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Environmental Finance

Environmental Finance

Environmental Finance is still the only independent global magazine offering comprehensive coverage of the financial impact of environmental issues on the business community.  Leading industry…

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This Year it is Fossil Fuels Turn to Receive the Majority of DOE Funding

The renewable energy and energy efficiency sectors received most of the US federal government’s $24 billion in energy subsidies last year, but fossil fuels will win out this year as several key tax breaks for renewables have expired.

Preferential tax treatment accounted for $20.5 billion, or about 85%, of federal support for developing and producing fuel and energy technologies in 2011, while Department of Energy (DOE) spending programmes comprised nearly $3.5 billion, or 15%, according to a report by the non-partisan Congressional Budget Office.

In 2011, a total of $13.9 billion, or 68% of the energy-related tax preferences, was directed toward renewable energy, while $2.1 billion, or 10%, was spent on energy efficiency initiatives. This was broadly in line with the support granted in 2010.

But four major tax breaks for the renewable energy and energy efficiency sectors, accounting for 60% of the total cost of their preferential tax treatments, have already expired and the production tax credit for wind is scheduled to expire by the end of 2012, the report noted.

For example, the Section 1603 Treasury grant programme, which sunset on 31 December, had a total cost of about $3.9 billion last year, the report stated. A credit for energy-efficiency improvements to existing homes had a total cost of about $1.5 billion and also expired at the end of 2011.

Only four major energy tax breaks are permanent: three for fossil fuels and one for nuclear energy, and they were valued at $3.4 billion last year, according to the report. President Barack Obama has repeatedly asked Congress to eliminate billions of dollars in subsidies for the oil and gas sector.  

But preferential tax treatments are generally an inefficient way to reduce the environmental costs of producing and consuming energy because they may reward businesses for investments or actions they intended to take anyway, and they only target specific technologies that may not be the least expensive, according to the report.

“The most direct and cost-effective method for addressing that problem would be to levy a tax on energy sources that reflects the environmental and other costs associated with their production and use,” the report stated.

Of the $3.5 billion spent by the DOE in 2011, about $3.3 billion went to direct investments, with 54% of these funds divided equally between renewable energy and efficiency programmes. In comparison, 23% was spent on nuclear energy programmes and 10% was directed toward fossil fuel R&D. The rest of the DOE funds were spent on loan programmes.

By. Gloria Gonzalez

Source: Environmental-Finance


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