Federal Financial Interventions and Subsidies in Energy Markets 2007

Energy Information Administration (EIA) ^

[shove_it]

1. Introduction Background and Purpose

In May 2007, Senator Lamar Alexander asked the Energy Information Administration (EIA) to develop an analysis of Federal energy-specific subsidies that provide a financial benefit with an identifiable budget impact. His request letter of May 12, 2007, provided as Appendix H, asked EIA to focus particularly on subsidies directed to electricity production, including an estimate of electricity subsidies on a per unit basis. In 2000, EIA enumerated and summarized energy subsidies and support generally; this report focuses on electricity production, specifically those subsidy and support programs that affect the production of primary fuels used to generate electricity (coal, natural gas, petroleum, and nuclear fuel), and the development of generating technologies including renewable generating technologies, and the development and maintenance of the electricity infrastructure.

Scope of the Report and Measurement of Subsidies and Support

Federal energy subsidies discussed in the body of this report take four principal forms:

• Direct Expenditures. These are Federal programs that provide direct financial benefits to targeted producers and consumers of energy to promote investment in critical infrastructure, develop and diversify domestic energy supplies, foster efficient end-use consumption, and reduce energy costs incurred by economically-disadvantaged consumers.

• Tax Expenditures. Tax expenditures are provisions in the Federal tax code that reduce the tax liability of firms or individuals who engage in specific economic activities that affect energy production, consumption, or conservation in ways deemed to be in the public interest.

• Research and Development (R&D). Federal R&D spending focuses on a variety of goals, from increasing U.S. energy supplies, to improving the efficiency of various energy production. [...]

• Federal programs that indirectly support electricity production. [...]

[shove_it]

This is an excerpt of page 1 of 10 pages of Chapter 1. There are four more chapters totaling 92 pages in response to Senator Alexander's request:

Chapter 2. Tax Expenditures and Direct Expenditures (10 pages)

Chapter 3. Federal Energy Research and Development (16 pages)

Chapter 4. Federal Electricity Programs (36 pages)

Chapter 5. Subsidies Per Unit of Production (20 pages)

I am posting this massive study to show that subsidies for electricity generation have been in use ever since Mr. Edison discovered electricity.

In reply to many on FR who falsely portray renewable energy, wind in particular, as "picking taxpayers' pockets", invest some time in reading this study to become informed on the facts concerning subsidies.

Here are links to the other four chapters:

http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/chap2.pdf

http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/chap3.pdf

http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/chap4.pdf

http://www.eia.doe.gov/oiaf/servicerpt/subsidy2/pdf/chap5.pdf

Here's an excerpt from the concluding statement at the end of the study:

"Perspectives on Electricity Subsidy Estimates

The issue of what constitutes a Federal government benefit is not without controversy. The intention of this analysis is not to assess all the cost differences faced by Federal utilities, cooperatives, public power, and the IOUs. There are numerous tax benefits and tax expenditures associated with ownership class. Electricity cooperatives are organized as taxexempt organizations under Federal tax law. Publicly-owned utilities are tax-exempt and have the ability to issue lower-cost tax-exempt debt. IOUs benefit from accelerated depreciation, which defers taxes and lowers their cost of capital by increasing cash flow.

These benefits flowed from decisions by individuals and communities on how, and from whom, they wished to acquire electric service during the period in which the Nation was electrified. In essence, tax laws were expected to allow for different ownership classes of electric utility assets. Whether the basis for tax and other benefits attributable to class ownership are equal, or not, remains a debatable question to industry analysts. These tax expenditures and direct expenditures provide incentives for market participants to engage in behavior, e.g., capital investment decisions that will achieve a desired benefit to society. This includes reducing dependence on imported oil, promotion of the use of environmentally preferred renewable resources, and encouraging participation in transmission organizations that facilitate reliability and enhance competition in wholesale electricity markets.

EIA was requested to provide an estimate of electricity subsidies with fuel-specific effects on a per-unit basis. In developing the analytical framework for this study, EIA adopted an inclusive approach that encompasses all energy-related R&D, direct expenditures, and tax expenditures to which there was a direct or indirect connection to current or future electricity production. This approach leaves a number of issues open to further discussion and analysis" [...]

[shove_it]

Seen this?