Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2016

Release date: April 24, 2018



Overview and Key Findings

Overview

This report—an update based on Fiscal Year (FY) 2016 data and earlier EIA reports on direct federal financial interventions and subsidies in energy markets—continues a series of U.S. Energy Information Administration (EIA) reports[1] that began in response to congressional requests. More recently, the Secretary of Energy requested updated information as part of the U.S. Department of Energy’s (DOE) Grid Resiliency Study.[2]

The scope of this EIA report is limited to direct federal financial interventions and subsidies, i.e., subsidies provided by the federal government, subsidies that provide a financial benefit with an identifiable federal budget impact, and subsidies that are specifically targeted at energy technologies and markets. State and local programs—although significant in a number of cases—have been excluded from EIA’s reporting. As a result, this report does not encompass all subsidies that affect energy markets and should therefore be viewed in context and in conjunction with related information from other sources (see discussion of Other energy subsidy studies in the Analytic Approach section).

Consistent with EIA’s independent role and mission, this report focuses on providing information to inform discussion rather than drawing conclusions or discussing policy issues related to energy subsidies. By using a comprehensive data acquisition and analysis process, EIA estimates how federal financial actions are distributed among a defined set of categories comprising the U.S. energy system.[3] EIA has made only limited observations of the scale, trends, and relationships within the data and the report tables.

Table 1 summarizes total within-scope energy subsidies and selected U.S. energy system indicators.

Subsidy types

Federal financial interventions and subsidies included in this report fall into four categories:

Tax expenditure: the amount of tax benefits or preferences received by taxpayers and forgone by the federal government

the amount of tax benefits or preferences received by taxpayers and forgone by the federal government Direct expenditures to recipients (i.e., both producers and consumers): the amount of grants, loans, or other financial assistance awards made directly to recipients

to recipients (i.e., both producers and consumers): the amount of grants, loans, or other financial assistance awards made directly to recipients Research and development (R&D) support: the amount of grants, loans, or other financial assistance awards made for R&D

(R&D) support: the amount of grants, loans, or other financial assistance awards made for R&D DOE loan guarantees: financial support authorized to be provided by DOE for innovative clean energy technologies that are typically unable to obtain conventional private financing because of their high technology risks.[4]

Table 1. Total energy subsidies and support and selected energy indicators, FY 2010, FY 2013, and FY 2016

trillion British thermal units or as specified Indicators FY 2010 FY 2013 FY2016 Total Energy Subsidies and Support

(million 2016 dollars) 37,992 29,335 14,983 U.S. Energy Consumption 96,850 98,655 96,788 U.S. Energy Production 73,695 81,151 84,833 U.S. Natural Gas (dry and liquids) 24,105 28,220 32,652 U.S. Crude Oil 11,512 15,370 18,797 U.S. Coal 21,657 20,223 14,807 U.S. Nuclear 8,318 8,099 8,352 U.S. Biomass 4,358 4,680 4,963 U.S. Hydroelectric 2,588 2,582 2,482 U.S. Wind 863 1,557 2,038 U.S. Solar 88 205 533 U.S. Geothermal 207 215 209 Note: Totals may not equal the sum of components due to independent rounding.

Sources: Consumption: EIA, Monthly Energy Review, February 2018, Table 1.3. Production: EIA, Monthly Energy Review, February 2018, Table 1.2. Tax expenditure estimates: Office of Management and Budget, Analytical Perspectives, Budget of the U.S. Government, FY 2012, 2015, and 2018. Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2010-2014, JCS-3-10 (Washington, DC, December 2010), Table 1, Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2012-2017, JCS-1-13 (Washington, DC, February 2013), Table 1, and Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2016-2020, JCX-3-17 (Washington, DC, January 2017), Table 1. Federal direct expenditure and R&D expenditure subsidies: DOE: U.S. Department of Energy, Office of the Chief Financial Officer, Base Financial Data, FY 2010, FY 2013, and FY 2016; FY 2010 and FY 2013: U.S. General Services Administration, USASpending.gov - Government spending at your fingertips, https://www.usaspending.gov/, accessed October 22, 2014; FY 2016: U.S. Department of the Treasury, USASpending.gov, https://www.usaspending.gov/, accessed November 16, 2017. Loan guarantee programs credit subsidy: Computed from data from U.S. Department of Energy, Loan Program Office, https://www.energy.gov/lpo/portfolio/portfolio-projects, accessed January 20, 2015 and EIA, Direct Federal Financial Interventions and Subsidies in Energy in Fiscal Year 2010, July 2011, Table 29.

Key findings

Table 3 and Table 4 summarize the allocation of federal direct financial interventions in U.S. energy markets by subsidy type. Several key findings stand out.

The scope and complexity of federal financial and award activities are very large and spread over a wide range of sources, recipients, and time frames. Despite a recent trend of decreasing federal activity, hundreds of distinct energy-related federal financial programs continue to pursue a wide range of goals using various methods. The time frames of these programs and activities can be very different, as in the case of tax provisions that allow taxpayers to decide which year to take a credit or to pay a deferred charge. Isolating the impacts of these programs, as well as characterizing the net impact of the whole set of actions on the U.S. energy system, is challenging.

Most current federal subsidies support developing renewable energy supplies (primarily biofuels, wind, and solar) and reducing energy consumption through energy efficiency. In FY 2016, nearly half (45%) of federal energy subsidies were associated with renewable energy, and 42% were associated with energy end uses. Table 4 shows a more detailed distribution of renewable energy-related federal support. The amount and distribution of renewable energy subsidies over time (see text box on renewable-related subsidy trends) have depended on congressional authorizations and the market competitiveness of renewable electricity technologies. Among renewable technologies, biofuels received the only incremental increase in FY 2016 subsidy support, driven by greater domestic biomass-based diesel production and foreign imports of these products that resulted in an approximately $1 billion increase in tax credits from FY 2013 levels.

Energy end-use and conservation subsidies decreased from $7.7 billion in FY 2013 to $7.2 billion in FY 2016 (Table 3). The largest program in this combined category—the Low Income Home Energy Assistance Program (LIHEAP) operated through the U.S. Department of Health and Human Services (HHS)—maintained its funding levels at $3.2 billion and $3.4 billion in FY 2013 and FY 2016, respectively. The decrease in total subsidies and support for energy-related conservation and end-use programs between FY 2013 and FY 2016 was led by declines in direct expenditures, which decreased from $4.2 billion to $3.6 billion, respectively. Of the $438 million decline in total federal support of conservation and end-use programs between FY 2013 and FY 2016, direct expenditures decreased $597 million. The tax credit for energy efficiency improvements to existing homes (26 U.S.C. 25C) accounted for $106 million of the decrease, and conversely, many tax expenditures (e.g., the credit for residential energy efficient property, 26 U.S.C. 25D) increased during the same period.

Since FY 2010, the scale of federal support has decreased as temporary measures expired, even as the U.S. energy system continues to grow. Federal activities within the scope of this study have been decreasing, in large part because of the expiration of provisions and programs authorized by the American Recovery and Reinvestment Act (ARRA or the Recovery Act) of 2009 (Figure 1). The Recovery Act provided energy funding that greatly increased DOE’s previous energy program budgets but also required the rapid obligation of funds that would cover outlays over several years. The U.S. energy system, as a whole, continues to grow, with production activities growing more rapidly than energy consumption. As a result, the relative scale of federal activity within the overall context of the energy system has continued to decline since FY 2010.



Source: Office of Management and Budget, Historical Tables, Tables 4.1 and 5.2, accessed February 23, 2018.

In FY 2016, tax code provisions were the largest source of direct federal financial interventions and subsidies in energy markets, following a period of higher federal direct expenditures resulting from ARRA programs and funding. The federal tax code—with 36 wide-ranging, energy-specific tax provisions (Table 5)—provided greater financial support to energy in FY 2016 than direct expenditures and R&D support. This reversal from FY 2013 is best captured by the temporary ARRA Section 1603-grant program to allow an investment tax credit (ITC)[5] in lieu of the renewable energy production tax credit (PTC).[6] In FY 2013, this ITC grant program pushed the direct expenditure category above estimated tax expenditures in absolute dollar terms.[7] In FY 2016, the ITC grant program had largely ended, and tax expenditures (in total) regained their dominance, with tax provisions representing 59% of the total (Table 3).

No new DOE loan guarantees were issued in either FY 2013 or FY 2016. The subsidy cost of the loans issued in FY 2010 totaled $1.7 billion. Because this cost is assessed at the time the loan is issued, there was no related subsidy cost for FY 2013 or FY 2016. The loan guarantees associated with the Vogtle nuclear project[8] are included with FY 2010 subsidy costs. However, there were still outstanding debts in FY 2016 for loans issued in prior years. Although lending authority for the Section 1705 loan program had expired by 2013, budget authority remains for future lending on the Section 1703 loan program.

Electricity projects accounted for 25% of FY 2016 total R&D expenditures. This share is similar to the share in FY 2010 and FY 2013. Except for biofuels, virtually all non-fossil energy subsidies (renewable fuel and nuclear) were for electricity projects. In addition, most coal subsidies were electricity-related, even though they were often not denoted as such, because about 85% of coal consumption is used to generate electricity. The share of natural gas subsidies for electricity generation is more difficult to determine.

Table 2. Measures of electricity net generation and growth (FY 2000 versus FY 2016) Beneficiary 2000 Net Generation

(billion kilowatt-hours) 2016 Net Generation

(billion kilowatt-hours) Share of 2000 Generation

(percent) Share of 2016 Generation

(percent) Annual Growth from 2000 to 2016

(percent) Coal 1,931 1,208 51.4 29.6 (2.9) Natural Gas and Petroleum Liquids 684 1,431 18.2 35.1 4.7 Nuclear 765 799 20.4 19.6 0.3 Other 13 21 0.3 0.5 3.1 Renewables 365 618 9.7 15.2 3.3 Biomass 59 63 1.6 1.5 0.4 Geothermal 15 16 0.4 0.4 0.5 Hydroelectric 286 268 7.6 6.6 (0.4) Solar 1 51 0 1.2 31.8 Wind 5 220 0.1 5.4 26.3 Total 3,759 4,077 100 100 0.5 Notes: Totals may not equal sum of components due to independent rounding. A table value in brackets () denotes a negative value. Zero denotes rounding to zero value. Other includes net generation from hydroelectric pumped storage, other gases, batteries, chemicals, hydrogen, pitch, purchased steam, sulfur, and miscellaneous technologies. Biomass includes net generation from wood and waste. Solar includes distributed (small-scale) generation and utility-scale generation.

Sources: U.S. Energy Information Administration, Monthly Energy Review, February 2018, Table 10.6 (solar) and Table 7.2a (all other).

See complete report

Footnotes

1. The first EIA study was undertaken at the request of Congress in Fiscal Year (FY) 1992, pursuant to language appearing in the House Appropriations Committee’s Report on the U.S. Energy Information Administration FY 1992 appropriations.

2. U.S. Department of Energy, Staff Report to the Secretary on Electricity Markets and Reliability, Washington, DC, August 2017.

3. EIA has requested further detailed data from the Internal Revenue Service as it pertains to the distribution of energy-related tax benefits.

4. Section 1703 of Title XVII of the Energy Policy Act of 2005 authorizes the U.S. Department of Energy to support innovative clean energy technologies that are typically unable to obtain conventional private financing due to high technology risks. In addition, the technologies must avoid, reduce, or sequester air pollutants or anthropogenic emissions of greenhouse gases. The Advanced Technology Vehicles Manufacturing (ATVM) Loan Program was established in Section 136 of the Energy Independence and Security Act of 2007 to support the production of fuel-efficient, advanced technology vehicles and qualifying components in the United States. American Recovery and Reinvestment Act of 2009 amended Loan Guarantee Program’s authorizing legislation, creating Section 1705.

5. This report will reference only renewable electricity investment (i.e., energy investment credit) as the ITC.

6. This report will reference only renewable electricity production (i.e., energy production credit) as the PTC.

7. This categorical shift can be viewed as an accounting issue, with the subsidy still ultimately stemming from the tax code.

8. DOE, Loan Guarantee Office, website: https://energy.gov/lpo/vogtle, accessed February 20, 2018. On September 29, 2017, the U.S. Department of Energy offered conditional commitments for construction to the Vogtle project, website: https://energy.gov/lpo/articles/vogtle-conditional-commitments-support-energy-infrastructure, accessed February 27, 2018.