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March 8, 2012
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Energy and Natural Resources
The federal government promotes the production of energy and regulates the use of natural resources. Federal agencies also support research efforts to develop new sources of energy and to conserve natural resources. CBO analyzes the effects of current and proposed policies in this area.
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Federal Financial Support for the Development and Production of Fuels and Energy Technologies
Highlights
Federal Support for Developing and Producing Fuel and Energy Technologies Totaled $24 Billion in 2011
- Tax preferences totaled $20.5 billion, or about 85 percent of the total.
- Funding for the Department of Energy’s (DOE’s) spending programs totaled $3.5 billion, or about 15 percent of the total.
Tax Preferences Were Mostly for Renewable Energy and Energy Efficiency in 2011, but Many of Them Have Expired or Will Expire Soon
The budgetary costs of tax preferences aimed at encouraging energy efficiency and energy produced from renewable sources (such as wind and the sun) increased considerably in 2006, when several new preferences came into effect. Some of those preferences have expired or will expire soon.
- Four major preferences, each costing at least $500 million, expired in 2011.
- Those expiring preferences accounted for about 60 percent of the total cost of tax preferences in 2011.
- Credits for energy from renewable sources available under another preference are scheduled to expire by the end of 2013.
Only four major energy tax preferences are permanent: three are for fossil fuels and one is for nuclear energy.
Tax Preferences Are Generally an Inefficient Way to Reduce Environmental Costs of Producing and Consuming Energy
- They may reward businesses for investments and actions they intended to take anyway.
- They target only specific technologies, which may not be the least expensive technology in many cases.
DOE's Spending Supports Direct Investments and Subsidized Credit Programs
- Over 50 percent of the $3.3 billion in 2012 funding for direct investments by DOE is for energy efficiency and renewable energy programs.
- Between 2009 and 2012, DOE provided an estimated $4.0 billion in subsidies for about $25 billion in loans, primarily to producers of advanced vehicles, generators of solar power, and manufacturers of solar equipment.
- Federal support for energy research and development has often yielded benefits greater than costs; however, DOE's spending on large demonstration projects has produced mixed results.
- Despite some R&D successes, the use of technologies aimed at improving energy efficiency and producing energy from renewable sources has been limited in part because consumers and businesses do not have to pay for the environmental damage or other costs to the nation from the use of fossil fuels and those fuels retained their commercial advantage as their prices fell.