Order Code RL33578
CRS Report for Congress
Received through the CRS Web
Energy Tax Policy: History and Current Issues
July 28, 2006
Salvatore Lazzari
Resources, Science, and Industry Division
Congressional Research Service ˜ The Library of Congress

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Energy Tax Policy: History and Current Issues
Summary
Historically, U.S. federal energy tax policy promoted the supply of oil and gas.
However, the 1970s witnessed (1) a significant cutback in the oil and gas industry’s
tax preferences, (2) the imposition of new excise taxes on oil, and (3) the
introduction of numerous tax preferences for energy conservation, the development
of alternative fuels, and the commercialization of the technologies for producing
these fuels (renewables such as solar, wind, and biomass, and nonconventional fossil
fuels such as shale oil and coalbed methane).
The Reagan Administration, using a free-market approach, advocated repeal of
the windfall profit tax on oil and the repeal or phase-out of most energy tax
preferences — for oil and gas, as well as alternative fuels. Due to the combined
effects of the Economic Recovery Tax Act and the energy tax subsidies that had not
been repealed, which together created negative effective tax rates in some cases, the
actual energy tax policy differed from the stated policy. The George H. W. Bush and
Bill Clinton years witnessed a return to a much more activist energy tax policy, with
an emphasis on energy conservation and alternative fuels. While the original aim
was to reduce demand for imported oil, energy tax policy was also increasingly
viewed as a tool for achieving environmental and fiscal objectives. The Clinton
Administration’s energy tax policy emphasized the environmental benefits of
reducing greenhouse gases and global climate change, but it will also be remembered
for its failed proposal to enact a broadly based energy tax on Btus (British thermal
units) and its 1993 across-the-board increase in motor fuels taxes of 4.3¢/gallon.
The Working Families Tax Relief Act of 2004 (P.L. 108-311) and the American
Jobs Creation Act of 2004 (P.L. 108-357) each contained several energy-related tax
breaks. The George W. Bush Administration has proposed a limited number of
energy tax measures, but the 109th Congress enacted the Energy Policy Act of 2005
(P.L. 109-58) — comprehensive energy legislation that included numerous energy
tax incentives to increase the supply of, and reduce the demand for, fossil fuels and
electricity. Signed by President Bush on August 8, 2005, it provided a net energy tax
cut of $11.5 billion ($14.5 billion gross energy tax cuts, less $3 billion of energy tax
increases). The act included tax incentives for energy efficiency in residential and
commercial buildings and for more energy efficient vehicles, and tax incentives for
several types of alternative and renewable resources, such as solar and geothermal.
The current energy tax structure is dominated by revenues from a long-standing
gasoline tax (which serves as a quasi user fee for the use of the highway
infrastructure), and tax incentives for alternative and renewable fuels supply relative
to energy from conventional fossil fuels. Although several additional tax incentives
for conventional fossil fuels and electricity were added, the act does not alter the
current policy stance favoring renewables on a Btu-corrected basis.
This report replaces CRS Issue Brief IB10054, Energy Tax Policy, by Salvatore
Lazzari.

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Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Energy Tax Policy from 1918 to 1970: Promoting Oil and Gas . . . . . . . . . . 2
Energy Tax Policy During the 1970s: Conservation and Alternative Fuels
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Energy Tax Policy in the 1980s: The “Free-Market Approach” . . . . . . . . . . 5
Energy Tax Policy After 1988 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Energy Tax Incentives in Recent Comprehensive Energy Legislation . . . . . . . . . 8
Brief History of Recent Comprehensive Energy Policy Proposals . . . . . . . . 8
Energy Tax Action in the 107th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Energy Tax Action in the 108th Congress . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
The Energy Policy Act of 2005 (P.L. 109-58) . . . . . . . . . . . . . . . . . . . . . . . 11
Current Posture of Energy Tax Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Energy Tax Policy Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Recent Congressional Bills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
For Additional Reading . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
List of Tables
Table 1. Comparison of Energy Tax Provisions the House, Senate, and
Enacted Versions of H.R. 6 (P.L.109-58): 11-Year Estimated Revenue
Loss by Type of Incentive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Table 2. Current Energy Tax Incentives and Taxes: Estimated Revenue
Effects FY2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

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Energy Tax Policy: History and
Current Issues
Introduction
Energy tax policy involves the use of the government’s main fiscal instruments
— taxes (financial disincentives) and tax subsidies (or incentives) — to alter the
allocation or configuration of energy resources. In theory, energy taxes and
subsidies, like tax policy instruments in general, are intended either to correct a
problem or distortion in the energy markets or to achieve some social, economic
(efficiency, equity, or even macroeconomic), environmental, or fiscal objective. In
practice, however, energy tax policy in the United States is made in a political
setting, being determined by the views and interests of the key players in this setting:
politicians, special interest groups, bureaucrats, and academic scholars. This implies
that the policy does not generally, if ever, adhere to the principles of economic or
public finance theory alone; that more often than not, energy tax policy may
compound existing distortions, rather than correct them.1
The idea of applying tax policy instruments to the energy markets is not new,
but until the 1970s, energy tax policy had been little used, except for the oil and gas
industry. Recurrent energy-related problems since the 1970s — oil embargoes, oil
price and supply shocks, wide petroleum price variations and price spikes, large
geographical price disparities, tight energy supplies, and rising oil import
dependence, as well as increased concern for the environment — have caused
policymakers to look toward energy taxes and subsidies with greater frequency.
Comprehensive energy policy legislation containing numerous tax incentives,
and some tax increases on the oil industry, was signed on August 8, 2005 (P.L. 109-
58). The law, the Energy Policy Act of 2005, contains about $15 billion in energy
tax incentives over 11 years. On May 17, 2006, the President signed a $70 billion tax
reconciliation bill (P.L. 109-222) that further increases taxes on major integrated oil
companies by extending the depreciation recovery period for geological and
geophysical costs from two to five years (thus taking back some of the benefits
enacted under the 2005 law).
This report discusses the history, current posture, and outlook for federal energy
tax policy. It also discusses recent energy tax proposals, focusing on the major
energy tax provisions enacted in the 109th Congress. (For a general economic
1 The theory underlying these distortions, and the nature of the distortions, is discussed in
detail in a companion report: CRS Report RL30406, Energy Tax Policy: An Economic
Analysis, by Salvatore Lazzari.

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analysis of energy tax policy, see CRS Report RL30406, Energy Tax Policy: An
Economic Analysis, by Salvatore Lazzari.)
Background
The history of federal energy tax policy can be divided into four eras: the oil
and gas period from 1916 to 1970, the energy crisis period of the 1970s, the free-
market era of the Reagan Administration, and the post-Reagan era — including the
period since 1998, which has witnessed a plethora of energy tax proposals to address
recurring energy market problems.
Energy Tax Policy from 1918 to 1970: Promoting Oil and Gas
Historically, federal energy tax policy was focused on increasing domestic oil
and gas reserves and production; there were no tax incentives for energy conservation
or for alternative fuels. Two oil/gas tax code preferences embodied this policy: (1)
expensing of intangible drilling costs (IDCs) and dry hole costs, which was
introduced in 1916, and (2) the percentage depletion allowance, first enacted in 1926
(coal was added in 1932).2
Expensing of IDCs (such as labor costs, material costs, supplies, and repairs
associated with drilling a well) gave oil and gas producers the benefit of fully
deducting from the first year’s income (“writing off”) a significant portion of the
total costs of bringing a well into production, costs that would otherwise (i.e., in
theory and under standard, accepted tax accounting methods) be capitalized (i.e.,
written off during the life of the well as income is earned). For dry holes, which
comprised on average about 80% of all the wells drilled, the costs were also allowed
to be deducted in the year drilled (expensed) and deducted against other types of
income, which led to many tax shelters that benefitted primarily high-income
taxpayers. Expensing accelerates tax deductions, defers tax liability, and encourages
oil and gas prospecting, drilling, and the development of reserves.
The oil and gas percentage depletion allowance permitted oil and gas producers
to claim 27.5% of revenue as a deduction for the cost of exhaustion or depletion of
the deposit, allowing deductions in excess of capital investment (i.e, in excess of
adjusted cost depletion) — the economically neutral method of capital recovery for
the extractive industries. Percentage depletion encourages faster mineral
development than cost depletion (the equivalent of depreciation of plants and
equipment).
2 Tax preferences are special tax provisions — such as tax credits, exemptions, exclusions,
deductions, deferrals, or favorable tax rates — that reduce tax rates for the preferred
economic activity and favored taxpayers. Such preferences, also known as tax expenditures
or tax subsidies, generally deviate from a neutral tax system and from generally accepted
economic and accounting principles unless they are targeted to the correction of preexisting
market distortions.

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These and other tax subsidies discussed later (e.g., capital gains treatment of the
sale of successful properties, the special exemption from the passive loss limitation
rules, and special tax credits) reduced marginal effective tax rates in the oil and gas
industries, reduced production costs, and increased investments in locating reserves
(increased exploration). They also led to more profitable production and some
acceleration of oil and gas production (increased rate of extraction), and more rapid
depletion of energy resources than would otherwise occur. Such subsidies tend to
channel resources into these activities that otherwise would be used for oil and gas
activities abroad or for other economic activities in the United States. Relatively low
oil prices encouraged petroleum consumption (as opposed to conservation) and
inhibited the development of alternatives to fossil fuels, such as unconventional fuels
and renewable forms of energy. Oil and gas production increased from 16% of total
U.S. energy production in 1920 to 71.1% of total energy production in 1970 (the peak
year).
Energy Tax Policy During the 1970s: Conservation and
Alternative Fuels
Three developments during the 1970s caused a dramatic shift in the focus of
federal energy tax policy. First, the large revenue losses associated with the oil and
gas tax preferences became increasingly hard to justify in the face of increasing
federal budget deficits — and in view of the longstanding economic arguments
against the special tax treatment for oil and gas, as noted in the above paragraph.
Second, heightened awareness of environmental pollution and concern for
environmental degradation, and the increased importance of distributional issues in
policy formulation (i.e., equity and fairness), lost the domestic oil and gas industry
much political support. Thus, it became more difficult to justify percentage depletion
and other subsidies, largely claimed by wealthy individuals and big vertically
integrated oil companies. More importantly, during the 1970s there were two energy
crises: the oil embargo of 1973 — also known as the first oil shock — and the Iranian
Revolution in 1978-1979, which focused policymakers’ attention on the problems
(alleged “failures”) in the energy markets and how these problems reverberated
throughout the economy, causing stagflation, shortages, productivity problems, rising
import dependence, and other economic and social problems.
These developments caused federal energy tax policy to shift from oil and gas
supply toward energy conservation (reduced energy demand) and alternative energy
sources.
Three broad actions were taken through the tax code to implement the new
energy tax policy during the 1970s. First, the oil industry’s two major tax
preferences — expensing of IDCs and percentage depletion — were significantly
reduced, particularly the percentage depletion allowance, which was eliminated for
the major integrated oil companies and reduced for the remaining producers. Other
oil and gas tax benefits were also cut back during this period. For example, oil- and
gas-fired boilers used in steam generation (e.g., to generate electricity) could no
longer qualify for accelerated depreciation as a result of the Energy Tax Act of 1978
(as discussed below).

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The second broad policy action was the imposition of several new excise taxes
penalizing the use of conventional fossil fuels, particularly oil and gas (and later
coal). The Energy Tax Act of 1978 (ETA, P.L. 95-618) created a federal “gas
guzzler” excise tax on the sale of automobiles with relatively low fuel economy
ratings. This tax, which is still in effect, currently ranges from $1,000 for an
automobile rated between 21.5 and 22.5 miles per gallon (mpg) to $7,700 for an
automobile rated at less than 12.5 mpg. Chief among the taxes on oil was the
windfall profit tax (WPT) enacted in 1980 (P.L. 96-223). The WPT imposed an
excise tax of 15% to 70% on the difference between the market price of oil and a
predetermined (adjusted) base price. This tax, which was repealed in 1988, was part
of a political compromise that decontrolled oil prices. (Between 1971 and 1980, oil
prices were controlled under President Nixon’s Economic Stabilization Act of 1970
— the so-called “wage-price freeze.”) (For more detail on the windfall profit tax on
crude oil that was imposed from 1980 until its repeal in 1988, see CRS Report
RL33305, The Windfall Profit Tax on Crude Oil: Implications for Current Energy
Policy, by Salvatore Lazzari.)
Another, but relatively small, excise tax on petroleum was instituted in 1980:
the environmental excise tax on crude oil received at a U.S. refinery. This tax, part
of the Comprehensive Environmental Response, Compensation, and Liability Act of
1980 (P.L. 96-510), otherwise known as the “Superfund” program, was designed to
charge oil refineries for the cost of releasing any hazardous materials that resulted
from the refining of crude oil. The tax rate was set initially at 0.79¢ ($0.0079) per
barrel and was subsequently raised to 9.70¢ per barrel. This tax expired at the end
of 1995, but legislation has been proposed since then to reinstate it as part of
Superfund reauthorization.
The third broad action taken during the 1970s to implement the new and
refocused energy tax policy was the introduction of numerous tax incentives or
subsidies (e.g., special tax credits, deductions, exclusions) for energy conservation,
the development of alternative fuels (renewable and nonconventional fuels), and the
commercialization of energy efficiency and alternative fuels technologies. Most of
these new tax subsidies were introduced as part of the Energy Tax Act of 1978 and
expanded under the WPT, which also introduced additional new energy tax subsidies.
The following list describes these:
! Residential and Business Energy Tax Credits. The ETA provided
income tax credits for homeowners and businesses that invested in
a variety of energy conservation products (e.g., insulation and other
energy-conserving components) and for solar and wind energy
equipment installed in a principal home or a business. The business
energy tax credits were 10% to 15% of the investment in
conservation or alternative fuels technologies, such as synthetic
fuels, solar, wind, geothermal, and biomass. These tax credits were
also expanded as part of the WPT, but they generally expired (except
for business use of solar and geothermal technologies) as scheduled
either in 1982 or 1985. A 15% investment tax credit for business
use of solar and geothermal energy, which was made permanent, is
all that remains of these tax credits.

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! Tax Subsidies for Alcohol Fuels. The ETA also introduced the excise
tax exemption for gasohol, recently at 5.2¢ per gallon out of a
gasoline tax of 18.4¢/gal. Subsequent legislation extended the
exemption and converted it into an immediate tax credit (currently
at 51¢/gallon of ethanol).
! Percentage Depletion for Geothermal. The ETA made geothermal
deposits eligible for the percentage depletion allowance, at the rate
of 22%. Currently the rate is 15%.
! §29 Tax Credit for Unconventional Fuels. The 1980 WPT included
a $3.00 (in 1979 dollars) production tax credit to stimulate the
supply of selected unconventional fuels: oil from shale or tar sands,
gas produced from geo-pressurized brine, Devonian shale, tight
formations, or coalbed methane, gas from biomass, and synthetic
fuels from coal. In current dollars this credit, which is still in effect
for certain types of fuels, was $6.56 per barrel of liquid fuels and
about $1.16 per thousand cubic feet (mcf) of gas in 2004.
! Tax-Exempt Interest on Industrial Development Bonds. The WPT
made facilities for producing fuels from solid waste exempt from
federal taxation of interest on industrial development bonds (IDBs).
This exemption was for the benefit of the development of alcohol
fuels produced from biomass, for solid-waste-to-energy facilities, for
hydroelectric facilities, and for facilities for producing renewable
energy. IDBs, which provide significant benefits to state and local
electric utilities (public power), had become a popular source of
financing for renewable energy projects.
Some of these incentives — for example, the residential energy tax credits —
have since expired, but others remain and still new ones have been introduced, such
as the §45 renewable electricity tax credit, which was introduced in 1992 and
expanded under the American Jobs Creation Act of 2004 (P.L. 108-357). This
approach toward energy tax policy — subsidizing a plethora of different forms of
energy (both conventional and renewable) and providing incentives for diverse
energy conservation (efficiency) technologies in as many sectors as possible — has
been the paradigm followed by policymakers since the 1970s. A significant increase
in nontax interventions in the energy markets — laws and regulations, such as the
Corporate Average Fuel Economy (CAFÉ) standards to reduce transportation fuel
use, and other interventions through the budget and the credit markets — has also
been a significant feature of energy policy since the 1970s. This included some of
the most extensive energy legislation ever enacted.
Energy Tax Policy in the 1980s: The “Free-Market Approach”
The Reagan Administration opposed using the tax law to promote oil and gas
development, energy conservation, or the supply of alternative fuels. The idea was
to have a more neutral and less distortionary energy tax policy, which economic
theory predicts would make energy markets work more efficiently and generate
benefits to the general economy. The Reagan Administration believed that the

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responsibility for commercializing conservation and alternative energy technologies
rested with the private sector and that high oil prices — real oil prices (corrected for
inflation) were at historically high levels in 1981 and 1982 — would be ample
encouragement for the development of alternative energy resources. High oil prices
in themselves create conservation incentives and stimulate oil and gas production.
President Reagan’s free-market views were well known prior to his election.
During the 1980 presidential campaign, he proposed repealing the WPT, deregulating
oil and natural gas prices, and minimizing government intervention in the energy
markets. The Reagan Administration’s energy tax policy was professed more
formally in several energy and tax policy studies, including its 1981 National Energy
Policy Plan and the 1983 update to this plan; it culminated in a 1984 Treasury study
on general tax reform, which also proposed fundamental reforms of federal energy
tax policy. In terms of actual legislation, many of the Reagan Administration’s
objectives were realized, although as discussed below there were unintended effects.
In 1982, the business energy tax credits on most types of nonrenewable
technologies — those enacted under the ETA of 1978 — were allowed to expire as
scheduled; other business credits and the residential energy tax credits were allowed
to expire at the end of 1985, also as scheduled. Only the tax credits for business
solar, geothermal, ocean thermal, and biomass technologies were extended. As
mentioned above, today the tax credit for business investment in solar and
geothermal technologies, which has since been reduced to 10%, is all that remains
of these tax credits. A final accomplishment was the repeal of the WPT, but not until
1988, the end of Reagan’s second term. The Reagan Administration’s other energy
tax policy proposals, however, were not adopted. The tax incentives for oil and gas
were not eliminated, although they were pared back as part of the Tax Reform Act
(TRA) of 1986.
Although the Reagan Administration’s objective was to create a free-market
energy policy, significant liberalization of the depreciation system and reduction in
marginal tax rates — both the result of the Economic Recovery Tax Act of 1981
(ERTA, P.L. 97-34) — combined with the regular investment tax credit and the
business energy investment tax credits, resulted in negative effective tax rates for
many investments, including alternative energy investments, such as solar and
synthetic fuels. Also, the retention of percentage depletion and expensing of IDCs
(even at the reduced rates) rendered oil and gas investments still favored relative to
investments in general.
Energy Tax Policy After 1988
After the Reagan Administration, several major energy and non-energy laws
were enacted that amended the energy tax laws in several ways, some major:
! Revenue Provisions of the Omnibus Reconciliation Act of 1990.
President George H.W. Bush’s first major tax law included
numerous energy tax incentives: (1) for conservation (and deficit
reduction), the law increased the gasoline tax by 5¢/gallon and
doubled the gas-guzzler tax; (2) for oil and gas, the law introduced
a 10% tax credit for enhanced oil recovery expenditures, liberalized

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some of the restrictions on the percentage depletion allowance, and
reduced the impact of the alternative minimum tax on oil and gas
investments; and (3) for alternative fuels, the law expanded the §29
tax credit for unconventional fuels and introduced the tax credit for
small producers of ethanol used as a motor fuel.
! Energy Policy Act of 1992 (P.L. 102-486). This broad energy
measure introduced the §45 tax credit, at 1.5¢ per kilowatt hour, for
electricity generated from wind and “closed-loop” biomass systems.
(Poultry litter was added later.) For new facilities, this tax credit
expired at the end of 2001 and again in 2003 but has been
retroactively extended by recent tax legislation (as discussed below).
In addition, the 1992 law (1) added an income tax deduction for the
costs, up to $2,000, of clean-fuel powered vehicles; (2) liberalized
the alcohol fuels tax exemption; (3) expanded the §29 production tax
credit for nonconventional energy resources; and (4) liberalized the
tax breaks for oil and gas.
! Omnibus Budget Reconciliation Act of 1993 (P.L. 103-66).
President Clinton proposed a differential Btu tax on fossil fuels (a
broadly based general tax primarily on oil, gas, and coal based on the
British thermal units of heat output), which was dropped in favor of
a broadly applied 4.3¢/gallon increase in the excise taxes on motor
fuels, with revenues allocated for deficit reduction rather than the
various trust funds.
! Taxpayer Relief Act of 1997 (P.L. 105-34). This law included a
variety of excise tax provisions for motor fuels, of which some
involved tax reductions on alternative transportation fuels, and some
involved increases, such as on kerosene, which on balance further
tilted energy tax policy toward alternative fuels.
! Tax Relief and Extension Act. Enacted as Title V of the Ticket to
Work and Work Incentives Improvement Act of 1999 (P.L. 106-
170), it extended and liberalized the 1.5¢/kWh renewable electricity
production tax credit, and renewed the suspension of the net income
limit on the percentage depletion allowance for marginal oil and gas
wells.
As this list suggests, the post-Reagan energy tax policy returned more to the
interventionist course established during the 1970s and primarily was directed at
energy conservation and alternative fuels, mostly for the purpose of reducing oil
import dependence and enhancing energy security. However, there is an
environmental twist to energy tax policy during this period, particularly in the
Clinton years. Fiscal concerns, which for most of that period created a perennial
search for more revenues to reduce budget deficits, have also driven energy tax policy
proposals during the post-Reagan era. This is underscored by proposals, which have
not been enacted, to impose broad-based energy taxes such as the Btu tax or the
carbon tax to mitigate greenhouse gas emissions.

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Another interesting feature of the post-Reagan energy tax policy is that while
the primary focus continues to be energy conservation and alternative fuels, no
energy tax legislation has been enacted during this period that does not also include
some, relatively minor, tax relief for the oil and gas industry, either in the form of
new tax incentives or liberalization of existing tax breaks (or both).
Energy Tax Incentives in Recent
Comprehensive Energy Legislation
Several negative energy market developments since about 1998, characterized
by some as an “energy crisis,” have led to congressional action on comprehensive
energy proposals, which included numerous energy tax incentives.
Brief History of Recent Comprehensive Energy
Policy Proposals
Although the primary rationale for comprehensive energy legislation has
historically been spiking petroleum prices, and to a lesser extent spiking natural gas
and electricity prices, the origin of bills introduced in the late 1990s was the very low
crude oil prices of that period. Domestic crude oil prices reached a low of just over
$10 per barrel in the winter of 1998-1999, among the lowest crude oil prices in
history after correcting for inflation. From 1986 to 1999, oil prices averaged about
$17 per barrel, fluctuating between $12 and $20 per barrel. These low oil prices hurt
oil producers, benefitted oil refiners, and encouraged consumption. They also served
as a disincentive to conservation and investment in energy efficiency technologies
and discouraged production of alternative fuels and renewable technologies. To
address the low oil prices, there were many tax bills in the first session of the 106th
Congress (1999) focused on production tax credits for marginal or stripper wells, but
they also included carryback provisions for net operating losses, and other fossil fuels
supply provisions.
By summer 1999, crude oil prices rose to about $20 per barrel, and peaked at
more than $30 per barrel by summer 2000, causing higher gasoline, diesel, and
heating oil prices. To address the effects of rising crude oil prices, legislative
proposals again focused on production tax credits and other supply incentives. The
rationale was not tax relief for a depressed industry but tax incentives to increase
output, reduce prices, and provide price relief to consumers.
In addition to higher petroleum prices there were forces — some of which were
understood (factors such as environmental regulations and pipeline breaks) and
others that are still are not so clearly understood — that caused the prices of refined
petroleum products to spike. In response, there were proposals in 2000 to either
temporarily reduce or eliminate the federal excise tax on gasoline, diesel, and other
special motor fuels. The proposals aimed to help consumers (including truckers)
cushion the financial effect of the price spikes. The Midwest gasoline price spike in
summer 2000 kept interest in these excise tax moratoria alive and generated interest
in proposals for a windfall profit tax on oil companies, which, by then, were earning
substantial profits from high prices.

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Despite numerous bills to address these issues, no major energy tax bill was
enacted in the 106th Congress. However, some minor amendments to energy tax
provisions were enacted as part of nonenergy tax bills. This includes Title V of the
Ticket to Work and Work Incentives Improvement Act of 1999 (P.L. 106-170).
Also, the 106th Congress did enact a package of $500 million in loan guarantees for
small independent oil and gas producers (P.L. 106-51).
Energy Tax Action in the 107th Congress
In early 2001, the 107th Congress faced a combination of fluctuating oil prices,
an electricity crisis in California, and spiking natural gas prices. The gas prices had
increased steadily in 2000 and reached $9 per thousand cubic feet (mcf) at the outset
of the 107th Congress. At one point, spot market prices reached about $30 per mcf,
the energy equivalent of $175 per barrel of oil. The combination of energy problems
had developed into an “energy crisis,” which prompted congressional action on a
comprehensive energy policy bill — the first since 1992 — that included a significant
expansion of energy tax incentives and subsidies and other energy policy measures.
In 2002, the House and Senate approved two distinct versions of an omnibus
energy bill, H.R. 4. While there were substantial differences in the nontax provisions
of the bill, the energy tax measures also differed significantly. The House bill
proposed larger energy tax cuts, with some energy tax increases. It would have
reduced energy taxes by about $36.5 billion over 10 years, in contrast to the Senate
bill, which cut about $18.3 billion over 10 years, including about $5.1 billion in tax
credits over 10 years for two mandates: a renewable energy portfolio standard ($0.3
billion) and a renewable fuel standard ($4.8 billion). The House version emphasized
conventional fuels supply, including capital investment incentives to stimulate
production and distribution of oil, natural gas, and electricity. This focus assumed
that recent energy problems were due mainly to supply and capacity shortages driven
by economic growth and low energy prices. In comparison, the Senate bill would
have provided a much smaller amount of tax incentives for fossil fuels and nuclear
power and somewhat fewer incentives for energy efficiency, but provided more
incentives for alternative and renewable fuels. The conference committee on H.R.
4 could not resolve differences, so the bills were dropped on November 13, 2002.
Energy Tax Action in the 108th Congress
On the House side, on April 3, 2003, the Ways and Means Committee (WMC)
voted 24-12 for an energy tax incentives bill (H.R. 1531) that was incorporated into
H.R. 6 and approved by the House on April 11, 2003, by a vote of 247-175. The
House version of H.R. 6 provided about $17.1 billion of energy tax incentives and
included $83 million of non-energy tax increases, or offsets. This bill was a
substantially scaled-down version of the House energy tax bill, H.R. 2511 (107th
Congress), which was incorporated into H.R. 4, the House energy bill of the 107th
Congress that never became law. After returning from the August 2003 recess, a
House and Senate conference committee negotiated differences among provisions in
three energy policy bills: the House and Senate versions of H.R. 6, and a substitute
to the Senate Finance Committee (SFC) bill — a modified (or amended) version of

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S. 1149 substituted for Senate H.R. 6 in conference as S.Amdt. 1424 and S.Amdt.
1431.
On November 14, 2003, House and Senate conferees reconciled the few
remaining differences over the two conference versions of H.R. 6, which primarily
centered on several energy tax issues — ethanol tax subsidies, the §29
unconventional fuels tax credit, tax incentives for nuclear power, and clean coal. On
November 18, 2003, the House approved, by a fairly wide margin (246-180), the
conference report containing about $23.5 billion of energy tax incentives. However,
the proposed ethanol mandate would further reduce energy tax receipts — the 10-
year revenue loss was projected to be around $26 billion. On November 24, Senate
Republicans put aside attempts to enact H.R. 6. A number of uneasy alliances pieced
together to bridge contentious divides over regional issues as varied as electricity,
fuel additives (MTBE), and natural gas subsidies, failed to secure the necessary 60
votes to overcome a Democratic filibuster before Congress’s adjournment for the
holiday season. This represented the third attempt to pass comprehensive energy
legislation, a top priority for many Republicans in Congress and for President Bush.
Senator Domenici introduced a smaller energy bill as S. 2095 on February 12,
2004. S. 2095 included a slightly modified version of the amended energy tax bill
S. 1149; the tax provisions of S. 2095 were added to the export tax repeal bill S.
1637, on April 5, 2004. The Senate approved S. 1637, with the energy tax measures,
on May 11. H.R. 4520, the House version of the export tax repeal legislation, did not
contain energy tax measures; they were incorporated into H.R. 6.
Some energy tax incentives were enacted on October 4, 2004, as part of the
Working Families Tax Relief Act of 2004 (P.L. 108-311), a $146 billion package of
middle class and business tax breaks. This legislation, which was signed into law on
October 4, 2004, retroactively extended four energy tax subsidies: the §45 renewable
tax credit, suspension of the 100% net income limitation for the oil and gas
percentage depletion allowance, the $4,000 tax credit for electric vehicles, and the
deduction for clean fuel vehicles (which ranges from $2,000 to $50,000). The §45
tax credit and the suspension of the 100% net income limitation had each expired on
January 1, 2004; they were retroactively extended through December 31, 2005. The
electric vehicle credit and the clean-vehicle income tax deduction were being phased
out gradually beginning on January 1, 2004. P.L. 108-311 arrested the phase-down
— providing 100% of the tax breaks — through 2005, but resumed it beginning on
January 1, 2006, when only 25% of the tax break was available. (For more
information, see CRS Report RL32265, Expired and Expiring Energy Tax Incentives,
by Salvatore Lazzari.)
The American Jobs Creation Act of 2004 (P.L. 108-357), enacted on October
22, 2005, included about $5 billion in energy tax incentives. This bill, commonly
referred to as the “FSC-ETI” or “jobs” bill, contained several energy-related tax
breaks:
! Expansion of the renewable electricity credit to open-loop biomass,
geothermal, solar, small irrigation power, and municipal solid waste
facilities, and introduction of a $4.375/ton production tax credit for
refined coal — not for the electricity produced from the coal. (The

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CRS-11
refined coal tax credit was originally part of proposed expansion of
the §29 tax credit in the 2003 and 2004 proposed comprehensive
energy policy bills, which already benefitted “synfuels” from coal.
When comprehensive energy policy legislation failed, the refined
coal credit was added to the “jobs” bill, which inserted the provision
into the renewable electricity section of the tax code).
! Creation of a new tax credit for oil and gas from marginal (small)
wells, triggered when oil prices are below $18/barrel ($2/mcf for
natural gas).
! Liberalization of the tax treatment of electric cooperatives under a
restructured electricity market.
! Reduction of the depreciation recovery period for certain Alaska
pipelines to 7 years (15 years under prior law).
! Extension of the 15% enhanced oil recovery credit to Alaska gas
processing facilities.
! Reform of the tax subsidies for fuel ethanol — basically replacing
the excise tax exemption with an equivalent immediate tax credit —
and expansion of the credit to include biodiesel (at a higher rate for
biodiesel made from virgin oils).
! Repeal of the general fund component (4.3¢/gal.) excise tax on
diesel fuel used in trains and barges.
! A new $2.10/barrel tax credit for production of low-sulfur diesel fuel
and “expensing” of (basically, faster depreciation deductions for) the
capital costs to produce such fuels.
The Energy Policy Act of 2005 (P.L. 109-58)
On June 28, 2005, the Senate approved by an 85-12 vote a broadly based energy
bill (H.R. 6) with an 11-year, $18.6 billion package of energy tax breaks tilted toward
renewable energy resources and conservation. Joint Committee on Taxation figures
released on June 28 show that the bill included about $0.2 billion in non-energy tax
cuts and more than $4.7 billion in revenue offsets, meaning the bill had a total tax cut
of $18.8 billion over 11 years, offset by the $4.7 billion in tax increases. The House
energy bill, which included energy tax incentives totaling about $8.1 billion over 11
years, and no tax increases, was approved in April. This bill was weighted almost
entirely toward fossil fuels and electricity supply. On July 27, 2005, the conference
committee on H.R. 6 reached agreement on $11.1 billion of energy tax incentives,
including $3 billion in tax increases (both energy and non-energy). The distribution
of the cuts by type of fuel for each of the three versions of H.R. 6 is shown in Table
1.
One way to briefly compare the two measures is to compare revenue losses from
the energy tax incentives alone and the percentage distribution by type of incentive

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CRS-12
as a percent of the net energy tax cuts (i.e., the columns marked “%” divided by the
dollar figures in row 11). The net revenue losses over an 11-year time frame from
FY2005 to FY2015 were estimated by the Joint Committee on Taxation. The total
revenue losses are reported in two ways. The absolute dollar value of tax cuts over
11 years and the percentage distribution of total revenue losses by type of incentive
for each measure.
Table 1 shows that the conference report provided about $1.3 billion for energy
efficiency and conservation, including a deduction for energy-efficient commercial
property, fuel cells, and micro-turbines, and $4.5 billion in renewables incentives,
including a two-year extension of the tax code §45 credit, renewable energy bonds,
and business credits for solar. A $2.6 billion package of oil and gas incentives
included seven-year depreciation for natural gas gathering lines, a refinery expensing
provision, and a small refiner definition for refiner depletion. A nearly $3 billion
coal package provided for an 84-month amortization for pollution control facilities
and treatment of §29 as a general business credit. More than $3 billion in electricity
incentives leaned more toward the House version, including provisions providing
15-year depreciation for transmission property, nuclear decommissioning provisions,
and a nuclear electricity production tax credit. It also provided for the five-year
carryback of net operating losses of certain electric utility companies. A
Senate-passed tax credit to encourage the recycling of a variety of items, including
paper, glass, plastics, and electronic products, was dropped from the final version of
the energy bill (H.R. 6). Instead, conferees included a provision requiring the
Treasury and Energy departments to conduct a study on recycling. The House
approved the conference report on July 28, 2005; the Senate on June 28, 2005, one
month later on July 28, 2005, clearing it for the President’s signature on August 8
(P.L. 109-58).
Four revenue offsets were retained in the conference report: reinstatement of the
Oil Spill Liability Trust Fund; extension of the Leaking Underground Storage Tank
(LUST) trust fund rate, which would be expanded to all fuels; modification of the
§197 amortization, and a small increase in the excise taxes on tires. The offsets total
roughly $3 billion compared with nearly $5 billion in the Senate-approved H.R. 6.
Because the oil spill liability tax and the Leaking Underground Storage Tank
financing taxes are imposed on oil refineries, the oil and gas refinery and distribution
sector (row 2 of Table 1) received a net tax increase of $1,769 ($2,857-$1,088).
Current Posture of Energy Tax Policy
The above background discussion of energy tax policy may be conveniently
summarized in Table 2, which shows current energy tax provisions — both special
(or targeted) energy tax subsidies and targeted energy taxes — and related revenue
effects. A minus sign (“-“) indicates revenue losses, which means that the provision
is a tax subsidy or incentive, intended to increase the subsidized activity (energy
conservation measures or the supply of some alternative and renewable fuel or
technology); no minus sign means that the provision is a tax, which means that it
should reduce supply of, or demand for, the taxed activity (either conventional fuel
supply, energy demand, or the demand for energy-using technologies, such as cars).

---

CRS-13
Note that the table defines those special or targeted tax subsidies or incentives
as those that are due to provisions in the tax law that apply only to that particular
industry and not to others. Thus, for example, in the case of the oil and gas industry,
the table excludes tax subsidies and incentives of current law that may apply
generally to all businesses but that may also confer tax benefits to it. There are
numerous such provisions in the tax code; a complete listing of them is beyond the
scope of this report. However, the following example illustrates the point: The
current system of depreciation allows the writeoff of equipment and structures
somewhat faster than would be the case under both general accounting principles and
economic theory; the Joint Committee on Taxation treats the excess of depreciation
deductions over the alternative depreciation system as a tax subsidy (or “tax
expenditure).” In FY2006, the JCT estimates that the aggregate revenue loss from
this accelerated depreciation deduction (including the expensing under IRC §179) is
$6.7 billion. A certain, but unknown, fraction of this revenue loss or tax benefits
accrues to the domestic oil and gas industry, but separate estimates are unavailable.
This point applies to all the industries reflected in Table 2.
Energy Tax Policy Outlook
After expanding energy tax incentives in the Energy Policy Act of 2005, the
109th Congress moved to rescind oil and gas incentives, and even to raise energy
taxes on oil and gas, in response to the high energy prices and resulting record oil and
gas industry profits. The Senate-passed reconciliation bill (S. 2020) would have
raised taxes on major U.S. integrated oil companies by (1) denying amortization
treatment of geological and geophysical expenditures (such expenditures would have
to be depleted or depreciated over the life of the property), (2) disallowing a portion
of the tax benefits from LIFO (last-in-first-out) inventory accounting, (3) denying
such companies the tax credit for taxes paid to foreign countries, and (4) restricting
the use of the §29 tax credit for unconventional fuels. Ultimately, only a negligible
tax increase on major integrated oil companies was enacted when, on May 17, 2006,
the President signed a $70 billion tax reconciliation bill (P.L. 109-222). Under that
bill, geological and geophysical (G&G) costs undertaken in exploring for oil and gas
by major integrated oil companies are amortized over five years rather than two
years. The two-year period was enacted under the Energy Policy Act of 2005. Prior
to that, G&G costs were capitalized, which is consistent with economic and
accounting theory. The 2006 change increases taxes on major integrated oil
companies by an estimated $189 million over 10 years, effectively rescinding about
20% of the nearly $1 billion 11-year tax cut under the Energy Policy Act of 2005.
Recent Congressional Bills
At this writing, any major legislative action on energy tax policy appears to be
on hold, preempted by other more pressing legislative concerns. Yet, high gasoline
prices (over $3.00/gallon) and continued high crude oil prices (over $70/barrel) are
spurring interest in energy tax legislation. While it is unclear what the parameters of
any possible legislation are, extensions of provisions in the 2005 energy legislation
and proposals laid out by President Bush in his most recent State of the Union speech
are likely to play a role. Several recent bills give an indication of the types of energy

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CRS-14
tax proposals that are on the horizon. For example, Representative Hulshof, along
with a bipartisan group of his fellow Ways and Means Committee members,
introduced a bill on June 20, the Renewable Fuels and Energy Independence
Promotion Act of 2006 (H.R. 5650), that would make permanent the tax credits for
alcohol and biodiesel used as fuel under tax code §§ 40 and 40A. Representative
Ron Lewis introduced a bill (H.R. 5653) the same day that would promote
investment in energy independence through coal-to-liquid fuels technology, biomass,
and oil shale. The bill would provide, among other things,
! a credit for investment in coal-to-liquid fuels projects and temporary
expensing for equipment used in those projects,
! an expansion and extension of the alternative fuel credit, and
! expansion of expensing of oil and alternative fuel refineries.
Another Ways and Means member, Representative Earl Pomeroy, introduced
on May 9, 2006, a companion bill (H.R. 5331) to Senator Kent Conrad’s Breaking
Our Long-Term Dependence (BOLD) Energy Act of 2006 (S. 2571), introduced on
April 6, 2006. Provisions in both bills include
! an extension of the biodiesel and ethanol tax credit,
! enhancement of the tax credit for hybrid cars and extension to
vehicles that have above-average fuel economy,
! a 35% tax credit for retiree health-care cost relief to automakers who
include alternative fuel technologies in their vehicles,
! an increased enhanced oil recovery tax credit of 20% for new or
expanded domestic drilling projects using carbon dioxide to recover
oil from aging wells,
! extension of the renewable energy tax credit for five years, and
! easier state use of tax-exempt bonds to finance improvement of the
electricity grid.
Senator Grassley introduced an energy tax bill (S. 2401) on March 13, 2006,
which extends the current expiration deadline of current energy tax provisions, many
of which were enacted in the Energy Policy Act of 2005. The bill would extend the
§45 credit, clean renewable energy bonds, clean coal tax credits, refinery expensing,
the commercial building deduction, energy-efficient new home credits, the residential
solar tax credit, the fuel cell and micro turbine tax credit, the business solar tax
credit, the biodiesel excise tax credit, and the credit for refueling property. Other
provisions would expand tax credits for investments in clean coal facilities and allow
50% expensing of the cost of refinery investments that increase the capacity of an
existing refinery by at least 5% through 2012, and for refineries that increase the
throughput of qualified fuels by at least 25% permanently. Senators Grassley and
Baucus also sponsored a bill (S. 2345) that would increase tax incentives for business
owners to buy fuel-efficient alternative energy vehicles, aligning them with benefits
currently available for the purchase of sport utility vehicles.
Finally, the upcoming congressional elections (and to some extend the 2008
presidential elections) are already producing ideas and proposals to use the tax code
to achieve “energy independence,” and address the problems associated with global
climate change.

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CRS-15
For Additional Reading
U.S. Congress, Senate Budget Committee, Tax Expenditures: Compendium of
Background Material on Individual Provision, Committee Print, December
2004, 108th Cong., 2nd sess.
U.S. Congress, Joint Tax Committee, Description And Technical Explanation of the
Conference Agreement of H.R. 6, Title XIII, “Energy Tax Policy Tax Incentives
Act of 2005,” July 27, 2005.
CRS Report RS21935, The Black Lung Excise Tax on Coal, by Salvatore Lazzari.
CRS Report RL30406, Energy Tax Policy: An Economic Analysis, by Salvatore
Lazzari.
CRS Report RS22322, Taxes and Fiscal Year 2006 Reconciliation: A Brief
Summary, by David L. Brumbaugh.
CRS Report RS22344, The Gulf Opportunity Zone Act of 2005, by Erika Lunder.
CRS Report RL33302, Energy Policy Act of 2005: Summary and Analysis of Enacted
Provisions, by Mark Holt and Carol Glover.

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CRS-16
Table 1. Comparison of Energy Tax Provisions the House,
Senate, and Enacted Versions of H.R. 6 (P.L.109-58):
11-Year Estimated Revenue Loss by Type of Incentive
(in millions of dollars; percentage of total revenue losses)
House H.R. 6
Senate H.R. 6
P.L. 109-58
INCENTIVES FOR FOSSIL FUELS SUPPLY
$
%
$
%
$
%
(1) Oil & Gas Production
-1,525
18.9%
-1,416
7.6%
-1,545
10.6%
(2) Oil & Gas Refining and
-1,663
20.6%
-1,399
7.5%
-1,088
7.5%
Distribution
(3) Coal
-1,490
18.4%
-3,003
16.2%
-2,948
20.3%
(4) Subtotal
-4,678
57.8%
-5,818
31.3%
-5,581
38.6%
ELECTRICITY RESTRUCTURING PROVISIONS
(5) Nuclear
-1,313
16.2%
-278
1.5%
-1,571
10.9%
(6) Other
-1,529
18.9%
-475
2.6%
-1,549
10.7%
(7) Subtotal
-2,842
35.1%
-753
4.1%
-3,120
21.6%
INCENTIVES FOR EFFICIENCY, RENEWABLES, AND
ALTERNATIVE FUELS
(8) Energy Efficiency
-570
7.0%
-3,987
21.4%
-1,260
8.7%
(9) Renewable Energy &
0
0%
-8,031
43.2%
-4,500
31.1%
Alternative Fuels
(10) Subtotal
-570
7.0%
-12,018
64.6%
-5,760
39.8%
(11) Net Energy Tax Cuts
-8,010
100%
-18,589
100%
-14,461
100.0%
(12) Non Energy Tax Cutsa
0
-213
-92
(13) Total Energy and Non-
0
-18,802
-14,553
Energy Tax Cuts
(14) Energy Tax Increasesb
0
0
+2,857
(15) Other Tax Increases
+ 4,705
171
(15) NET TAX CUTS
-8,010
-14,055
-11,525
Source: CRS estimates based on Joint Tax Committee reports.
a. The conference report includes a provision to expand R&D for all energy activities. This provision
is listed as a nonenergy tax cut to simplify the table.
b. Energy tax increases comprise the oil spill liability tax and the Leaking Underground Storage Tank
financing rate, both of which are imposed on oil refineries. If these taxes are subtracted from
the tax subsidies (row 2), the oil and gas refinery and distribution sector suffered a net tax
increase of $1,769 ($2,857-$1,088).

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CRS-17
Table 2. Current Energy Tax Incentives and Taxes:
Estimated Revenue Effects FY2006
(in millions of dollars)
Revenue
Category
Provision
Major Limitations
Effects
FY2006
CONVENTIONAL FOSSIL FUELS SUPPLY (bpd = barrels per day; < indicates less than)
Targeted Tax Subsidies
disposition of
capital gain recognized
proceeds must be
- 600
electricity
evenly over 8 years
reinvested in other
transmission property
electricity generating
to implement FERC
assets
policy
% depletion — oil,
15% of sales (higher for
only for independents, up
- 1,100
gas, and coal
marginal wells); 10% for
to 1,000 or equiv. bpd
coal
expensing of
100% deductible IDCs in
corporations expense only
- 1,100 a
intangible drilling
first year/ 2 year
70% of IDCs
costs (IDCs) and
amortization of
amortization of
geological and
exploration and
geophysical costs
development costs —
oil/gas & other fuels
expensing of refinery
deduction of 50% of the
must increase the capacity
- 26
investments
cost of qualified refinery
of an existing refinery by
property, in the taxable
5%; remaining 50% is
year in which the
depreciated; must be
refinery is placed in
placed in service before
service
January 1, 2012
Tax Credits for
IRC §43 provides for a
The EOR credit is non
0
Enhanced Oil
15% income tax credit
refundable, and is
Recovery Costs
for the costs of
allowable provided that
(EOR)
recovering domestic oil
the average wellhead
by qualified “enhanced-
price of crude oil (using
oil-recovery” (EOR)
West Texas Intermediate
methods, to extract oil
as the reference), in the
that is too viscous to be
year before credit is
extracted by
claimed, is below the
conventional primary
statutorily established
and secondary water-
threshold price of $28 (as
flooding techniques.
adjusted for inflation
since 1990), in the year
the credit is claimed. With
average wellhead oil
prices for 2005 (about
$65) well above the
reference price (about
$38) the EOR credit was
not available.

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CRS-18
Revenue
Category
Provision
Major Limitations
Effects
FY2006
Marginal Production
A $3 tax credit is
The credit phases out as
0
Tax Credit
provided per barrel of oil
oil prices rise from $15
($0.50 per thousand
to $18 per barrel (and as
cubic feet (mcf)) of gas
gas prices rise from
from marginal wells, and
$1.67 to $2.00/thousand
for heavy oil.
cubic feet), adjusted for
inflation. The credit is
limited to 25 bpd or
equivalent amount of gas
and to 1,095 barrels per
year or equivalent. Credit
may be carried back up to
5 years. At 2005 oil and
gas prices, the marginal
production tax credit was
not available.
nuclear
liberalizes tax deductible
in general, the IRS sets
- 120
decommissioning
contributions to a fund in
limits on the annual
advance of actual
amounts made to a
decommissioning
nuclear decommissioning
fund
electric utilities
allows net-operating
only 20% of the NOLs in
-72
losses (NOLs) to be
2003-2005 qualify
carried back 5 years, as
compared with 2 years
for all other industries
incentives for small
$2.10 credit per barrel of
credit limited to 25% of
- < 50
refiners to comply
low-sulfur diesel, plus
capital costs; expensing
with EPA sulfur
expensing of 75% of
phases out for refining
regulations
capital costs
capacity of 155,000-
205,000 barrels per day.
credit for clean-coal
20% for integrated
each system has
- 26
technologies
gasification combined
maximum aggregate
cycle (IGCC) systems;
dollar limits
15% for other advanced
coal technologies
Targeted Taxes
black-lung coal excise
$1.25/ton for
coal tax not to exceed
789
taxes and abandoned
underground coal ($0.90
4.4% of sales price (2.2%
mineland reclamation
for surface coal)
for the AML fee)
(AML) fees
oil spill liability trust
$0.05/barrel tax on every
moneys are allocated into
150
fund excise tax
barrel of crude oil
a fund for cleaning up oil
refined
spills
ALTERNATIVE, UNCONVENTIONAL, AND RENEWABLE FUELS
Targeted Tax Subsidies
§29, production tax
$6.40/bar. of oil or
biogas, coal synfuels,
- 2,700
credit
($1.13/mcf of gas)
coalbed methane, etc.

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CRS-19
Revenue
Category
Provision
Major Limitations
Effects
FY2006
credits for fuel ethanol
$0.51 blender’s credit,
for biomass ethanol only
- 1,890
plus $0.10/gal small
(e.g., from corn)
producer credit
tax credit for clean-
$30,000 tax credit for
per location, per taxpayer
- < 50
fuel refueling property
alternative fuel
(replaces a deduction)
equipment
§45 credit for
1.8¢/kWh. (0.9¢ in some
wind, closed-loop
- 2,000
renewable electricity
cases; $4.375/ton of
biomass, poultry waste,
refined coal
solar, geothermal, etc.
alternative fuel motor
$400-$40,000 credit for
tax credit is function of
- 283
vehicle (AFV) tax
each fuel cell, hybrid,
vehicle weight, fuel
credits
lean burn and other
economy, and lifetime
AFVs
fuel savings
exclusion of interest
interest income exempt
for hydroelectric or
- 100
on State & Local
from tax
biomass facilities used to
bonds
produce electricity
credits for biodiesel
$0.50/gal. of recycled
sold at retail or used in a
- 122
biodiesel; $1.00/gal. for
trade or business; applies
virgin biodiesel
to oils from vegetables or
animal fats
credit for solar &
10% investment tax
utilities excluded
- < 50
geothermal tech.
credit for businesses
ENERGY CONSERVATION
Targeted Subsidies
mass transit subsidies
exclusion of $105/month
- 192
manufacturer’s credit
max credit is $50 for
amount of credit depends
- 117
for energy efficient
dishwashers, $175 for
on energy efficiency,
appliances
refrigerators, and $200
energy savings, and varies
for clothes washers
by year; total annual
credit is also limited
deduction for the cost
tax deduction of cost of
total deductions cannot
- 81
of energy efficient
envelope components,
exceed $1.80/sq.ft.
property in
heating cooling systems,
commercial buildings
and lighting
credit for energy
10% tax credit
max credit on windows is
- 55
efficiency
($500/home) on up to
$200
improvements to
$5,000 of costs; $50-
existing homes
$300 credit for other
items
Targeted Taxes
fuels taxes (FY2003)b
18.4¢/gal. on gasoline
4.4¢-24.4¢ for other fuels
39,078
gas-guzzler tax
$1,000-$7,700/ vehicle
trucks and SUVs are
160
(FY2005)
weighing 6,000 lbs. or
exempt
less

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CRS-20
Revenue
Category
Provision
Major Limitations
Effects
FY2006
exclusion for utility
subsidies not taxable as
any energy conservation
< - 50
conservation subsidies
income
measure
Source: Joint Tax Committee estimates and Internal Revenue Service data.
Notes: A negative sign indicates a tax subsidy or incentive; no negative sign indicates an energy tax.
NA denotes not available.
a. The revenue loss estimate excludes the benefit of expensing costs of dry tracts and dry holes, which
includes expensing some things that would otherwise be capitalized. This is a normal feature
of the tax code but confers special benefits on an industry where the cost of finding producing
wells includes spending money on a lot that turn out dry. This is probably more important than
IDCs or percentage depletion.
b. This category includes revenue from excise taxes on tires, a heavy vehicle use tax, and retail sales
tax on trucks and tractors, which also go into the Highway Trust Fund (HTF). No separate
breakdown of revenue losses for fuels is available for FY2005-FY2009, but revenues from
motor fuel taxes generally represent about 90% of the total HTF taxes.

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