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Your Tax Dollars at Work: Energy Subsidies
By Vladimir Posted in alternative energy | Energy | Tax Policy — Comments (32) / Email this page » / Leave a comment »
Wind ($23.37) v. Gas (25 Cents)
That's a link to a Wall Street Journal editorial that is guaranteed to make the top of frequent poster moderich's head explode.
It is a look at how much energy we're getting for our subsidy dollar. An exhaustive look, by the Energy Information Agency (EIA) of the Department of Energy.
The agency reports that the total taxpayer bill was $16.6 billion in direct subsidies, tax breaks, loan guarantees and the like. That's double in real dollars from eight years earlier, as you'd expect given all the money Congress is throwing at "renewables." Even more subsidies are set to pass this year.
An even better way to tell the story is by how much taxpayer money is dispensed per unit of energy, so the costs are standardized. For electricity generation, the EIA concludes that solar energy is subsidized to the tune of $24.34 per megawatt hour, wind $23.37 and "clean coal" $29.81. By contrast, normal coal receives 44 cents, natural gas a mere quarter, hydroelectric about 67 cents and nuclear power $1.59.
The wind and solar lobbies are currently moaning that they don't get their fair share of the subsidy pie. They also argue that subsidies per unit of energy are always higher at an early stage of development, before innovation makes large-scale production possible. But wind and solar have been on the subsidy take for years, and they still account for less than 1% of total net electricity generation. Would it make any difference if the federal subsidy for wind were $50 per megawatt hour, or even $100? Almost certainly not without a technological breakthrough.
[snip]
All of this shows that there is a reason fossil fuels continue to dominate American energy production: They are extremely cost-effective. That's a reality to keep in mind the next time you hear a politician talk about creating millions of "green jobs." Those jobs won't come cheap, and you'll be paying for them.
[emphasis added]
One thing that surprised me after glancing at the report is the amount of money we're throwing at "refined coal". It would appear that the coal is superficially processed strictly for the purposes of qualifying for the tax credit, and that it's not really an alternative fuel at all. Any light that someone could shed on this would be appreciated.
Also, note that the tax credits for ethanol extend back to at least 1980.
The whole report is here (large .pdf download). [corrected link]
Misplaced a decimal
by Joliphant
Should read 2.4¢ and roughly 20% of the cost is subsidy.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Very messy
by moderich
Please realize that should you make my head explode, some unfortunate soul will have to clean it up. Do you really want that on your conscience?
By the way, the report does not mention alternative energy like solar and wind. Instead, it focuses on; "Extension and Modification of Section 29 for Producing Fuel from Nonconventional Sources (nonconventional gas, petroleum coke and coke gas, landfill gas, coal-mine gas, and refined coal)". I'd like to see an actual dollar amount of subsidies in question. See if you can dig that up on your end while I do the same.
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
See p.14 of the pdf (p. xi ff of the document)
by Vladimir
Total Federal energy-specific subsidies and support to all forms of energy are estimated at $16.6 billion for fiscal year (FY) 2007 (Table ES1). Total energy subsidies have more than doubled in real terms (2007 dollars), increasing from an estimated $8.2 billion in FY 1999. Tax expenditures have more than tripled since 1999, rising from $3.2 billion that year to more than
$10.4 billion in 2007.The increase in energy subsidies and support since 1999 is distributed widely across all energy groups (Table ES1). Changes in the distribution of subsidies by fuel type between 1999 and 2007 reflect a redirection of priorities. For example, subsidies for renewables increased from 17 percent of total subsidies and support in 1999 to 29 percent in 2007. Natural gas and petroleum related subsidies declined as a share of total subsidies primarily as a result of the expiration of the Alternative Fuels Production Tax Credit for the production of unconventional natural gas in 1999, whereas refined coal was the principal beneficiary of this tax expenditure in 2007. Coal-related subsidies, excluding refined coal, experienced a modest decline from 7 percent in 1999 to 6 percent in 2007.
The referenced tables have the detail you are looking for.
There is more stupidity than hydrogen in the universe, and it has a longer shelf life. - Frank Zappa
When I clicked on the link I
by moderich
When I clicked on the link I got a 2 page long file (fuel.html) with a link to tables that themselves were another 2 pages (fuel_tbls.pdf). What is the title of the 14 page pdf that you have been reading?
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
Correct link:
by Vladimir
http://tonto.eia.doe.gov/FTPROOT/service/srcneaf(2008)01.pdf
Sorry!
There is more stupidity than hydrogen in the universe, and it has a longer shelf life. - Frank Zappa
Good grief
by zroxx
Total energy subsidies have more than doubled in real terms (2007 dollars), increasing from an estimated $8.2 billion in FY 1999. Tax expenditures have more than tripled since 1999, rising from $3.2 billion that year to more than
$10.4 billion in 2007.
What were the (R) congress and 43 thinking? Evidently there was no bad idea they couldn't figure out how to spend more of our money on. We really need to start attaching the same stigma to "subsidies" as we do with "earmarks".
So disappointing, but thanks for the info!
Anticipating your comment about IDCs
by Vladimir
Tax law allows energy producers, principally oil and natural gas producers, to write off, i.e., expense, certain exploration and development (E&D) expenditures rather than capitalizing them and depreciating them over time. The most important of these expenditures consist of intangible drilling costs (IDCs) associated with oil and natural gas investments. Integrated oil companies can expense 70 percent of their IDCs for successful domestic wells and 100 percent for unsuccessful domestic wells. The remaining 30 percent must be amortized over 5 years. Nonintegrated (independent) oil producers can expense 100 percent of their IDCs for all domestic wells. The 70-
percent provision also applies to surface stripping and other selected expenditures for fuel minerals other than oil and natural gas (principally coal). The remainder must be amortized over 5 years. This tax expenditure, estimated at $860 million, was the fourth largest tax expenditure in
2007.The option to expense IDCs (and dry hole costs) of oil and natural gas wells was originally based on regulations issued in 1916. A court invalidated the regulations in 1945, but Congress subsequently gave its approval to the treatment and it became law in 1954. ...
RATIONALE: Intangible drilling costs were asserted by producers to be conventional operating expenses that therefore should be expensed. [Another way of looking at it is that they are investments that are part of the drilling/exploration process that have zero value once the well is drilled -- unlike an investment in a drill press or a lathe. - ed.] The provision is intended to encourage additional mineral exploration and development. It was explicitly codified to reduce uncertainty concerning its status in order to encourage further exploration and development.
Same deal with percentage depletion. These are the two largest tax breaks that are unique to the mineral extraction business. Whether or not you agree with them in principle, you can see that they have long been part of how drilling decisions get made, and that absent them, fewer wells would be drilled.
There is more stupidity than hydrogen in the universe, and it has a longer shelf life. - Frank Zappa
Solar Subidies: <1%
by moderich
The actual amounts for 2007; solar: $14 Million, nuclear: $1.2 Billion, coal: $3 Billion.
Fuel/End Use |
FY 2007
|
FY 2007
|
Subsidy & Support
|
| Coal | 1,946 | 854 | 0.44 |
| Refined coal | 72 | 2,156 | 29.81 |
| Nat. Gas & Petroleum Liquids | 919 | 227 | 0.25 |
| Nuclear | 794 | 1,267 | 1.59 |
| Biomass (& biofuels) | 40 | 36 | 0.89 |
| Geothermal | 15 | 14 | 0.92 |
| Hydroelectric | 258 | 174 | 0.67 |
| Solar | 1 | 14 | 24.34 |
| Wind | 31 | 724 | 23.37 |
| Landfill Gas | 6 | 8 | 1.37 |
| Municpal Solid Waste | 9 | 1 | 0.13 |
| Unallocated Renewables | NM | 37 | NM |
| Renewables (subtotal) | 360 | 1,008 | 2.80 |
| Transmission & Dist. | NM | 1,235 | NM |
| Total | 4,091 | 6,747 | 1.65 |
| Unallocated renewables include projects funded under Clean Renewable Energy Bonds and the Renewable Energy Production Incentive. NM=Not meaningful. Totals may not equal sum of components due to independent rounding. |
|||
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
And I think it would be fair to conclude that the grid is not going to be primarily solar, at least in our lifetimes. Solar may have a niche in spot applications (like lighting offshore oil & gas platforms, semicolon-dash-close paren).
The budget for renewables is mostly in wind; these programs have been in place for quite some time and the total energy actually generated is still pretty low, so the subsidy per unit is quite high.
And I still don't get the "refined coal" deal; it smells like an out-and-out gimmick to me.
There is more stupidity than hydrogen in the universe, and it has a longer shelf life. - Frank Zappa
Reply
by moderich
The numbers are taken directly from your source, so it would have been nice if you given that caveat upfront.
And I know you've heard this before, but I sincerely believe the solar revolution will be bootstrapped from the consumer upwards, as we see with the hybrid vehicles (thin-films now, nanotube photon filter/collectors later).
I have to agree with you on the refined coal - I had no idea it was such a star. This response by the CEO of a refined coal producer to an op-ed in The Tennessean explains it as a stop-gap/stepping-stone to clean coal. Don't know if it's a gimmic, but they sure convinced Washington D.C. that it was worth well more that 100 X the investment in solar.
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
I don't know what that's supposed to mean.
by Vladimir
The tables are clearly labeled.
And the numbers are in the report (which runs to 274 pages) for total subsidies. Total subsidies are summarized in the quote in my comment #4 above.
There is more stupidity than hydrogen in the universe, and it has a longer shelf life. - Frank Zappa
I notice these tables seem to be missing Tax Credits
by Joliphant
Seeing as there is a 30% tax credit for homeowners and businesses installing solar.
Seeing as solar at best goes fro $1/watt that amounts to $300,000/MW generating capacity or an additional subsidy of about $800/MWH (As tax credit)
Something here is really not in the same league.
Oh here is the reference information.
http://www.seia.org/taxmanualdownload.php
Just a disclaimer. I am aware of it because I took advantage of it. Thanks for the free electricity Moderich.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Heavy tax credits
by moderich
Do you really think the amount spent on solar tax credits outweighs, for example, the small business tax credit for buying Heavy SUVs (Section 179 depreciation deduction) like the Cadillac Escalade? I'll even let you add the tax break on hybrids to the tax breaks on solar just to make things interesting.
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
Actually that was meant to encourage fuel eficiency
by Joliphant
Its a product of the CAFE standards. So that would be an oops by misguided idealists thinking they will coerce people into being fuel efficient.
To be kind though lets evaluate your idea. This would be a consumption break not a production subsidy. In effect you are comparing aid to the automobile industry with energy generation.
And just a final note A hybrid SUV was/is eligible for the heavy truck breaks and the hybrid breaks.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Do you do taxes?
by itrytobenice
There is a huge difference between a tax credit and a Section 179.
A Section 179 deduction just means you were allowed to accelerate the depreciation for a depreciable asset. It can be a computer, a tractor, Kowalski's printing equipment, virtually anything depreciable.
It is limited to a certain (changing) amount per year, but you aren't allowed to deduct any more than you otherwise would be able to; however, you are allowed to accelerate the depreciation and take more of it up front.
A Cadillac Escalade is only deductible if it is used for a legitimate business expense, and there are no tax credits for it. Unless it is a hybrid.
Congress' preferred method of 'stimulating' a particular asset purchase is to give a tax credit. This means that all, or a certain portion, of the purchase price can be taken as a direct deduction from the tax bill. This is waaaayy more favorable than a simple deduction as a business expense. Even on an accelerated schedule.
I meant what I said and I said what I meant. An elephant's faithful 100 percent.
Yes, it is a tax break
by moderich
Yes, it is a tax break because the government will lose tax revenue by allowing a one year write-off versus the typical five-to-seven year period.
Bottom Line: Heavy vehicles that fall under these three exceptions remain eligible for the full Section 179 writeoff ($125,000 for tax years beginning in 2007; $128,000 for 2008). That means you can probably deduct the full business portion of your heavy non-SUV's cost in Year One. Sweet!
The catch? Only that your newly acquired vehicle must be used more than 50% of the time for business purposes. But as I'll explain below, setting up a business office in your home can give you a big leg up in meeting this requirement. Before we get to that key point, however, here's a little more background so you'll understand how the Section 179 break works in this context.
Imagine the stimulus we could provide to solar technology if a home or business owner were allowed to deduct the full portion in one year!
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
Yes our rivers would be bright blue
by Joliphant
From being polluted with cadmium compounds and other toxic wastes from the production of photovoltaic systems.
Imagine the stimulus we could have to domestic fuel production if we allowed the full write off of coal liquifaction tech.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
>5< n/t
by Vladimir
There is more stupidity than hydrogen in the universe, and it has a longer shelf life. - Frank Zappa
Thin films
by moderich
Get used to saying it, because it's the future.
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
Actually its been the present
by Joliphant
Since the 1980's
Maybe before. I never did much work on fabrication technologies.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
1980?
by moderich
Even in 2000 you couldn't buy thin films with an efficiency of 10% for half the cost of traditional PV cells. The commercial availability of mass produced, inexpensive, high quality thin films is brand spanking new.
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
The once and future thing
by Joliphant
Once again it's real obvious you haven't lived through any of these going belly up.
Me I am still waiting for Galium Arsenide to rule the world of semiconductors (Solar Cells included)
Amorphous silicon is still the king in the wings
Quantum Dots anyone ?
Oh and Multispectral cells were going to revolutionize power generation.
Do your self a favor. Go to the IEEE library, if you live in NYC its in midtown manhattan or the online version and read the contents of Spectrum. A couple issues a year a couple years a decade.
Then ask yourself where's my flying car ?
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
I'm old
by Joliphant
I look at the way people in Miami drive and I am damn happy there are no flying cars.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Flying car
by simpson316
And it's only a cool million if you buy 25 - 100 of them. It appears that they expect FAA certification this year.
Now also found at The Minority Report
Reading is fundamental
by itrytobenice
Look at that again...
That means you can probably deduct the full business portion of your heavy non-SUV's cost in Year One. Sweet!
Probably? full business portion? heavy non-SUV???
What this actually says is that you can deduct the full business portion of motorized vehicles, however, taking a full deduction for an SUV is problematic. Taking a Section 179 deduction for your new dump truck or grain truck is going to be easier.
And this is a problem for you?
I meant what I said and I said what I meant. An elephant's faithful 100 percent.
The point
by moderich
Do you think the total spent on providing tax credits for hybrids and solar energy is more than spent on heavy non-SUVs? That's my point. Some object to the first instance on principle but not the second - a contradiction.
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
So now you oppose dump trucks?
by itrytobenice
Why would we want to restrict the tax deductibility of dump trucks? That is an example of a heavy non-SUV. Or our hay truck. That's a heavy non-SUV.
Other assets get to utilize the Section 179 deduction for very valid reasons that I explained before. Why do you think motorized equipment should be treated less fairly or generously than other capital equipment?
And you are so wrong that the Section 179 is some kind of tax giveaway. Yes, the IRS does not collect the money as fast, and due to the time value of money, the treasury does not get to pilfer as much from the American taxpayer as fast as they otherwise would. However, there are reasonable and excellent reasons for allowing a certain amount of accelerated depreciation.
If you were purchasing equipment that the bank wouldn't loan on (just imagine a 1974 Chevy two ton hay truck) and had to pay cash, but you were forced to depreciate it out over 5 years, that would involve a cash flow crunch. The tax code should not impose that sort of artificial hindrance on investment.
I meant what I said and I said what I meant. An elephant's faithful 100 percent.
Guess again
by moderich
The Section 179 depreciation deduction was not meant to encourage fuel efficiency. Besides helping to sell Heavy SUVs, it also targets:
- Recovery period for tax-exempt use property subject to lease
- Special depreciation rules for liberty zone property
- Special depreciation rules for luxury automobiles
- Recovery period for depreciation of certain restaurant improvements
- Recovery period for permanent motorsports racetrack complexes
- Recovery period for Alaska natural gas pipeline
Besides, vehicles are energy generating vehicles. They use gas and a motor to create mechanical energy, and in the process create waste in the form of heat and emissions.
Now guess how many SUVs were sold in 2007? Of that, how many do you think were hybrids? The real tax breaks go to oil and gas.
"Austere, intolerant, well-armed, and blood-thirsty, in their own regions the Wahhabis are a distinct factor which must be taken into account" - Winston Churchill, 1921
You really do need to learn to read
by Joliphant
Its a product of the CAFE standards. So that would be an oops by misguided idealists thinking they will coerce people into being fuel efficient.
Automakers wanted to produce vehicles that would not be covered by Cafe or moved into more favorable classes.
http://www.forbes.com/2003/01/21/cx_da_0121topnews.html
But hey why not call legislation that was meant to force people to drive small cars an energy generation subsidy.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777
Working from memory here...
by itrytobenice
And I will not charge you for it, but I'm 99% sure...
The :special depreciation rules for liberty zone property: was made to encourage investment in the affected areas from the 9-11 attacks.
The :special rules for luxury automobiles: restricts tax deductibility for same.
Any changes for motorsport complexes undoubtedly just changed their recovery time period from 30 to 20 or 20 to 10 or 10 to 20 etc. It was not any sort of special congressional desire to encourage the knuckle draggers at NASCAR.
And you're right about one thing. The Section 179 was not meant to encourage fuel efficiency. But so what? Does every aspect of the tax code have to do that now?
Section 179 gives business owners the option of deducting a portion of their depreciable expenses in the year the asset was acquired. This hopefully encourages investment in hard assets, but also properly reflects business operations. Some assets are purchased with cash or financed over a very short period of time. Extending the depreciation schedule very far beyond the financing schedule badly affects cash flow for a business and distorts the operation unnecessarily.
I meant what I said and I said what I meant. An elephant's faithful 100 percent.
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A megawatt hour = 1000 Kilo Watt Hours
So for the sake of argument lets you are paying 11¢/KWH
If that is generated from wind it means that the cost was 34¢ and 23¢ was subsidy.
"Those who expect to reap the blessings of freedom must, like men, undergo the fatigue of supporting it."
-Thomas Paine: The American Crisis, No. 4, 1777