towards Energy," Discussion Papers Series, Department of Economics, Tufts University 0612, Department of Economics, Tufts University.
  • Handle: RePEc:tuf:tuftec:0612

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    References listed on IDEAS

    1. Gilbert E. Metcalf, 2005. "Tax Reform and Environmental Taxation," NBER Working Papers 11665, National Bureau of Economic Research, Inc.
    2. Karp, Larry & Newbery, David M., 1991. "Optimal tariffs on exhaustible resources," Journal of International Economics, Elsevier, vol. 30(3-4), pages 285-299, May.
    3. Palmer, Karen & Burtraw, Dallas, 2005. "Cost-effectiveness of renewable electricity policies," Energy Economics, Elsevier, vol. 27(6), pages 873-894, November.
    4. Doyle Jr., Joseph J. & Samphantharak, Krislert, 2008. "$2.00 Gas! Studying the effects of a gas tax moratorium," Journal of Public Economics, Elsevier, vol. 92(3-4), pages 869-884, April.
    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. 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, March.
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    Cited by:

    1. Lambert, Rosebud Jasmine & Silva, PatrĂ­cia Pereira, 2012. "The challenges of determining the employment effects of renewable energy," Renewable and Sustainable Energy Reviews, Elsevier, vol. 16(7), pages 4667-4674.
    2. Gilbert Metcalf, 2008. "Tax Policy for Financing Alternative Energy Equipment," Discussion Papers Series, Department of Economics, Tufts University 0716, Department of Economics, Tufts University.
    3. Gilbert Metcalf & David Weisbach, 2008. "The Design of a Carbon Tax," Discussion Papers Series, Department of Economics, Tufts University 0727, Department of Economics, Tufts University.
    4. Metcalf, Gilbert E., 2009. "Tax Policies for Low-Carbon Technologies," National Tax Journal, National Tax Association, vol. 62(3), pages 519-533, September.
    5. Chintrakarn, Pandej & Millimet, Daniel, 2006. "Subnational Trade Flows and State-Level Energy Intensity," Departmental Working Papers 0601, Southern Methodist University, Department of Economics.
    6. 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.
    7. Carlson, Curtis & Metcalf, Gilbert E., 2008. "Energy Tax Incentives and the Alternative Minimum Tax," National Tax Journal, National Tax Association, vol. 61(3), pages 477-491, September.
    8. 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.
    9. Hutchinson Emma & Kennedy Peter W & Martinez Cristina, 2010. "Subsidies for the Production of Cleaner Energy: When Do They Cause Emissions to Rise?," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 10(1), pages 1-11, April.

    More about this item

    JEL classification:

    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
    • Q48 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - Government Policy

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